Why does one business prosper and another business in the same industry fail? Does the victor know something the loser doesn’t? Each may offer the same products or services. Each may have the same type of client base. Each may have the same level of expertise with respect to the mechanics of their products, services and industry. However, one may possess a jewel more precious than many people realize. That jewel is a well defined management philosophy.

“That set of rational principles which form the basis for guiding or controlling the operation or performance of a business activity“.

The key concept contained in the definition above is the identification of the rational principles and that’s our primary task. Our secondary task is the testing of each principle to insure that it’s applicable to all phases of business life and action.

After considerable thought and experience (What better way to test this definition than in the cold light of reality?), I would like to propose the following list of business or management principles. This isn’t an all inclusive list, but presents what I consider to be the leading candidates.

1. The objective of any business is the generation of profits: While some might dispute this statement as not being applicable for non-profit entities, I would counter that all must generate profits, for it’s only through profits that any business can sustain itself. We should not be afraid of being profitable. We should strive to be as profitable as possible without violating any of the other business principles. That’s the key concept.
2. The most important asset of a business is its employees: No business operates without employees. No business can achieve its potential unless each employee has the ability and the right to achieve their individual potential. Each employee must feel as though they are a part of the total organization. Each employee must feel as though they matter. It’s just that simple.
3. Customers are just as much a part of a business as employees: While this might seem to be an obvious statement, far too many businesses fail to recognize just how important their customers are. Products and service must meet the actual and perceived needs of the customer. Notice that I have used the plural form of the word “need“. The physical product or service is but one need. The process of selecting the initial supplier of a product or service, and the continuation of the relationship be­yond the first order, involves the identification and satisfaction of a whole host of needs. The only manner in which this can be accomplished is the inclusion of the customer into the daily life of the business. This is exactly the same goal the business should have with respect to its employees (and let’s not forget suppliers too).
4. Management gets paid to think: Consider for a moment the example of the business that fails and the business that succeeds. Consider also the examples everyone can cite of businesses that appear to place their management in a position of “doing” rather than “thinking“. Could it be that the management of the failing company chose by default the wrong fork in the road, simply because it was so busy taking care of business that it didn’t even rec­ognize that there was a fork in the road. I’m not suggesting management must live in an ivory tower, for to do so ignores the realities of the practical side of business life. What I am suggesting is that management must recognize subtle changes in the environment in which it competes, and alter the life of the business to reflect these changing circumstances. It can do so only if it has the ability and the time to think.
5. No business operates in a vacuum: Vacuums come in many forms, and each can be as dangerous as the other. The specific vacuum to which I am referring produces a form of insulation between the business and the outside world. Our world is changing rapidly. While management might con­sider itself to be very capable, nobody has all of the answers. Management needs contacts in the outside world to test its competency. It should hunger for knowledge, and welcome the testing of its principles against others. It cannot be afraid of this process, but should encourage it. Management cannot afford to be wrong, and should recognize that it might be wrong. That’s what this testing process is all about.
6. Business conditions are in a state of constant change: While everyone might agree with this statement, the successful business uses it as one of the cornerstones of growth and longevity. The successful business assumes it must change, and looks for opportunities to change. Change here isn’t change for the sake of change, but rather changes that will enable the business to become more efficient, move into new markets, take advantage of new technologies, or reduce the impact of downward movements in the economy.
7. Information is the key to the identification of strengths and weaknesses: This statement might be considered to be a corollary of the one dealing with operating in a vacuum. The former dealt with an outside vacuum, while this statement deals with the vacuum of inside information. The increasing importance of Business Metrics has led many companies down the path of excessive informa­tion, and ultimate strangulation in their own data. Information systems should be based on maximizing the effectiveness of the data generated. As I stressed in my blog post about Business Metrics (http://www.accountinglibrary.com/blog/business-metrics-creating-a-framework-for-success/), managers must define those “few” critical values that represent the driving forces that lead to success. If the information generated does not lead to some form of decision or reaction, then it has no meaning and should be discarded. If a business concentrates on its most important common denominators, then the income statement will take care of itself.
8. Organization must be taken to its lowest level: Each business function is important. Some may be identified as more important, but none is inconsequen­tial. Each person in a business is important. Each customer is important. The company must be structured so that each person or department has the tools it requires to achieve maximum effectiveness. The busi­ness is, in many respects, a living organism, and it’s the responsibility of management to insure that each cell or body part receives equal attention. Without this, that part could become diseased, and could drasti­cally affect other body parts.

Conclusion

Each business must go through the process of identifying its individual philosophy. Once these statements have been created and adopted fully at all levels of the organization, they must be reviewed regularly to insure that they are being followed. All other actions of the company must be rooted in this philosophy, and must be tested against it. The successful company will acknowl­edge that it requires a philosophy. The less than successful company will not recognize this need. While this might sound simple, it isn’t. Successful companies know they are not perfect, and will strive to identify their strengths and weaknesses. They are not afraid to measure themselves, for they know that in doing so, they move one step closer to their goal. Maybe you should consider if any of these statements can assist your company?