Improve Communication for Increased Profitability

In the Black introduces a model for increased profitability, the Universal Business Model.

Under the Universal Business Model (UBM), communication between the three basic functions of all business increase profitability.

In the Black explains how each department must communicate with every other department, and how it directly affects profitability.

Any business functions that act independently of the other three can single-handedly doom a company. For example, if Marketing has not been informed by production as to what it currently manufactures, marketing dollars get wasted. Likewise, if manufacturing is not told by accounting what products are profitable to produce, they may operate at a loss.

A good example of this is a frame shop that bragged how much business that it was bringing in and how much it was taking business away from its competitors. Upon further analysis, it was found that they were operating at a loss on every sale. They could undercut their competitors only because their competitors couldn't afford to sell the frames at the price either. The key difference is that their competitors were are aware of the fact.

In the example above, the most disturbing thing is that the frame shop was not even aware of its failure. Often, without communication between divisions of a company, each function of a company may be doing well in and of itself, but the company as a whole suffers.

Metrics within each function of a company should reflect its contribution to the whole, and not independent of the other business functions. When one basic business function is working well, but independent of the success of the company as a whole, it is a bit like two people on a small boat out to sea. One person says to the other in an accusing manner, "Your half of the ship is sinking!" When the boat goes under, it will be of little comfort to the accuser if his half of the boat sinks last.

In much the same way, if production is cranking out widgets at a record pace and marketing can't interest customers in it, the company suffers. If the product is not making the company money and the accounting function doesn't report it, likewise the company as a whole suffers from lack of key business knowledge. A company's functions win or lose together. Finding the source of fault only provides useful information when there is still time to do something about it. A coroner wastes his time scolding bodies on his slab when he tells them they should have exercised more. Make sure that you don't wait to analyze your accounting data during a "post mortem" exam.

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