BDS Lesson 1 - Overview

BDS Lesson 1 - Overview

Question: Name the five parts of every business that executives measure with Key Performance Indicators (KPI's).




A: Value Creation: The question to ask is: how quickly is the system creating value? This is done by measuring the current level of inflows (Prospects).


B: Marketing: How many people are paying attention to your offer? How many prospects are giving you permission to provide more information?


C: Sales: How many prospects are becoming paying customers? What is the average customers lifetime value?


D) Value Delivery: How quickly can you serve each customer? What is your current Consumer Complaint Rate (calculated as the number of complaints out of the number of customers served. For example, the 0.1% complaint rate is considered acceptable and often seen as good customer feedback, but the 0.5% rate is already too high and should be addressed immediately)?


E) What is your Profit Margin? How much purchasing power do you have? Are you financially sufficient?


Gall's Law

A complex system that works is invariably found to have evolved from a simple system that worked. The inverse proposition is also true. A complex system designed from scratch never works and cannot be made to work. You have to start over beginning with a simple system. Obviously, this can potentially be a very expensive lesson.

-      John Gall, Systems Theorist

The natural progression of a simple system is to make improvements through trial and error. We call these “iterations”. Trial and error is not the most efficient way to learn a system. Before we had confined space training many lives were lost because people were unaware of the dangers that can lurk in underground and isolated environments. In time with many lives lost simple precautions like using a canary to check the air of the space before sending in men, became the norm. Much later and after many iterations of research and development, occupational safety measures were developed such as meters that can test the content of the atmosphere in the confined space. Processes were outlined to ensure the effectiveness of said devices. Step by step, the dangers of confined spaces have been mitigated by diligent attention to training and following procedure.


There is a time and place for everything, a time to follow the process and a time for assertive curiosity. The serenity prayer is one way to think about prudent judgment. We must learn to accept the things that we cannot or should not change (without proper and qualified consideration), have the courage to change the things when confirmed such would be advantageous through careful measurements and monitoring. 


It is good to step up when change might make sense and raise questions. However, one should learn to exercise wisdom to know the difference between a relevant question or assertion and one that is impertinent. This kind of wisdom comes only with time and experience.


Absence blindness (a phenomenon where you don’t notice what is not there) is great at the beginning of an internship. Any line of business consists of, at a minimum, four functions. They are Marketing, Operations, Human Resource Management, and Finance. What makes every business a “complex system” is the interconnections and interdependence among those functions. In other words, everything must work together.


For one to be a successful CEO one must have a passing knowledge of all four functions of a business.  A passing knowledge is the difference between taking a carefully calculated risk and rolling the dice at a casino table. The fact is that most new businesses, as many as 80% fail within three years’ time. This is almost invariably due to internal factors such as lack of knowledge and preparedness that ultimately results in financial insufficiency. Either the business does not generate enough revenue, or else revenue is good but there is insufficient profitability. Of course, external factors like the iron rule of a market also can result in sunk cost (a retrospective cost that has already been incurred and cannot be recovered).


Segway, for example of iron rule of the market, fell way short of meeting its initial sales projections by many millions of units. They misread the public's willingness to adapt to riding their new two wheeled inexpensive transportation (Think Mall Cop) This resulted in selling many fewer units than anticipated. Fortunately, even so the executive team at Segway had enough business acumen to raise capitalization and stay afloat until sales picked up to bring financial sufficiency to their company.


The simple truth is that most main street privately owned businesses simply do not have the ample preparedness for the unforeseen realities in business.


Consistency in Business and Life


Wayne's Deli in Muskegon, Michigan has a signature sandwich known as the "Gimmick", which although popular I have never given it a try. I would usually order a hot pastrami on rye with melted Swiss and spicy mustard, or their iconic Chicago dogs. What kept me coming back again and again was that I always knew exactly what I would get, it was always the same, invariably great, and I never felt betrayed. I think the best leaders and managers understand that consistency in creating and delivering value is everything when it comes to building brand loyalty. Ultimately, it is the connection that is forged between the business and the customer that matters. It is the memories of those times we cherish most.


Often the importance of consistency in the operation side of a business will appear obvious to leadership but may not translate as seamlessly in the other areas. A company's procedure (or lack of) is the hallmark of a professionally run organization. Or else it is the telltale sign of one where the guiding structure may be absent. 

There are times when decision making requires judgment calls, dilemmas arise that require thinking on our feet, but more often than not communications between management and clients boil down to the standard operating procedure (SOP)"The system" is established practices that come from a position of thorough preparation. Nothing seems more amateurish in business than brash or spontaneous reactions from those people who should be accountable to uphold the values of the organization.


For a better understanding, let me give you an illustration based on my experience as a former pawnbroker.  There is a time to ask questions, to elicit feedback, and to seek counsel, but ultimately the true leader must act according to the best interest of the mission and those it serves. In providing no recourse loans our team encountered scores of people from all walks of life. It wasn't unusual to meet with a single mother who sought a small loan to pay for a bit of "back to school" shopping and moments later hold another meeting with a contractor who had a temporary negative cash flow situation. It was an endless stream of opportunity born in the hardship of lack of capital in a society having little patience nor understanding for those without. Although prospective clients were invariably required to collateralize their loans this was not the only consideration. Other qualifiers included those which meet regulations and oversight. Still, others involved the process of vetting out those who presented unreasonable risk simply due to the exposure of dealing with them. Drug addicts, gang bangers, burglars, and all manner of scam artists and ill repute.  


Assumptions and estimates are made according to prescribed parameters. I personally quickly learned that someone's appearance bore very little insight into the character of the individual in question. Years of data proved that eight out of ten working class people will return to redeem an item or make their interest payment to extend their loan. In other words, only twenty percent on average default on their obligations. Alas, most people, even those deemed not creditworthy by traditional institutions, still exhibit a sense of responsibility for keeping their word. This knowledge is perhaps the cornerstone on which the entire national, even global financial industrial complex stands and perpetuates its exponential profits.


Successfully underwriting loans is a complicated subject matter but all too often the personal attention to the client's resolve and the particular situation is overshadowed by the prejudices of the mainstream matrix. A credit score, judicial judgments, and collections are standard key performance indicators, whereby many prospects lack the financial literacy and sophistication to clean up the hard spots, periods of great medical expenses and unemployment. So that the creditor might accurately project the risk/reward of approving their particular loan based on an accurate picture of their actual likelihood to repay.  


Still, it was my policy to extend due consideration to everyone, no matter how small the sum sought, even five dollars needed toward a bottle of aspirin meeting the need head-on with resolve to get it right. This means understanding the respective positions of the parties, which requires appropriate listening, sincere empathy, consideration of any extenuating circumstances and ultimately responding with an insightful explanation of a consistent policy. A leader has the backbone to consistently stand for his principles.


It is in our collective nature to respond favorably to those who exhibit genuine empathy, strength, and fairness. A good leader has deep character and the integrity to stand behind his or her own commitments.  He is able to rise to meet obligations with an erect posture and his behavior speaks to her genuine concern for the welfare of the team, but without the hearts and minds, without our supporters, there is little of worth to own.


We do best to distinguish what is routine from what is consistent. It is simply a habit which may or may not be beneficial, and the latter suggests that we are abiding by a standard. To reach consistency requires effort, thoughtful measurements and careful reflection upon the result.


Reputation or standing in the market is the aggregate of consistent results, and a brand is either propelled or else repelled by the substance of its value created and delivered. It is only as every organization is only as strong as its relationship to the market.  Due respect, courtesy, and consideration must be extended not only to clients but also to vendors and those whom with their partnership and sources inputs. Consistency is the bedrock on which a company rises. It is a consistent leader who builds a culture which allows everyone to play well together. Winning rarely comes from a single talent but rather from the kind of leadership that knows how to take a team, build consistent momentum, and hit its targets - the kind of team whose members become leaders in their own right.


And when it comes down to it, when we arrive at those last moments of our lives it won’t be what we owned or owed that will matter so much as those who are there beside us, and those whom we have filled with our memory, for better or worse. How has our work and lives affected them and what have we been able to leave as a legacy for those whom we love. What could be better or more important than doing that well?




Assignment: Write a 200-word essay describing what you imagine the unknowns are for the four functions of a business. The intent is to help you to think about your own preparedness going forward.  Those who are least surprised by things that come up are the ones who are most prepared to deal with them.

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