Meeting Date: November 15, 2012
Location: The Vantaggio Room/Skype
Participants: The TW&Co Management Team
They say that 90% of what we do is by routine and habit and only 10% is by energy and purpose. Our purpose is to build a successful business.
Definition of a Business. It is the definition of a business that it exists for the sake of economic performance. In all other institutions — hospital, church, university, or medical services — economic considerations are a restraint. In business, economic performance is the rationale and purpose. Business management, therefore, must always, in every decision and action, put economic performance first. It can justify its existence and its authority only by the economic results it produces. A business management has failed if it does not produce economic results. It has failed if it does not supply goods and services desired by the consumer at a price the consumer is willing to pay. It has failed if it does not improve, or at least maintain, the wealth-producing capacity of the economic resources entrusted to it. And this means responsibility for profitability.
The Purpose of a Business. A company can make a social contribution only if it is highly profitable. To know what a business is, we have to start with its purpose. Its purpose must lie outside of the business itself. In fact, it must lie in society since business enterprise is an organ of society. There is only one valid definition of business purpose: to create a customer. In every case, it is business action that creates the customer. It is the customer who determines what a business is. It is the customer alone whose willingness to pay for a good or for a service converts economic resources into wealth, things into goods. What the customer buys and considers value is never just a product. It is always a utility, that is, what a product or service does for him. Because its purpose is to create a customer, the business enterprise has two — and only these two — basic functions: innovation and marketing.
Marketing. The aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. The business does not ask, What do we want to sell? It asks, What does the customer want to buy? It does not say, This is what our product or service does. It says, These are the satisfactions the customer looks for, values, and needs. The business defines its goal as the satisfaction of customer needs. It demands that business bases its reward on its contribution to the customer.
Values and Goals. Every enterprise requires commitment to common goals and shared values. Without such commitment there is no enterprise; there is only a mob. It must be built on communication and on individual responsibility. The enterprise must have simple, clear, and unifying objectives. The mission of the organization has to be clear enough and big enough to provide common vision. The goals that embody it have to be clear, public, and constantly reaffirmed. Management’s first job is to think through, set, and exemplify those objectives, values, and goals.
Objectives. Defining the purpose and mission of the business is difficult, painful, and risky. But it alone enables a business to set objectives, to develop strategies, to concentrate its resources, and to go to work. It alone enables a business to be managed for performance. The basic definitions of the business, and of its purpose and mission, have to be translated into objectives. Otherwise, they remain insights, good intentions, and brilliant epigrams that never become achievement. Objectives must be derived from “ what our business is, what it will be, and what it should be.” They are not abstractions. They are the action commitments through which the mission of a business is to be carried out, and the standards against which performance is to be measured. Objectives, in other words, represent the fundamental strategy of a business. Objectives are the basis for work and assignments. They determine the structure of the business, the key activities that must be discharged, and, above all, the allocation of people to tasks. Objectives are the foundation for designing both the structure of the business and the work of individual units and individual managers. Objectives are always needed in all key areas. The area without specific objectives will be neglected. Unless we determine what will be measured and what the yardstick of measurement in an area will be, the area itself will not be seen. Objectives, therefore, have to be set in these eight key areas: Marketing, Innovation, Productivity, Physical Resources, Profitability, Financial Resources, Human Resources, and Social Responsibility.
Management and Personnel. Management has to be accountable for performance. Management exists for the sake of the institution’s results. It has to start with the intended results and has to organize the resources of the institution to attain these results. A manager’s job should be based on a task to be performed in order to attain the company’s objectives… the manager should be directed and controlled by the objectives of performance rather than by his boss.
Human Resources. A business enterprise (or any other institution) has only one true resource: people. It succeeds by making human resources productive. It accomplishes its goals through work. To make work productive is, therefore, an essential function. Management is about human beings. Its task is to make people capable of joint performance, to make their strengths effective and their weaknesses irrelevant. This is what organization is all about, and it is the reason that management is the critical, determining factor.
Growth. Management must also enable the enterprise and each of its members to grow and develop as needs and opportunities change. Every enterprise is a learning and teaching institution. Training and development must be built into it on all levels — training and development that never stop.
Leaders. The chaos and disorder at the Advantage is meant to provide the fertile and well-tilled soil for leaders to grow unencumbered by the stricture of structure and order. From this chaos I am confident leaders will always emerge. Some of you will shirk from this opportunity, while others will seize it with an energy and commitment that will propel you to remarkable achievement and success as a merchant.
Time. It is what you are investing. It is your most valuable resource. Don’t waste it.
A Great Inventory. Inventory is the lifeblood of our business. Our inventory is as essential as food is to life. In business, you are what you buy. The foundation of our buying strategy is based on knowing what our customers want, but the art of buying is based on knowing our suppliers. Our businesses will be successful only if we have a successful inventory. We can not, however, grow substantially without a more sophisticated and enabling approach to our buying and inventory management. We need to be more proactive in the evaluation of the effectiveness of our inventory, particularly inventory turns, supply, and return on investment. It is essential that we meet this challenge and create a type of buying scenario that is more horizontal. We need better governance, analysis, and involvement. A great inventory is our foundation, and its inherent value is based on several performance criteria:
ROI. Our goal is to triple the value of our inventory investment every year in gross profit on sales.
Turns. We have to understand the dramatic impact ‘turns’ has on the ROI of our inventory and Cash Flow. Keep it turning and keep it fresh.
Traffic. You can not underestimate the strength of the North Face, UGG, and Alex+Ani brands. They generate the traffic that gives us ongoing access to our core customer market, as well as the lion’s share of our profit. We need to develop the next volume brand.
Cache. Additionally, you can not underestimate the cache value of the LaMer, Kiehls, Marc Jacobs, Tory Burch, and Diane Von Furstenberg premium brand names. They give extra value to our entire inventory. It is very important to have all of our inventory sitting with these premium brands.
Exclusivity. Inventorying a premium exclusive brand adds to both our cache and traffic.
Opportunity. Some inventory investments – like investing in inventory for our own brands – create opportunities for us to build on for future harvest. An inventory that we control our fate with allows us the flexibility to develop new opportunities, such as: online sales, wholesale, and new stores in any market we choose [not to mention the increase in margin].