Here is the lens through which I view companies.
A company is an organization of people that performs a number of different functions designed to create and satisfy customers in a profitable way.
Let's take that apart.
A company is an organization of people. There are, of course companies composed of a single person - some of them quite successful. But regardless of the number of people, a company is not an amorphous group. It is organized to accomplish something. And by definition all companies are designed to accomplish the same thing.
Create and Satisfy Customers. Creating a customer is the purpose of a business according to Peter Drucker. And once they have created customers most companies find it better to continue to satisfy them rather than just focus on creating new customers. This leads to longevity for the company and improved profitability. Which brings us to the next bit.
In a profitable way. This is what differentiates a company from a non-profit, a government, a fraternal organization, or any number of other institutions that serve people. A company provides profit to its owner(s). There are many aspects of profit. Financial profit is one that's common to all companies. But particularly with privately held companies, there are other aspects of profit that can drive the direction of the firm depending on what the owners want from the business. Some are objective and others are sub-conscious. They include things like:
- Generational wealth
- Leaving a legacy
- Various missions
- Personal satisfaction, challenges and growth
- Family security
- And a whole host of others.
Performs a number of different functions. This is the key aspect of how companies accomplish their purpose. We often think of people in a company as having a job. But it's more useful to think of them performing various functions. A function is a process which produces an output. The functions in a company are often interconnected. What's really interesting is that most of the functions in most companies produce a very similar output in a very similar way. (The exceptions are the functions that produce the product or service the company sells.)
And as people move within a company - or come into and out of the company - the output of the functions remains the same. And as a company grows the functions can be subdivided to produce more granular outputs allowing for deeper (albeit more narrow) expertise. This focus on functions and outputs is the key to improvement.
By considering all aspects of how the company owners define profit, knowing who the customers are, and how the various functions interact we can increase the company's profitability and make the organization more effective.
