STRATEGY

Creating Companies of Companies

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Once a company grows beyond a few employees, it's easy for people to lose sight of the business. They work in departments. They worry about keeping the books or picking shipments from the warehouse or answering the phone, not about making money or building the company. If you ask them what they're doing, they don't say I'm helping this company succeed, they say I'm just doing my job - and then they look at you funny for asking such a dumb question.

But what if people thought of themselves as being in business? What if they thought of their unit or department as delivering a product or a service, whether to an external customer or an internal customer? What if they then took responsibility for running that business - for monitoring its performance, tracking its financials and so on? That's the kind of mindset some innovative, growth-oriented companies seek to create.

Try this: Ask employees to turn their departments into companies. They pick a company name. They figure out their company's mission and objectives, and they identify its customers and suppliers. They decide how to measure the company's performance, and figure out how to get the information necessary to track it. Pretty soon they're in business - and they're beginning to think like businesspeople, not like hired hands.

Far-fetched? Not really. That's exactly what Bob Argabright did when he was running the Baltimore plant of Chesapeake Packaging Co., and the plant wound up with no less than eight internal companies. The Flexo printing department became a company called Bob's Big Boys. Quality Trucking was the shipping company, Chesapeake Maintenance Services took care of the machinery, and Boxbusters handled customer service. Each company tracked and measured its own output and figured out how to improve. If they needed new equipment, they ordered it themselves or prepared a capital authorization request for corporate. Company members reviewed each other's performance, and took part in hiring and firing decisions.

Kacey Fine Furniture, a retailer, dubs its companywide merchandising unit The AAA Merchandising Company and provides the department with its own monthly "income statement" showing budgets and actuals for every line item. ("Net profit" at the bottom of the statement refers to better-than-budget performance.)

Copyright 1998 Open-Book Management Inc.

Last updated: Feb 1, 1998




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