We have been talking about Elliott’s Basic Building Block. This Building Block contains three layers and no matter how large your organization gets, it will be filled with this Basic Building Block.

It is important to understand the focus of the Basic Building Block.

What do you think, internal focus or external focus?

Remember, you have people doing production. You have people making sure production gets done inside of a system in which production gets done.

What’s the focus?

Internal.

Why?

Because we told them they had to be internally focused. We told them they had to be efficient. We told them no waste, reduce scrap, we want higher utilization rates on our capacity. We told them they had to be internally focused.

Multiple Departments
We have also been talking about your organization as if it was a single discipline like Operations, when even the smallest of companies are more complicated.

As soon as you are able to consistently deliver a product or service, you assemble a group of people to send out into the market to do Sales.

And in your sales department, in Stratum I, you have order takers. In Stratum II, you may have account managers that go out and create relationships with your bigger and better accounts. And in Stratum III, you have a Sales Manager, whose job it is to create the system in which you go to market.

Then, your customers begin to have questions. “You know, that piece of equipment you shipped, it looks like it may be missing some parts,” or “the instructions that came packaged are not very clear,” or “we installed the unit and it broke, I think we may have a warranty claim.”

So, you create a new department called Customer Service. In Stratum I, you have CSRs (Customer Service Representatives). At Stratum II, you may have Account Managers who are dedicated to your bigger and better accounts. At Stratum III, you have a Customer Service Manager, whose job it is to create the system in which you fulfill the promises you made to your customer.

With all of that, it is now time to count the money. So, you create an accounting department. At Stratum I, you have Accounts Payable, Accounts Receivable. At Stratum II, you have higher order accounting functions, like payroll. And at Stratum III, you have an Accounting Manager whose job it is to create a system to publish your monthly financial statements and collect your year-end financial information.

Enter Stratum IV
And with the internal focus of each of these departments, how well do they get along?

I visited your accounting department and they were so proud. They had just created this brand new paper form, designed to capture critical accounting data. This form was designed for each salesperson to fill out on every single sales call.

So, I visited your sales department and showed them the form. They were unenthusiastic about how they intended to use the form.

I asked the sales department, how much inventory they would like to have in the warehouse when they go out on sales calls? They told me, that overflowing shelves, extra inventory they can put on special, would be just fine with them.

So I spoke with your purchasing agent and we talked about inventory turns. I asked him how much inventory he would like to carry and he said, zero. “If we could drop-ship everything, we would.”

How well does accounting get along with sales, get along with customer service, and operations? Can you sense the unspoken friction?

For the organization to move to the next level, it will require a new Stratum, Stratum IV.

The role of Stratum IV is integration. Integration into a whole system.