A tale of two companies Featured

8:00pm EDT June 28, 2005

This is a tale of two companies. Both have great products with excellent growth potential. However, each operates under completely different management philosophies and cultures.

Focus on quality or dollars?

The ownership of Company One, a 15-year-old service-oriented organization, has followed a strict philosophy of focusing on the quality of its products and its level of service, and in building the best company possible.

Decisions are made based on the value brought to the company's clients, not on short-term profits. Ownership has always believed that by providing the best possible products and services, and continuously exceeding clients' expectations, sales and profits will grow.

Company Two, a competing service-oriented organization, has not been in business as long as Company One. It is still building its client base and establishing its reputation. Its ownership, however, has a different management philosophy. It is focused on, and managed by, the bottom line. Decision-making is based on short-term profitability rather than on customer desires, and that has affected its product and service quality.

The payback

Recently, some of Company One's largest clients decided to consolidate vendors. It has made the short list of every one of its clients. This means a 50 percent increase in volume over the coming year.

To management, this confirms the belief that maintaining focus on the product, service, people and customers will continue to pay off.

Ownership at Company Two desires that same type of growth, but is having a hard time making it happen. Its focus on short-term profitability has created an unstable environment that is not in sync with the owners' desires.

The rules change continuously, as does the organizational structure. Communication is poor. The result is employees who believe in the product but are unsure of ownership's focus or commitment to the customer. Clients also feel the uncertainty, and the company's growth is stagnating when it should be exploding.

The lesson

It would be foolish to suggest that profits, whether short- or long-term, are not important. The question, however, is whether an obsessive focus on short-term profitability or an obsessive focus on the customer and the product will produce greater returns.

If you have an opinion or other tales to tell, I'd like to hear from you.

JOEL STROM is the founder of Joel Strom Associates. His firm works with closely held businesses and their ownership, helping them set and achieve growth objectives while maximizing profitability and value. Reach him at (216) 831-2663 or jstrom@cp-advisors.com.