The importance of standard routines and procedures

pioneer_cement_ford

“Routine sets you free”
Verne Harnish – founder of Young Entrepreneurs’ Organization (YEO)

One of the biggest issues faced by businesses as they grow is managing the growth. This is because their management systems come under strain.
Many businesses begin when a ‘technician’, for example, a tradesman such as an electrician decides that they want to go into business as they have the technical expertise. The new entrepreneur thinks that because they understand the technical work they also understand how the business operates.

This is a myth according to author Michael Gerber. In his book published over 20 years ago called The E-Myth (http://www.slideshare.net/makofranca/the-emyth-by-michael-gerber) he introduces the concept that very successful businesses have very simple and robust business systems that do not require exceptional managers. The more automatic and simplified your management system the more effective is your business. What Gerber is explaining is a franchise system.

Very early in my corporate career I worked for a business called Pioneer Concrete Services Ltd (http://www.fundinguniverse.com/company-histories/pioneer-international-limited-history/). The company grew from a single pre-mixed concrete plant in Sydney in the early 1950s to a major industrial corporation operating in 11 countries within 30 years. The founder was an accountant called Sir Tristan Antico who was obviously not a concrete ‘technician’. The primary foundation of the pre-mixed concrete business was a concept called ‘cell management’, where the plant manager was responsible for marketing, production, human resources, sales, quality and profitability. As a young graduate it was an exciting and challenging work environment where you quickly learnt business management skills or left.

Antico designed a very simple management system. Remember this was before computers. Each fortnight the manager reported their profit and loss using standard forms, showing gross margins, sales and profits. Once again using standard forms materials purchases and usage were reconciled monthly. The company could tell very quickly, regionally, nationally and internationally how it was travelling using this standardised and disciplined system. What I learnt at Pioneer I carried on to other companies I worked for and then to our own business.

As Vern Harnish says “Routine sets you free”

This disciplined, routine and systematic management system allowed Pioneer to expand quickly into international markets well before other competitors. Their business system was scaleable without the administrative and management bottlenecks often encountered when companies grow. One of my former managers said a trained monkey could run the Pioneer Concrete system.

As Warren Buffett, the great American investor said:

‘Buy into a business that’s doing so well an idiot could run it, because sooner or later, one will,’”

This was one of the main keys to Pioneer’s success. Interestingly, a new CEO recruited from outside the organisation and therefore with no allegiance to the cell management system took over. The cell management system with its standardised and disciplined management system was abandoned. The business was subsequently acquired by a major international competitor and a major Australian industrial icon was lost.

The question for any business owner is:

“Are your business systems scaleable so that your company can manage its growth without losing control allowing you to work on the business rather in it?”

2 thoughts on “The importance of standard routines and procedures

  1. What a great nudge for all business owners David. Thank you.
    I find two things often suck our time and resources.
    1. Getting pulled into the business – we all have read this even before E Myth but it is a continual challenge as daily client and business demands drag us into it.
    2 The next shiny object syndrome where we find a new technology or way of doing things. Usually though it is putting lipstick on a pig.

    Simply documenting step by step “the way we do things here” is not exciting but leads to so many improvement opportunities as well as handing it over to the McDonalds manager who can run a business before they can drive a car .
    Thanks for this. It should be hung up as a constant reminder!

    • Thanks Tim. Yes too often we focus on ‘distractions’ in business and technology as ‘the answer’. Technology is an enabler and you must have your systems robust and simplified. This is one of the reasons McDonalds has been so successful and why Pioneer Concrete could successfully expanding globally before losing its way by moving away from its trust management system.

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