Business Model Optimization: Navigating the Currents

I’m not a sailor, but I’m told that navigating currents in open water is a big part of the task. With the momentum of the right currents, a journey could be sped up or slowed down in significant ways. However, to the untrained eye, the currents aren’t always visible or apparent. But with the right charts and experience, a sailor can take advantage of the water currents to accelerate their journey forward.

Your Organization’s Structure

When looking at an organization’s design, it’s not always easy to see how a business is really set up to operate. Even if the strategic capabilities of the organization are well-designed and adequately resourced, the organization may take for granted the underlying business model of the company – much like an inexperienced sailor may not appreciate the value of the underlying water currents. The business model helps define not only the organization’s competitive positioning, but also how the organization is set up to operate.

The business model also determines where the power of the organization lies. Functions might think they are important stewards of the company from a risk perspective or from a people perspective, but if the budget and P&L sit in the regions, the functions will always have to defer some of their decision rights to the regions. There is nothing inherently wrong or flawed in understanding where the power of an organization sits, but being clear and understanding the trade-offs is important.

Some global organizations will have three or more strong operational centers of gravity. For example, a common trio of power dimensions in many global, multi-nationals is functions, regions, and products or customer segments. These three dimensions are all necessary to help the business operate at scale, but without clarity or an understanding of which dimension is primary, it can lead to confusion and overlapping resources.

When an executive isn’t aware how the organization’s business model is influencing the decision making, operations, and resourcing of the organization, it can lead to friction and tension. That friction starts at a work activity level where work is duplicated in one or more places around the company. From there, it leads to confusion about who has the decision rights to act, which leads to growing frustration among organization members. Efforts must then be made to redesign teams and departments or to work through responsible, accountable, consulted, and informed (RACI) charts and other decision rights tools. As they fail to drive the needed clarity, frustration can spread into the interpersonal relationships of organization members. It’s not that different people can’t get along, but the friction and confusion endemic in the organization slows everything down, makes everything harder to do, and leads to a dynamic where individuals and teams are at odds with one another.

Business Model Optimization

One company I work with is highly acquisitive and is always in the market to buy complementary companies for its business portfolio. When a new company is purchased, leaders are very clear that their intent is not to destroy the value of that company. It is allowed to continue operating in a fairly stand-alone manner. This maintains continuity during the integration; however, over time the new company is introduced to a new and rigorous way to operate. As they adopt this new operating rhythm, the acquired company becomes a great contributor in the overall portfolio of the company. While they understand that they have the power to operate and do what they have always done well, by falling in line with the operating rhythms of the larger company, they find opportunities for improvement. Because this client has done a great job of business model optimization and has a very strong management philosophy, it’s really clear how things get done in that organization and little time is wasted trying to figure out how to get things done. They just get things done!

The initial questions every executive needs to ask are: Is our business model optimized to drive a differentiated position? Is it helping us win in the market? The second set of questions should be: What is the primary power-center or dimension of our business model? Have we equipped it to win?

Let’s look at GE as an example. For a long time, GE was very much a product-centric company. At one point, GE’s leadership decided it wasn’t growing fast enough in India and China, so they created a new geographic organization in each of those big markets to drive growth. On the surface it wasn’t a bad idea, but that way of operating conflicted with GE’s primary operating model—products—so in essence the new geographic organizations created confusion with the traditional product organizations of GE. By setting up and perpetuating two ways of operating—one in the key geographies and one based around the product groups—the conditions were set for confusion, friction, and a lack of clarity in decision rights. GE might have asked:  How can we work with our product divisions to find ways to drive growth in China and India? or Would a shift to a new way of operating (say, around geographies) be more beneficial?

Optimizing a company’s business model is perhaps a once-in-a-generation opportunity, but working effectively within the organization’s established business model is key. Making sure decision rights are clear, driving differentiation, and allocating resources in the right ways can make the business model an enabler of your success and not a detriment to it.

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