There are many organisations in the playing field playing to play but not all are playing to win. In soccer, we called it dribbling the ball and not scoring. Some organisations engage management consultants to see what can be done. The consultants normally bring in the business thinking to the discussion using a syndicated workshop or lab approach.
Business thinking has always been based on an analytical approach. This thinking demands breaking things down into small pieces, then studying them in isolation. Hence, the general frameworks available in management disciplines are based on a traditional reductionist view of the world.
The setback with the traditional reductionist framework is that it doesn’t show us how our actions affect the business a whole; thus, it is quite easy to lose the bigger picture in the process of reductionist thinking. We make decisions that may have unintended consequences to the business. For example, we cut production costs in the hope of making a bigger profit. Accidentally, we make our products less desirable by reducing their value to the customer.
Similarly in the traditional airline business which is operating as a “network” business model where flights are connected as a network that allows passengers to travel from one location to another location via transit hub. At times, management may make a decision to cut a specific flight due to operational losses but forget to see the impact on the network. Overtime, they destroy the network business model and operate as point-to-point like the low-cost airline. When this happens, their management systems are not geared for the shifting business model creating a spiraling downward movement.
A way to approach the above is to have a system view of the business, and this demands systems thinking. We introduce the GRID* template in strategic discussion with our clients. It gives a system-based view of the business and at the same time a solid discussion using the reductionist approach. We believe combining the two approaches is necessary as every business is in a constant state of flux. The environment is always changing and so is the business itself.
We use the cascading business model to glue the two approaches. A business model merely explains how the various elements in the system work together at a certain moment in time. There are five components cascading down as a system** – your winning aspirations, where to play, how to play, what capabilities are needed, and what management systems need to be put in place. We go through this first before introducing the GRID template.
The GRID template has two dimensions. The first dimension is the business goals or winning aspirations reflected on the horizontal axis. It addresses three things – the desirability of our product offerings to the customer, the profitability to our business which means the customer must be willing to pay more than the costs, and longevity meaning that we have a sustainable business. The three goals are interdependent.
The second dimension is the vertical axis which addresses the three layers of where to play and how to win – the customer, the market, and the organisation. We need to address what the customers want and how they behave can change over time. Hence, we need to pay attention to the changes. The market conditions change with new competitors to the playing field, new government regulation, and so on.
Finally, the organization that is in the playing field is also changing. As your business develops, you find that your capabilities, strengths, and weaknesses change too. Your capabilities are dynamic as they change with the environment.
The business model is bounded by your dynamic capabilities – which is the organization capacity to anticipate, shape, seize opportunities, and avoid threats while maintaining competitiveness. This is done by improving, combining, protecting, and rearranging your tangible and intangible assets. We term this as “management systems”. It builds and maintains the distinctive capabilities that underpin a unique “how to win” in the marketplace and meets your winning aspirations.
There are four components in the management systems – two of the components are considered as “hard” and the other two components as “soft”. The two hard components are your processes and technology, while the soft components are the people and culture. Hence, it is like the two sides of the same coin – the technical capabilities and adaptive capabilities.
Many organisations tend to focus on the “hard” components and ignore the “soft” components. This is like addressing your body but not your mind. The reason being the body is real whereas the mind is subjective and not visible. Hence, 80% of organisations that embarked on business improvement programmes failed due to this.
Our consulting approach is to empower you to do-it-yourself using the business model and the GRID. The business model is important as somebody must pay you an amount to cover your costs and earn a decent profit. Hence, you need both the revenue model and a cost model that fit together. As mentioned above, business model merely explains how the various elements work together at a certain moment in time.
Our approach when working with clients will be in the following manner:
Build the business model using the cascading approach.
What are your winning aspirations?
Where do you want to play?
How do you plan to win?
What are your current capabilities?
What are your management systems today?
Construct the GRID to give the systems view of the business model.
Focus on the heart of the strategy of the two items “where-to-play” and “how-to-win”. The where-to-play tells you from which customers you will be garnering revenues. The how-to-play tells you the level of revenues you can expect and the costs you need to spend to earn those revenues.
A hard look using the reductionist approach at the management systems as you need to transform this to give you the winning formula going forward.
Finally, develop the business strategy to go forward. Business strategy are the steps needed to develop and grow your business.
* The GRID - Matt Watkinson
** Playing to win – A.G. Lafley and Roger L Martin