Effective management of a company, regardless of its size, requires a systematic approach. This involves setting up a clear organisational structure where each employee has specific responsibilities and the expected outcomes of their roles are clearly outlined. Additionally, it’s important to document the core business processes that are fundamental to maintaining quality and consistency.
In this article, we’ll explore how to perceive and manage the operations of a company as a cohesive, interconnected whole. We’ll delve into practical management strategies and examine their application in real-world scenarios. These insights are vital for any manager at any level, but they are particularly crucial for business owners.
What is a Valuable Final Product?
To fully grasp the main idea of the article, it’s important to start with some fundamental concepts.
The concept of a ‘valuable final product’ was clearly defined by L. Ron Hubbard, a notable figure in management theory. He explained it as: ‘A valuable final product (VFP) is a product which is valuable to others, can be exchanged with others and which, when exchanged, does not return with complaints or upset.’
The essence of this concept lies in creating outcomes that are not only beneficial to the producer but are also sought after and valued by others. This is a key element for businesses, as each aims to create its own distinctive VFP. Similarly, individuals strive to produce their own VFPs.
What Defines a Leader’s Valuable Final Product?
Identifying the VFP is simple for many professions. For instance, a sales specialist’s VFP is often tangible, like generating income and securing contracts. Similarly, a lawyer’s VFP is maintaining a company’s legal integrity. However, defining the VFP for a leader is a more complex task.
Commonly, people assume that a leader’s VFP involves effective organisation, management and maintaining a productive workforce. While these elements are partially correct, they don’t wholly define a leader’s VFP.
In essence, a leader’s VFP is naturally linked to the success of the area they oversee.
For a company director, the VFP is very broad, encompassing the overall output and success of the entire company.
Leaders usually have a natural understanding of their VFP and utilise various tools for effective management. These include assigning tasks, delegating responsibilities, ensuring resources are available, monitoring progress and motivating their team. However, a critical aspect of leadership is not just about task delegation and oversight. It’s also about taking responsibility for the overall success of the area they’re in charge of.
When a leader is actively involved in tasks like marketing, hiring, ensuring quality or handling legal matters themselves, it means they’re not focusing enough on leading. This can create a scenario where there’s no one guiding the whole team.
Success in any position, especially leadership, relies on the ability to understand and deliver what is expected – the discussed VFP. While many people may find this task challenging, some excel at meeting expectations. Business owners fall into the latter category. Without their ability to recognise and generate specific valuable results, they wouldn’t be able to establish and maintain an enterprise.
What Defines Value?
Let me highlight another important idea expressed by L. Ron Hubbard: ‘A valuable final product is valuable because it can potentially or actually be exchanged for something.’
It is a straightforward concept, although not always immediately obvious. True value does not necessarily come solely from hard work, it comes from what holds significance for others, something they are willing to trade for.
In our modern society, the way we perceive value can be a bit unconventional and doesn’t always align with this idea. Some individuals might hesitate to spend $300 on their child’s education but readily spend $800 on the latest iPhone. Essentially, the value system in our society isn’t always logically consistent and it’s crucial to keep this in mind when making decisions.
What Is an Organisation?
‘An organisation consists of divisions and communication lines united by a common purpose,’ as defined by L. Ron Hubbard.
But what exactly does this mean?
• Division: In this context, a division is a unit within an organisation that has the dual role of receiving and sending out communications. It acts as a hub for information flow, both inward and outward.
• Communication lines: These are the channels that facilitate message transmission from one individual to another within the organisation.
• Particles: The term ‘particles’ here refers to the diverse elements that move through the communication lines. These can be tangible or intangible – ranging from money, documents and physical products to messages, information and people.
So, what does this tell us about an organisation? An organisation comes into being when there are distinct, specialised functions and a dynamic exchange of ‘particles’ between these functions.
Take, for example, a group of friends starting a car repair business. They all come together, rent a garage and start working on cars. If everyone is doing the same task, such as repairing cars, this set-up doesn’t qualify as an organisation because there are no distinct roles and no movement of particles.
However, if you assign specific roles – say, Kate manages customer relations, Jack handles electrical repairs and Michael focuses on the suspension systems – you’ve now created specialised functions. This specialisation and the resultant flow of tasks and information is what forms an organisation.
The ideal organisational structure is one where each function has a responsible individual. This clarity ensures that every task or ‘particle’ is directed to the appropriate department.
In summary, an organisation is characterised both by its specialised functions and the active exchange of elements within it.
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Contact us →Small Business Organisation Challenges
The primary challenge in small business lies in the limited number of divisions due to fewer employees.
Regardless of an organisation’s size, a specific set of functions is essential: hiring staff, creating advertising, making sales, handling legal matters, managing accounting, delivering services, focusing on quality and enhancing skills. This suite of functions is identical for both small and large companies, with no shortcuts.
In a small company, budget constraints don’t allow owners to hire enough people for every role. As a result, the secretary might handle HR paperwork, assist in accounting and even prepare coffee. This multitasking nature of a small business makes it more challenging to find, train and manage people.
Additionally, small businesses typically generate lower profits. If you’re managing a small company, expect to work more and earn less – this is almost always the case.
Succession is another issue in small businesses. When the owner wants to retire or step down, they often struggle to find someone to take over, especially since their children might not be interested in continuing the family business after seeing the hardships involved. This problem is less common in larger companies where successors are usually ready and waiting.
Sometimes people say that small businesses have more advantages. But actually, small businesses don’t have any.
However, the one great opportunity for small businesses is their growth potential. They can evolve into medium-sized and eventually, large enterprises. Many of the mega-corporations we know started as small businesses.
But to achieve any kind of growth, you need to use the right organisational tools. And that’s what we are going to talk about.
What Influences an Organisation’s Functioning?
I’ve already mentioned that an organisation is a network of divisions and lines. But how does this work in practice?
Consider a small company of five people: a secretary who handles all incoming particles and distributes them appropriately. A salesperson manages customer requests, leading to financial transactions. The accountant deals with money, supplier invoices and necessary payments, ensuring that materials reach the technician. The technician then completes the work and passes it on to the warehouse, from where it goes to the customers.
This set-up creates a continuous flow of particles. The more processed by this system, the higher the income and profit, making the company more successful.
However, the flow’s efficiency isn’t determined by the most productive department. It’s limited by the least efficient and least competent one. Regardless of how much the salesperson sells, if the technician is the weak link, the flow gets bottlenecked at that point, inevitably leading to a decline.
An essential management task is to clearly understand the roles of workers, monitor their productivity and swiftly identify and address the weakest link. The growth rate of any organisation, big or small, hinges on how quickly this weakest area is improved.
Companies can grow very quickly. In my opinion, a small business should aim to double in size every year at the very least. This is the slowest growth rate that should be acceptable.
The Organising Board: 7 Functions Of Administrative Technology
What are the key functions needed in any business?
Ron Hubbard answered this in 1965 and came up with what he called an ‘organising board’ or a ‘pattern of organisation’.
This board describes a specific business structure necessary for any kind of organisation. No matter what final product the company makes, this structure always includes seven important functions, each handled by seven different divisions.
It’s important to note that these divisions might look about the same size on the scheme, but that doesn’t mean they all have the same number of people. In different businesses, one division might have just two people, while another might have 145. The number of people can be very different, but each of these functions is about equally important for the whole organisational structure to work properly.
First function: Executive (seventh division)
The first key function is called Executive. It’s primarily carried out within the seventh division. This involves the owner, their closest aides, directors and deputy directors. Their main task is to come up with ideas on how the organisation’s operations should be executed.
If these ideas are missing or not well thought out, the entire process will face challenges. If, as goal-setters and owners, you make a significant mistake in determining the product your organisation should produce, there’s no fixing it.
Second function: Communications (first division)
The second key function is Communications, handled within the first division. This division primarily deals with personnel.
The first division has two primary roles. First and foremost, it identifies weak links in the company structure. Secondly, it scouts for specialists who can assist in solving the issues, places them strategically and ensures they have all the necessary communication tools.
Simply put, the first division consistently oversees the production and workflow. If issues arise, the division conducts inspections to pinpoint the root causes.
If the problem is traced back to incompetent personnel, the division takes action – either by strengthening the employee through training or opting for a replacement. In the context of small businesses, if an important role is vacant, the solution lies in hiring and filling that position.
Some of these responsibilities are handled by the HR department. However, typically, HRs focus solely on recruitment and, at best, one or two additional functions, leaving the remaining tasks for the leader.
In organisations, there’s a fundamental principle: if a certain function is neglected, any problem related to it quickly reaches the leader for resolution. Why? Because the leader is responsible for the entire VFP.
In other words, if you haven’t assigned someone in your organisation to oversee communications, you’ll find yourself dealing with all related issues. If you’ve hired only a specialist who recruits people, everything else will either be overlooked or land on your plate.
In the organising board, this function is placed above others because it plays a special role in building the organisation. Communication is an ongoing function – as soon as one weak link is addressed, another becomes apparent.
In small and medium-sized businesses, leaders often express concerns that increased hiring may lead to decreased profitability. Negative experiences can make owners hesitant to expand, especially when they struggle to pinpoint the root causes within their workforce.
A common mistake is not identifying where the weak link lies and hiring individuals in the wrong areas.
For instance, if a technician is a weak link and you hire a salesperson instead, it can lead to decreased profits, as you end up with a larger workforce but no change in production volumes. It’s essential to understand the team structure and the skills needed before you start forming teams and going through the hiring process.
Third function: Dissemination (second division)
The next function we’ll discuss is called Dissemination, which essentially involves promoting and selling. Once the company is set up, it’s clear that you need to get the word out and sell your product.
In the process of promotion and sales, the VFP we’re aiming for is revenue. If we effectively carry out these activities, it means we’re successfully generating income.
Fourth function: Treasury (third division)
The next function is called Treasury. As the name suggests, we are going to discuss the financial aspects of the business.
The finance division’s function involves tracking expenses and economic transactions. Additionally, this division plans how to meet all financial needs. If the Treasury function is a weak link, the company may face financial issues or debts.
Many organisations conduct their affairs without incurring debt at any income level. To avoid going into debt, one simple thing needs to be done: when you receive money, you must immediately plan all your expenses and then simply follow that plan.
If a person receives money and starts spending without planning or forecasting expenses, typically, they will run out of money before the next payday. So, it’s a bit more than just accounting, it also involves strategic planning.
Essentially, the third division is the heart of the organisation, because money is the lifeblood of the business, ensuring it functions and moves. If everything is in order with this function, your organisation is very much alive and vibrant.
Fifth function: Production (fourth division)
The next function is Production and its nature can vary across different companies. In our IT company, for instance, developers play a key role – they are the ones creating and implementing technologies and developing solutions, essentially, they are the driving force behind our VFP.
In a retail company, on the other hand, the VFP revolves around transporting goods from one location to another. Travelling to Italy for an Italian suit would be impractical for customers. Instead, we prefer the convenience of modern shopping centres, where we can simply buy a suit without unnecessary hassle.
Therefore, in the Production division of retail, logistics come into play. Retail organisations are mainly focused on orchestrating the movement and distribution of goods. This entails procuring goods, delivering them with minimal costs and strategically placing them at the point of sale where salespeople can effectively operate.
The key success factor in retail lies in choosing the right location for your merchandise. If businesses make an error in selecting the store location, it can significantly impact profit.
Sixth function: Qualifications (fifth division)
The next function we delve into is Qualifications, specifically focusing on product quality.
This particular division plays a critical role in maintaining quality standards. It actively identifies and fixes any flaws, not just in the product itself but also in the orders, customer services and every other aspect.
Customers often don’t voice their dissatisfaction. Think about a person visiting a new restaurant and finding dirty utensils. Despite the owner investing millions in creating a great place, these issues lead to unhappy customers and financial losses.
Business troubles and customer dissatisfaction typically arise from small mistakes rather than major issues. And behind every small mistake is a person who simply hasn’t been trained. Therefore, this division is involved in both quality control of services provided and the continuous training of personnel, which is why it’s called the Qualifications.
Members of the quality control team should interact with customers, asking questions like, ‘What could be better? Where do we need to make improvements?’ Actively seeking feedback is essential because it provides valuable insights that we might otherwise miss.
In today’s world, standards are always on the rise. We all want top-notch service, whether it’s in hotels, restaurants or conference halls. This function is especially crucial, as people’s expectations are changing rapidly and we must keep up with their evolving preferences, ensuring we never fall behind in any aspect.
Seventh function: Distribution (sixth division)
The last function depicted in this board is related to Distribution. After producing, ensuring the product’s quality and enhancing the overall performance of the company, the next step is to make your product widely known.
This division handles public relations, builds partnerships with other companies and engages in activities that help customers bring new clients to you. If this function is operational in your company, even a small team can show incredible results.
For example, a great way to get new clients is through good old recommendations or, in plain language, word-of-mouth. You could bring someone on board to keep in touch with your current clients and ask if they know anyone in need of your services. If they say yes, you can swap contact info and if the referred client makes a purchase, you might even suggest a discount as a thank you for your connector. After six months, you’ll notice that a significant portion of your company’s income comes from clients referred by your existing clients.
This is a powerful function because when people come to you through recommendations, it’s easier to sell to them. They’re familiar with your prices, know your products and have a certain level of trust. Working with such people and companies is much easier than with those who came through advertising.
How Divisions Collaborate for Success
All these functions form a cycle. We generate new ideas, work on generating income, allocate finances and so on. And each function has a very clear VFP.
All these functions form a cycle. We generate new ideas, work on generating income, allocate finances and so on. And each function has a very clear VFP.
• The first division focuses on having a team of efficient and well-placed employees.
• The second division is about achieving the necessary income levels.
• The third division safeguards the company’s assets, including both money and materials.
• The fourth division’s goal is delivering the actual products and services you create.
• The fifth division concentrates on ensuring the overall efficiency of your operations.
• The sixth division centres around gaining and retaining clients and expanding your reach.
• The seventh division aims to keep the company running smoothly, producing its goods or services effectively.
Irrespective of the company’s size, these functions are essential and the absence of any creates a weak link. Consequently, when there is a well-established organisational structure, the company tends to see rapid development.
Building an Effective Communication Hierarchy
Often, companies face challenges due to the flow of particles. The typical business model consists of leaders and subordinates, with communication and command lines intertwining within this structure.
Communication lines are pathways through which messages flow from one employee to another. For instance, when someone submits a request for office supplies, it follows a communication line.
On the other hand, command lines are pathways for orders and reports between leaders and subordinates.
When confusion arises between command and communication lines, the company runs the risk of slowing down production processes. Such situations are most common within divisions where all information flows through a single manager.
For instance, when managers demand approval for every advertising layout before sending or sign off on every invoice, it results in managers becoming weak links, consolidating every information flow.
The solution lies in implementing a system for swift flow, where information efficiently moves between divisions along communication lines, not command lines, without requiring constant managerial intervention.
Final Words
The organising board serves as the foundation of any company. Applying its principles facilitates easy measurement of results and tracking their changes over time. This framework aids in identifying weaknesses, conducting thorough analyses and making informed decisions for development.
With this organisational structure in place, every team member gains an understanding of how the process works. Consequently, the leader is relieved from closely monitoring every detail, allowing for effective business management.
Are your business processes optimised for success? Connect with Computools at info@computools.com to explore how our strategies can boost your development. We’re here to unleash your full potential!
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