Operational Silos and Net Income
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Every Enterprise has an organizational structure and people within those positions that are defined within that Org structure.
Every Enterprise, like it or not, is judged by its stakeholders for the Net Income produced by the organization.
EBIDTA is an economic and/or financial term, an acronym, that stands for "earnings before interest, tax, depreciation, and amortization". EBITDA is a measure of the earnings potential of a business.
The Calculation of Operating Income adds some of those costs back in to reveal the company's actual net profit.
- Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) removes some of the costs of doing business to reveal the profitability of its core operations.
- Operating income shows how much money a business is making after its costs of doing business are deducted.
One of the most significant, if not THE most significant, "cost of doing business", is the cost of the people who work within the organization. That is why it is most often the case that when organizations are struggling financially, they look first to 'jettison' valuable people within the organization as a very shortsighted and temporary solution to their problem. As a result, they will go from being effective and very inefficient (getting results with too high a cost) to being efficiently ineffective. True.
What often happens in association with a downsizing of the workforce is a reorganization. It is typically the case that such an organization was 'top heavy' (too many Executives) as a result of being built in functional 'silos', with each Executive intended to 'manage' their part of the organization for results. What went wrong?
All too often companies begin to grow into a siloed group of affiliated organizations instead of one homogeneous entity where everyone is fixated on doing their part of fulfilling the Mission of the Enterprise.
Fulfilling the Mission of the Enterprise requires obtaining the results that are required to do so. It doesn't matter what the mission is, those results are only obtained when the company has created the capability to obtain them. Right? There is no other way. Nothing happens 'automagically' and/or without planning and effort.
Look again at the concept of fulfilling the stated Mission of the of the Enterprise, a single mission for the entire company, through a organizational patchwork of functional groups, each operating with different strengths and weaknesses. Rarely do you see some sort of strategic plan that connects all these functional groups in a meaningful and relevant way.
Conversely, when the 'sequence and interaction' of each functional group doing their part and working towards a common objective, to satisfy the requirements of a core capability of the Enterprise, the organizations operating within the Enterprise operate in a more homogenous manner because each of the functional groups are not being independently managed in 'silos'. Each has a role to fulfill for the satisfaction of an Enterprise capability.
Under such circumstances, the net operational costs of an Enterprise can be reduced through a reorganization that 'right sizes' the number of people required to 'manage' the operations of the Enterprise, such as Senior Vice Presidents, Vice Presidents, Directors, and Managers in addition to ensuring the number of people required to do the work is adequate.
The Predictive Quality Management (PQM) solution enables and facilitates this by breaking down operational silos in favor of uniting the functional groups in managing the Enterprise capabilities. This is realized through enabling actions such as:
- Defining the capabilities of the Enterprise and identifying those which must be managed as a priority.
- Defining each of the prioritized capabilities regarding the work that must be done by each of the participating functional groups, inclusive of their roles and responsibilities within the sequence and interactions of the work that must be done.
- PROPERLY constructing the documentation ('standard work' ) of what work must be done and how it is to be done, role by role.
- Implementing the internal control and risk management requirements for each capability.
- Measuring and reviewing the results of each capability, within the system of capabilities.
The PQM solution IS that strategic plan that connects all these functional groups in a meaningful and relevant way, ensuring EBIDTA and Operating Income are adequately managed in accordance with the creation of Net Income for the Enterprise.
It is critical that ‘quality’ is built into the Enterprise capabilities that are crucial for the fulfillment of the Mission of the Enterprise because ‘quality’ is a proven creator of sustained competitive advantage and market value.
Businesses must strategically create both proactive and reactive Quality Management infrastructure to effectively and efficiently sustain and/or improve business performance as a ‘quality’ outcome. The capability to predictably manage ‘quality’ requires a system that can…
Plan the work… Do the work… Check the results… Act to improve the constraint.
Business processes must be developed (plan) and organizationally staffed (do) to be executed in a way that enables each functional group to satisfy the ‘quality’ objectives that they are accountable for. Business processes results must be verified (check) to identify emerging issues and organizational constraint such that the organization can manage (act) those things that would inhibit the results that are required for organizational success.
Predictive Quality Management provides Enterprise ‘value’ through the capability to ensure and manage the operational ‘quality’ of the business processes utilized within the Enterprise.
