One thing I’ve noticed throughout my career is that a formula which delivers great results in Company A is not guaranteed to work in Company B…often for reasons nobody can quite put their finger on (more on that in a minute).
Yet plenty of people think they can just “copy the secrets” of another business, or apply what they did in a previous role by rote in their new role, and still see the same results.
All my experience is that is almost never true.
A cookie cutter approach works well enough when you’re spawning large multiples of identical units, like a McDonalds store. Every one of those is pretty much like every other one. And, to be fair to McDonalds, it generally works.
On a McDonalds-like scale, even though I’d probably still argue a cookie-cutter approach under-achieves against its potential, there are undoubtedly massive economies of scales when you’re running 40,000+ outlets around the world. So, if there is any potential underachievement, in bottom line terms, that’s probably more than compensated for by the economies of scale they can generate.
However, if you’re reading this, you’re probably not running McDonalds Corporation, or anything approaching it in size. So, even if there are potential economies of scale, you’re probably not going to generate much of it by going from two outlets to three, for example.
You need to think differently about what you’re doing if you want to build your bottom line.
The cost of conformity
I get it – there is a superficial attraction to everything being identical, neatly lined up in tidy rows, just like the burgers at McDonalds.
But unless you have massive, McDonalds-level economies of scale to pursue, there is a cost to conformity which has a significant negative impact on your bottom line.
On a sub-McDonalds scale, you’re unlikely to generate enough economies of scale to offset those additional costs.
To give a concrete example, I used to work for a business where a manager looked after 12 other members of staff, on average. More recently, I worked with a business where people broke out in a sweat if they had more than 6 people to line-manage.
Ironically, the people in the second business were paid, on average 20-25% more than the people in the first business for doing a broadly similar job.
Here’s some illustrative numbers for two teams of a dozen people:
Company A: 12 people x £40k = £480k, plus a manager on £50k. Total cost = £530k
Company B: 12 people x £50k = £600k, plus two managers on £60k each. Total cost = £720k
To save you doing the maths in your head, Company A ran with a cost base about 26% lower than company B.
The main difference between the two companies?
A manager’s job in the second business was taken up with a plethora of report-writing, analysis, team meetings, 1:1 meetings, monthly performance reviews, meetings with their boss, meetings with their boss’s boss, cross-company meetings with all the other people at their level, meetings with HR, Finance, Operations and goodness knows who else to make sure all the processes and procedures were followed to the letter.
There’s no question the managers in Company B worked hard. But when it comes to managing your bottom line, you don’t get extra points for working hard.
All your bottom line cares about is whether your costs were lower than your revenues or not.
The stark differences in the cost base between Company A and Company B were largely the result of their respective organisational philosophies.
Company A was focused on the outcomes, and accepted that there were many different ways to get there. Company A believed that the best approach was to flex their delivery style to get as close as possible to whatever their customer wanted.
Company B believed that they should set the agenda with customers, and customers should do what Company B thought was best – they had rigid systems and procedures, multiple authority levels to approve decisions, and rarely stepped outside their standard operating model.
Ironically, Company B did this because they believed this was the way to drive efficiency and thereby lower cost.
They believed that making everything and everyone in their business as identical as possible was good management. They even occasionally referred to their decisions as “running our business like a McDonalds, where everything is the same wherever you go”.
They saw that as one of their company’s great strengths.
Yet, while I can intellectually understand the argument, “running a business more efficiently” doesn’t seem entirely compatible with running a business with a cost base 26% higher than it needs to be.
Like a lot of other organisations, Company B lost sight of the fact that they should be maximising their bottom line return, preferring instead to remain largely locked inside a world of their own making, where everything ran smoothly and everyone knew what they were supposed to be doing.
Polar opposites
Company A and Company B had two diametrically opposing philosophies.
For Company A, a good outcome was what really mattered. In their view, there was more than one way of getting that, and provided a good outcome was achieved, there was a lot of latitude for their people to do whatever made the most sense in each individual situation.
For Company B, the outcome was an afterthought – the only thing that mattered was the process. Their theory was that a tightly-controlled process would automatically, inexorably lead to good outcomes.
Now, there is something in both of those approaches of course. Neither are completely crazy. However you do have to pick a lane – you can’t follow both of those philosophies simultaneously. It’s one or the other.
That said, the objective of every business should be good outcomes. And Company B’s assumption that a good process would deliver a perfect outcome was somewhat naïve.
That’s because humans are involved.
If you’re assembling a car in a factory, a slavish adherence to process is vital. You’re bolting together lumps of inanimate metal to make something which adheres to a number of legal standards for roadworthiness. So putting on the wrong wheels or forgetting about the roof would not be considered good outcomes.
However, pretty much anything outside a tightly-controlled manufacturing environment, like a car assembly line, is a lot more messy than people who think process matters more than outcomes generally believe it is.
How something is done – in most, perhaps many, walks of life – is at least as important as what is getting done.
We’ve all encountered aggressive salespeople trying to force us into buying something we don’t really want. Or conversations that boil down to “computer says no”. Or where a parcel gets slung over our garden fence instead of being placed carefully by the front door.
In all those situations, we are unlikely to buy from that organisation again, even if, for some reason, we complete that particular purchase and don’t make a fuss – first among those reasons being that us Brits generally don’t like to make a fuss in public.
From a salesperson’s perspective, if they’ve made a sale and there’s been no fuss, that sounds like a victory, doesn’t it?
If that customer never buys from you again, however, it was really a defeat, not a victory.
The Company Bs of the world would see that outcome as a victory (hurrah – they made a sale!).
Company As would see that as a failure (the customer never bought from them again).
The irony
The irony in most of these situations is that it was the processes and structures – popularly imagined in Company B-type organisations to ensure quality of outcomes – which actually ensured the worst possible outcomes.
Of course, sometimes, you just have a rogue employee or two. There but for the grace of God, those hiring decisions can be made by us all.
But that’s rare. I almost always find that people are trying to do the very best they know how for their employers. Which doesn’t mean they always get it right, but when it goes wrong it’s not because the employee doesn’t care – it tends to be a moment of inattention, or a training need, or a misunderstanding about the instructions they were given.
However employees’ behaviour is shaped by company processes and procedures, especially when they are rigorously enforced like Company B’s.
The overly-aggressive salesperson tends to be the product of an aggressively policed weekly sales target. The policing was intended to ensure the company met its revenue goals – and some level of policing is, of course, essential. But when the pressure from managers to frontline staff become too great, frontline staff will cut whatever corners they need to cut to get their manager off their backs and keep their jobs.
When someone has a difficult or unusual set of needs and the Company B people give them a “computer says no” response, that can be deeply upsetting, or even humiliating, to a customer. Very few people are going to buy again from someone who refused to help them in their time of need, especially if they were humiliated in the process.
And the delivery people who lob parcels over garden fences tend to be the same people who have a tightly-timed and rigorously-policed 3.57 second window to get the parcel in the hands of the customer before driving off for their next delivery, whether that delivery is to a 17th floor flat or a suburban semi.
Either way, that customer probably isn’t buying any more bone china from your company if the last lot shattered the moment it landed on their front porch after being lobbed there from the other end of the garden.
What’s more, that is just the immediate impact.
What about the lifetime value of your customer?
It’s not just about one sale, one service request, or one parcel.
Companies which obsess over outcomes tend to value the long-term outcomes considerably more than companies which obsess over processes.
In fact, the Company Bs of the world are largely blind to the knock-on consequences of decisions to prioritise internal company processes over getting good outcomes for their customers.
They must be. No rational organisation would take the decisions Company B-type organisations take if they thought about the long-term for even a moment.
Compounding
Of course, there’s a compounding effect to all this.
Companies which have an obsession about process tend to have much higher operating costs than companies which obsess about getting the right outcome. They all carry an increased cost of management, compliance, reporting and supervision.
And because Company B-type organisations also tend to get poorer outcomes (in anything other than the short-term) that’s a double-whammy.
A higher cost base than necessary, combined with a less loyal customer base than your competitors, is a recipe for trouble in any sector.
And there’s the reputational damage. Whilst British customers might not make a fuss to your face, you can guarantee they’ll tell their neighbours, friends, family, and random people they bump into down the pub all about what a terrible business Company B was to deal with.
Put that all together, and it always mystifies me why so many organisations imagine they have such a complete view of what “good” looks like that they can design perfect processes which unfailingly deliver exactly the right answer in every conceivable situation.
Unless it’s your job to deliver, for example, gold at a 99.999% purity – in which case you should absolutely design your processes to deliver exactly that – the world is a more variable place than a lot of people seem to think it is.
I’ve never seen prioritising the delivery of good outcomes get poorer results than obsessing about process to the exclusion of getting good outcomes does.
In the short-run, a Company A-type organisation doesn’t have to factor the extra costs of management and administration into their cost base.
In the longer run, they have a bunch of loyal clients who keep buying from them at a sales and marketing cost of almost £0 because people come back to them time and time again, without needing to be re-sold the benefits of dealing with their organisation.
If I’m trying to run a business which maximises its bottom line returns, in the short, medium and long term, I know which strategy I’m choosing.