Have you ever thought about why companies exist? Why does BIW exist? For that matter, why does any company exist – Walmart, Lowe’s, Amazon, Apple, etc.?
Do you think BIW is here to provide jobs and employment? Is it for building ships? Maybe selling products? Keeping customers happy? Doing these things are all necessary for our company to operate, but none of them are the reason a company exists.
The reason the company exists is to make money. That’s right, make money! If the company cannot make money or profit from its operations, then it will not be in business very long. If the company cannot stay in business, then it cannot provide jobs for all the people who depend on it. This is the cold, hard fact that we sometimes lose sight of when companies become large. Without money, the company cannot exist.
A healthy company needs to make a profit to allow it to meet its obligations, plow some of the profits back into maintaining and improving the business, and ensure that it satisfies its stakeholders.
How does a company make money? In basic terms, the company sells a product at a price that covers all the costs and includes an amount for profit. As long as the selling price for the product contains enough profit and the company can sell the product at that price, then it should be profitable. I am oversimplifying here to make a point about the importance of profit in business.
Running a company is a balancing act – buy enough raw materials, but not too much; have enough labor, but not too many people; build enough product without overproducing the market; invest enough money in the company for new initiatives without spending too much; keep some funds in reserve to fix things when they break; keep enough money to pay the bills; and, finally, satisfy your stakeholders in the process. This is challenging for a small company; it gets much more complicated with larger companies.
Leaders take on the responsibility to balance all of these competing needs, and it is not unreasonable to disagree with how some of those competing needs are prioritized. Decisions have to be made, so keeping more of our money in our pocket, for example, by reducing waste, makes it a little easier to balance our competing needs.
Let’s switch gears and talk about you (and me). We, as employees of the company, operate in much the same way the company operates. We also have priorities to balance. There can be many reasons why each of us comes to work, but the main reason is to make money. We exchange our own time and skills with the company for money. It doesn’t matter what our skill or trade is, the equation is the same. This is another cold, hard fact: none of us would be here if we weren’t getting paid!
Do you know what operates in a similar way to the company? If you guessed your family or household, then you would be right! Let’s do a little wordsmithing around the way I described how a healthy company operates and turn it into a true statement for your family and mine. A healthy family needs to make cash to allow it to pay its bills, plow some of the cash back into savings, and ensure that it satisfies the members of the family. As you can see, with only a few word changes, the way in which the company operates is just like how a family or household operates. What helps our families flourish is the cash we earn in exchange for our labor when we work every day.
As I wrap up Part 1 of this topic, I want you to remember, the decisions you make at home in spending your money and figuring out what you need to have, what or how much you can afford, who can give you the best deal on what you have to buy, and what future purchase you want to start saving for now, are the same decisions we as a company make.
Spreading the dollars around to cover all our expenses is hard and priorities have to be made, so in our households and in our company, we try to save where we can. A major way we can save more of our hard-earned money is by reducing waste.
Next week, in Part 2 of this blog topic, I will continue to compare our company to our families around the issue of waste, which is a key area of focus in Strategy 2024.
The better we all are at being careful stewards of our resources, the stronger – and more profitable – we make our company.
See you on the deckplates!
Safely Execute High-Quality Work
Chuck
President, General Dynamics Bath Iron Works