Page 132 - merged.pdf

•112 The 100 Greatest Business Ideas of All Time

In a particularly forward-looking move, the component units were allowed to sell
their products and services outside the GM organisation.

This ‘federal decentralisation’ was probably the first implementation in a com-
pany the size of GM. It set out to encourage the top executives to concentrate on
strategy, leaving the operations side to the people at the front rather than to a re-
mote, by style as well as location, head office.

On the other hand

Profit centre management can become counterproductive
A company, because it had got itself into serious financial problems, re-

cruited a new managing director whose background was finance.
He rightly diagnosed the root of the problem as being in sales manage-

ment. The sales managers were used to working with high gross margins and
had developed expensive habits of discounting and providing free support.

They were not ‘spending the company’s money as though it were their
own’ and the company had become vulnerable to any slow-down of revenue.
This threatened to cause further cash problems.

By Herculean effort the company’s accountants produced the information
and systems to push real profit centre management down to first line sales
managers.

This lasted only for one year. The sales managers became totally intro-
verted about their P&Ls and balance sheets. If, for example, a salesperson
wanted to offer a trade-in of an old product to support a campaign to sell a new
one, sales managers would spend a huge effort to unload the second-hand
product on someone else’s territory. If they failed to do so, the product was
charged to their profit and loss account.

They would disallow sales in favour of making money in some other way.