Fable: The Business Run By A Formula
Over 40 years ago there was a young boss who became, via take-overs, the head of a big company. He sent a minion to the US to find out how to run a big company.
The minion returned and said US companies relied on ratios relating to sales, costs, stock-turn, debtors and margins.
The boss then wrote to all his underlings and told them he wanted an annual sales: capital employed ratio of at least 2; a sales:inventory ratio of at least 5; and an annual sales per employee of £4,000.
The boss ran the company for over 30 years. Although it generated a lot of cash and was consistently profitable, it didn’t grow much and missed some of the biggest market opportunities: e.g. mobile phone telephony.
MORAL: A formula is a good tool but a bad master.