A Lesson on the Necessity of Having Strategic Business Objectives [video]

They began spending tons of money because they wanted to improve the business. But before the mindless spending on computers, IT systems, and unbridled hiring here and there, no one has articulated the company’s strategic objectives. In other words, no one has put forward the real goals which must be accomplished within the enterprise.

In this video, this man wants to attain an optimal equilibrium on his seasoning and the “soup”. But while he had the understanding that he needed a feedback mechanism to see how a change in input investment (the seasoning) could affect the output of the soup (product), he did not design a decent process.

Because his process is broken (no alignment to measure inputs and outcome since he is not picking new soup for every new addition of seasoning), he is wasting the seasoning (raw materials), human capital (busy doing nothing) and in the end will deliver a broken product to the market [if a restaurant, clients will stop coming]. His process is poor, and no amount of effort will improve the quality of the product, and that means the company will fade over time.

What does this tell us? In markets, we need to have clear business objectives, and once those have been established, we have to find ways to MEASURE whatever we have set as objectives. Business is about organizing people, processes and tools to deploy factors of production to fix frictions in markets, and doing that requires building products which are then deployed to overcome the needs.  If we cannot design a good system to link our investments (the seasoning) and the quality of the product (the soul), the business will underperform.

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