How a company’s history can drag it down

Podcast: In the latest in his Profit Levers series, MIT's Jonathan Byrnes argues that it’s time we reconsidered zero-based budgeting.

by Adam Gale
Last Updated: 27 Jan 2020

It’s usually seen as a good thing for a business to have a long, proud history. It certainly helps on the branding front. But look a little closer and you’ll find that your recent history has all sorts of often negative effects on what your company does today.

“If you want to understand why a company does what it does, just look at its business challenges and situation five to ten, or more, years ago.

“Chances are that most of what the company does simply grew out of the way it met past needs, and that these business practices were passed along as part of the company’s culture – 'the way we do business' – over the years, without being reviewed and reconstructed,” says MIT senior lecturer Jonathan Byrnes in the latest of his Profit Levers podcasts, shared below with Management Today. 

In his experience, only 20-30 per cent of what most businesses do is actually profitable, and yet the company’s efforts so often go toward optimising processes it would be better off abandoning altogether. More often than not, managers don’t even stop to question why they’re doing these things in the first place.

The solution, Byrnes argues, is to return to zero-based budgeting - requiring every product to be justified from first principles.

Listen to the full podcast here.

Image credit: Profit Isle


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