Perspectives on business models (there’s always more than one!) – 2

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Over the last twelve months, I’ve talked with several executives about business models, and how it is almost inevitable that there are always more new possibilities for making money (attracting customers, generating revenues and running cost-effective operations) than there is available support within the organization – in the form of investments, management bandwidth, resources for execution and leadership attention.

While innovation, R&D and exploratory efforts are vital for bringing new ideas to life, its typically the constraints faced in these areas (investment dollars, resources, management & leadership support) that result in killing off promising possibilities…and sticking to a self-defined “steady state”. In an organization of sufficient scale, there will always be many focused on maintaining the status quo, just as there will always be a few that are constantly trying to go beyond (its a human impulse thing apparently, and one that’s been articulated in a different context by Camus; The Rebel – if you’re interested in that sort of thing).

The question then becomes – how does one balance priorities between today’s cash generators and tomorrow’s competitive differentiators? From a purely financial standpoint, there are techniques based on real options analysis that could be helpful in evaluating investment alternatives, and your favorite strategy consultant would be happy to bring out variations of the typical 2 by 2 matrix analysis too…but in an operations budgeting/ planning context, people tend to take decisions based on a few characteristics (this is based on an informal survey of companies) – the typical ones being:

1. Familiarity/ existing relationships with promotors and/ or creators

2. Alignment to existing priorities and/ or goals (with metrics)

3. Credibility with peers

Are there other characteristics that come to mind? Certainly, and I’m going to catalog these as we go – so send in your thoughts too. After all, as we live through world-altering changes (cloud, big data, social, mobile, privacy…the list goes on), these will become more important in influencing how your company evolves.

Perspectives on one-trick ponies (or balancing current and future business models) – 1

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A few years ago, I was at an offsite session focusing on corporate innovation run by Gary Hamel. He was focused at the time on the theme of the “corporate revolutionary”.  During the day, he made the point that a typical company is really good at making money through just one thing, one “trick” – and that through its lifetime all the investments made by management are focused on enhancing that single valuable trick and building protective barriers around it, and also refining the operations and infrastructure that enable the trick to happen (there are few that go beyond the first “trick” and those are companies that make history…twice over or more. The usual example given here is 3M).

The company makes money and claims “excellence in execution” along with the secret sauce for the trick itself. Until another company comes along with a better trick, or with a gamechanger that renders the trick redundant for core customers.

The real challenge is always the same – how does a company drive enough innovative thinking within the organization, to help fuel the discovery, design and development of the next new trick that’s going to generate revenues tomorrow, while making investments to sustain today’s operations. Its a difficult balance to achieve, but here are some ideas that have come up over the years:

  1. Collaborate with leading companies in other industries – cross-fertilization of ideas and pooling of R&D investments is always a good bet (e.g. P&G and BASF)
  2.   Locate a couple of offices with Engineering, Product Management and Operations in cities/ towns that have major research universities (e.g. Apple, Google and Nokia, with somewhat contrasting approaches by RIM and Microsoft)
  3. Allow for “experiments on own time” (e.g. Google’s engineers are free to choose projects for a certain amount of time every month)

I’m sure there are other ideas (any suggestions based on your experience?). These will have varying degrees of relevance depending on the situation, of course. But now, consider the implications of these for operations and investment in transforming/ re-building and developing new capabilities required to enable the new “trick”:

  1. Prioritize design and development of operating processes and systems to enable teams to work across organizations (refer Open Innovation, Chesebrough). This would include a structured, transparent, traceable approach to data sharing, information exchange, collaboration and more. This would include capabilities for “slicing & dicing” and “sanitizing/ redacting” corporate data as needed for safe collaboration
  2. Build an organization model that allows for globally dispersed operations with distributed “centers of gravity” at locations other than corporate headquarters. Create decentralized operations to help prevent folks  falling into a “mothership mindset”
  3. Develop a management model (including project-based working, time allocations, tracking & reporting, performance management and more) and supporting technologies for harnessing individual ideas and initiatives – i.e. the “intra-preneurial” mindset

These can be extremely challenging, requiring orchestration across structure, policies & processes in parallel with enabling technologies in new areas – much more so than any project focused on enhancing existing operations. In subsequent posts, we’ll look at how these can be addressed successfully, lessons learned and most importantly…how investments can be leveraged across current and future sources of revenue and growth.

Bad system, good people

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Sometimes, it doesn’t matter how people work or how they use a system, its just bad. Bad in terms of an unintuitive user experience (user interaction flows) or terrible functionality fit, slow or compromised performance, poor security, inadequate integration, unscalable architecture or a combination thereof.

Unfortunately, quite often companies continue to compound the errors made by previous generations of management and old decisions. More money, more fix-it projects and the businesspeople using the system in question continue to get pressured. The typical justification is that doing a “rip and replace” job is going to be terribly expensive, a huge effort in transition and change management and a significant risk in terms of business disruption.

A lot of this used to be true, till about a decade ago. Now, there are choices that make things different. The development of SOA, composite applications, SaaS, ITO/ BPO and BYOD complicate the IT environment, but completely change the dialogue in the situation above. There is even more reason now to do a quick application lifetime cost assessment along with a  business benefits review accompanied by an ROI analysis that connects the dots. It is pretty compelling when alternate scenarios are defined and the implications spelled out in dollar terms.

Is this your situation? Things could change really quickly if you open the door to these possibilities. Let the businesspeople go free to generate revenue and drive growth!

Operating policies + process guidelines = bureaucracy and loss of agility?

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Every start-up that forms in Silicon Valley has a leader with an opinion around how bureaucracy and loss of agility in operations will be minimized as growth happens. The fondest dream of every founder is to create an organization that somehow combines scalability in operations with flexibility and freedom. Yes, Google and Facebook too! Some succeed where most others fail. Lessons for companies? A core set of beliefs/ principles is important (sometimes its worth starting with what’s at the core), everyone seems to agree with that. Starting with the obvious example (e.g. Google’s mission is “to organize the world’s information and make it universally accessible and useful”), and moving on to other companies its relatively easy to identify that companies that have definitive statements do tend to enjoy success @ scalability for a while (there may be other reasons for the company to falter eventually). Developing a consistent set of operating policies and processes….well, that’s a harder one. In discussion with several founders and after studying the evolution of a few (more famous) startups, there seem to be a variety of perspectives on this. One view tends to side with so-called organized chaos, and at the other end of the spectrum, we have examples of companies that spend a lot of time and money defining detailed guidelines and procedures.  Which works better for your company? The consultant’s response – “It depends.” But of course. It depends on the size and scope of the company, the growth trajectory and the aspirations. Do you want to build a $10b company that lasts a generation? Definitely need those (well-defined) operating policies and processes for sure. Interested in growing the business to a point where there is interest from other larger companies that have lost their innovation momentum and want to buy companies that are early on the growth curve? We should have the essentials  in place for sure -governing policies and defined processes across core financials, manufacturing and procurement, supply chain, sales and marketing, along with some aspects of customer operations. Want to grow the idea beyond the core team to demonstrate scalability and attract a bevy of late-stage investors and/ or a buyout? Well, then don’t waste too much time or energy on anything else!

Bottomline, the perceived “slowdown” in operations attributed to institutionalized policies and processes, along with enabling systems is often due to increases in scale and associated inertia and operating complexity. To speed things up again – don’t wipe out the policies and processes; rather, an intelligent analysis and rationalization, followed by definition of operating norms particularly for key roles through the organization. Absence of structure, policies and processes doesn’t guarantee the continuation of prized agility and innnovation. Neither will their presence! Don’t believe me? Take a closer look at two companies in the news last week – Yahoo and Kodak.

On the evaluation and selection of technologies

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An executive asked me once, please would  you provide to us the guiding principles and framework that assisted in the most successful decisions in the evaluation and selection of technologies (across a wide range of enterprise enabling technologies – personal productivity, desktop environment, business apps from BI to ERPs and beyond, networking, security, infrastructure etc). After a long presentation where we walked through a multi-dimensional, multi-parameter framework that allowed for evaluation and rating of technologies on an array of aspects (macro-level parameters such as market outlook, vendor longevity and financial performance, positioning on Gartner’s Magic Quadrant; micro-parameters such as feature and functionality, resource availability, performance in the company’s industry segment et al), the team of twenty executives and managers seemed to be divided into two groups. One set of people wanted to know more details – parameter definitions, information availability, how to scope and score, the ratings and how sensitive they were. The other set of people (smaller group) sat back and asked about the objectivity of the ratings, since these would finally be assigned by people (ranging from “experts” and “super-users”, to “informed users” and just regular business process owners). Both perspectives are important and have their place in the process of evaluation and selection of technologies.

But in the overall scheme of things, the selection and decision-making of technologies in the enterprise context is an emotional decision. Or one that involves emotions including past association, history of success/ familiarity and other (external) aspects of business including potential balance of trade with the vendors in question. People, the sooner we acknowledge these dynamics (often taking place behind the scenes) and factor them into the process, the easier it will be to get beyond the pseudo-science and into the guts of the evaluation readout. Decision-making will be more acceptable and will cause less dissonance if adequate visibility is provided!

Leadership vs. management in a business transformation

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As part of putting together content for a coaching session, I re-read a couple of HBR articles on leadership. It struck me how most of us don’t differentiate clearly between leadership and management in the context of driving a large business transformation program. Typically, we talk about overall program leadership and then there’s a PMO (program management office) with project managers (of which one may be the lead PM). The program leadership role may devolve on a business function head (Director, VP or above) who typically has a day-job. The role is typically just viewed to require executive sponsorship of some sort, along with an escalation point (in case of conflict) and a certain amount of cheerleading. If the executive in question has an appetite for detail, there may be a weekly/ monthly/ bi-monthly review of progress to plan.  This opens the door to management-related activities, and while appropriate, this is spectacularly insufficient in terms of providing leadership of a program on which a company may be spending millions of dollars. Is that really all we should expect of program leaders?

An executive responsible for a multi-million dollar business transformation program must have this as the primary or sole responsibility. It should be the day (and night!) job for the person. So what are the essentials here, particularly those that are relevant throughout the duration of the program? Leadership must include defining and reiterating the vision for the program, as well as referring to it as a point of reference continuously through the lifetime of the project. To remain faithful to the vision, while being able to conduct critical evaluations periodically to ensure relevance for the business is essential. To be able to inspire the team, translate the vision into specific directions and to provide continuous guidance and reassurance is essential. To fight for resources and to sustain focus on the program as the company’s leadership attention moves (inevitably!) to other matters (sales results, stock performance, M&A activity et al) and conflicting priorities is essential. There are other aspects of leadership too, that become relevant depending on the stage of the project. These include cross-program coordination, driving buy-in and support and eventually driving adoption and change.

Playing the budget game-1

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Have you heard any of these before? Or other statements similar to these:

If its in your program budget already, you can afford it, otherwise you’ll have to submit a proposal for an exception approval. Do you have contingencies built in? Did you bake in a buffer? Running the risk of being over-budgeted and under-utilized? Better spend it – if you don’t use it, you lose it. Is it cap-ex or op-ex? If its cap-ex, you can live through a bad quarter but if its op-ex you’re probably out of luck. Do you have a business justification, a business case, an ROI? Was it validated by the stakeholders from each and every business function that’s going to see some benefits from the program?  What happens in case there’s a new development, like an acquisition? Who assesses the impact and how does it get factored in? What about integrations and cross-program dependencies? How about stuff that was classified as foundational – to be leveraged across multiple programs?  Is there an allocation mechanism? Who pays for those? Not my problem.

Welcome to the budget games.

We estimate that up to 20% of executives’ time in Fortune 1000 companies is spent on budget games. And that’s for non-planning months, i.e. not during the annual planning cycle. Depending on the scale, scope and complexity of the organization, the run-up to the annual planning cycle may take up to 80% of executive bandwidth. What goes into these activities? Well, it appears that despite all the investments in systems and data, there’s not a whole lot of reliable information available to support these decisions. Why? Because most of the data required is related to budget vs. actuals. And most budget-related decisions are based on numbers and negotiations sitting outside any business application or enterprise system.

And since most annual planning and budgeting exercises in the large enterprise still operate on a top-down basis with assumptions that are outdated almost the same moment they’re discussed and finalized, most executives get stuck with commitments and projects they can’t address with the final allocated portions of the budget pie.

Or to paraphrase John Lennon, spending is what happens to you while you’re busy re-visiting budgets.

Its alive!

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Two years, and a hundred million dollars later (quite literally!), we go live with the system, and the associated business architecture will become active too. It has been a long journey and my team shows it – we’re quite exhausted – mentally and emotionally, for sure. We’ve had an average of 25 people on the team, and people have lived through it all  – 9 promotions, 2 quit, 4 marriages, 4 babies (including twins), 1 death and at least a couple of small nervous breakdowns.

The business design itself included over 70 business scenarios, 900 sub-processes and over 5000 requirements, that were then used to design system capabilities and solution architecture, while balancing key considerations around user experience, project costs and timelines. A complex undertaking! What is it that motivates a company to take such a massive undertaking? Strategic considerations including market pressures, competitive realities, product changes. An evolving business model, along with acquisitions. Re-imagining the way business is transacted in a company of 6000 people is hard, and its even harder to build a business architecture and systems platform to meet those expectations. But we did it, and we’re here now, also wondering about where we will go from here.