Journal: News & Comment

Thursday, April 17, 2003
# 9:40:00 PM:

That explains a lot

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Philip Greenspun writes:

Basically there are two ways to set up a business. If you don't believe that you're a management genius you push profit-and-loss responsibility down to the lowest level possible. In the case of McDonald's and its franchisees, for example, P&L responsibility is at the individual restaurant level. If one restaurant is doing badly it doesn't have access to the bank accounts of the other restaurants and thus there is no way for the bad apples to drag down the barrel. Furthermore the top managers don't need to care too much about how an individual restaurant is spending its money. As long as the group with P&L is making a profit, who cares how they are doing it?

An alternative approach is central management by function. The Freedom Fries cooks at all McDonald's would report to regional managers and a VP of Freedom at headquarters. The soda pourers would report to middle managers under the VP of Soda. The drive-through cashiers at different restaurants would share a manager and so forth. If you have amazing business management skills in theory this method could produce higher performance and greater efficiency. However, without metrics and cost controls there is a substantial risk of bankruptcy because many fewer people have profit and loss on their minds.

There are far fewer management geniuses out there than they themselves think there are.


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