Before we begin discussing the best way for your company to
make a quantum leap, we must first properly define what exactly this quantum
leap means. And how to properly measure
it.
The first question that we need to ask is: quantum leap to
where exactly? The answer is obvious: towards achievement of fundamental
objectives of business management. To the top of the mountain (‘Mount Everest’) where we can see the
sign ‘Achieved’. ‘Done’.
Therefore, we must begin with proper definition of these
objectives (alas, too many management textbooks get it completely wrong). ‘Proper’
means natural, objective, based on facts, logic and common sense.
Business are created by entrepreneurs – their founders. And
definitely, for a reason. So why would an entrepreneur start a business? What
he – or she – wants to accomplish? Why would he or she take the (often huge) risks
of starting and running a business?
For three major reasons, in fact. First, to make a lot of
money, of course. Which means (a) to generate a lot of financial value and (2) to monetize
it – turn into cold, hard cash – by either receiving dividends, doing an IPO – initial public offering of corporate
stock, or selling his/her company to a strategic buyer (e.g. a stronger player
in the same industry).
This will satisfy financial
needs of an entrepreneur. An entrepreneur is a special breed for whom to be
rich is as vital as for the others to breathe. Therefore, it is, indeed, the need – not the ‘want’.
Second (actually, ‘therefore’), an entrepreneur needs to
build (‘engineer’) a powerful (‘lean and mean’) money-making machine, the function of which is to generate the
maximum possible amount of financial value in a year, quarter, month, day, etc.
This is his or her functional need (again,
this is the need, not the ‘want’). Therefore, this ‘machine’ will create
functional value for the entrepreneur in question.
Finally, an entrepreneur wants to (1) implement in this
machine his or her values, beliefs, principles, etc. as this company is,
indeed, his/her ‘baby’ and (2) to thoroughly enjoy the process of building and
operating this machine and of making money. Which satisfies his or her emotional needs and, therefore, creates emotional value for an entrepreneur in
question. The more, the better, of course.
Therefore, the fundamental objective of managing a business
(the raison d’ĂȘtre for a business entity) is to satisfy aggregate needs of its owners (shareholders) to the fullest;
in other words, to create the maximum possible amount of aggregate value
– financial, functional and emotional for your shareholders. As we are
dealing with the business entity here, the ‘first among the equals’ is,
obviously the financial value.
This fundamental objective has two sides (‘components’): (1)
maximizing aggregate value – a one-time project
and (2) building a powerful value-generating machine that will ensure the continuous
process of aggregate value
generation. As financial value is ‘the first among the equals’, the first
component is primarily a financial component and the second one – functional (operational)
component of fundamental business management objective.
But this is a narrow
definition of this objective. Why narrow? Because it does not take into account
needs and interests of other stakeholders
of your company. Needs that must be satisfied in order for your company to
prosper and even survive. And definitely to achieve its narrow fundamental
objective.
Let’s talk about these needs then. Let’s start with obvious
ones – those of your customers. Buyers
and users of your products and services. Why would they buy them? Some products
and services will allow them to make money (business tools) or save money (e.g.,
lower their utilities bills – or tax liabilities). Therefore, satisfy their
financial needs and create financial
value.
Mostly, however, these products and services will satisfy
their functional needs (food, shelter, transportation, education, etc.). Therefore,
create functional value. And your
customers would definitely want to enjoy the process of buying and consuming
your products and services – and doing business with your company. In other
words, to satisfy their emotional needs and receive emotional value.
Other external stakeholders – suppliers, partners, government
entities, etc. – interact with your company for exactly the same reasons – to obtain
the highest possible amount of aggregate value from you. Financial, functional
and emotional. And, when they have a choice, they – and not just your customers
– choose the company that will satisfy their aggregate needs better than their
competition.
Why would your internal stakeholders – your employees – work
for your company? First, to make money. In other words, to satisfy their
financial needs and obtain financial
value. Second, to enjoy the process of working for your company (after all,
they spend most of their time net of sleep in the workplace).
In other words, to satisfy their emotional needs and get emotional value. And, finally, to do
their job right (to operate at the highest possible performance), they need to
get the right tools for the job. Which means functional needs and functional
values.
Obviously, employees always have a choice which company to
work for. Which one will they choose? No less obviously, the one that where
they will get the highest amount of aggregate value.
Therefore, to get the ‘best’ customers, employees and other
stakeholders in terms of generating aggregate value for your shareholders (and
the competition is fierce and global), you must satisfy their aggregate needs (1)
to the fullest in absolute terms, and (2) definitely better than your competition.
You can consider this need to satisfy the needs of your
stakeholders a means rather than the
end, but these ‘means’ are so inseparable from the ‘end’ that it would be more
beneficial to treat them as an integral part of this ‘end’.
Which will result in the broader definition of your
fundamental business management objective:
The fundamental objective of managing your business (the raison d’ĂȘtre for a business entity) is to satisfy aggregate needs of all of
your stakeholders – internal and external to the fullest; in other words, to
create the maximum possible amount of aggregate value – financial,
functional and emotional for your stakeholders, and to do it (1) to the fullest
in absolute terms and (2) better than your competition.
As we are dealing with the business entity here, the ‘first
among the equals’ are, obviously (1) your owners – shareholders, and (2) the
financial value created by your company for your shareholders.
Like in the narrow definition, the broad one has two sides (‘components’):
(1) maximizing aggregate value – a one-time project
and (2) building a powerful value-generating machine that will ensure the continuous
process of aggregate value
generation.
As the state (condition) when all aggregate needs are
satisfied is rightfully called ‘happiness’, it can be inferred that the broad
definition of two sides of fundamental business management objective is (1) to
make all your key stakeholders happy and (2) create a ‘machine’ that will keep
all of your stakeholders in a permanent state of happiness.
Which in this context can be called ‘corporate happiness’
and your ‘machine’ – a ‘happy company’.
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