Step One: Identify
Understanding the Organization
What is the purpose of your organization? To serve your customers. The first section of this book gave you as a leader an opportunity to Assess-Reflect-Act on principles relevant to your organization. The questions we as managers ask ourselves or others helps us determine where we are in our organization and where we need to be.
Five Most Important Questions
Peter Ferdinand Drucker, an Austrian-born American management consultant, educator, and author of 40 books and thousands of articles, was a leader in management education and invented the concept known as “management by objectives.” He was well known in Japan, where he was considered similar to W Edwards Deming, the quality guru.
Drucker's writings state that a company's primary responsibility is to serve its customers. Profit is not the primary goal, but rather an essential condition for the company's continued existence. He was a consultant to senior executives for more than 50 years.
Readers may be interested in Drucker's book called The Five Most Important Questions You Will Ever Ask about Your Organization (Wiley). Drucker's questions for the organization are:
1. What is our mission?
2. Who is our customer?
3. What does the customer value?
4. What are our results?
5. What is our plan?
This informative book will challenge readers to take a close look at the very heart of their organizations and what drives them. It is a tool for self-assessment and transformation.
Who Are Your Customers?
Today, for some companies, the customer may be their head office, rather than the actual end user. Drucker was a supporter of outsourcing, and today more and more companies are outsourcing work or have separate companies that do the manufacturing of products in other countries, and therefore they are not connected with the user. This makes it even more critical to understand not only the requirements for their customer, the head office, but also the requirements for the end users and what they value.
It is very important to understand who your customers are when doing business and to know which customers generate profits for you.
The Pareto principle, also known as the 80-20 rule, states that roughly 80 percent of the effects come from 20 percent of the causes. It is a common rule of thumb in business that only 20 percent of a company's customers contribute to profits and the remaining 80 percent generate losses. Of course the remaining 80 percent could be profitable in the future or provide knowledge or expertise that would be needed for future development.
Which of Your Customers Generate the 20 Percent?
Customer analysis is crucial in order to address market share. Understanding the needs of your customers and how your product/service satisfies their needs is the basis of your market and business plans. It used to be that price and quality were dominant factors for consumer purchases; however, today, business-to-business (B2B) transactions are also important, tied to delivery schedules and payment terms with purchases done on the Internet for convenience. Additionally, understanding what activities are driving customers' orders to be nonprofitable is important. Typical customer-related processes are: processing the sales order, billing, customer visits, engineering/design changes, packaging and handling (special requests), processing shipments, and customer satisfaction.