Even “excellent companies” go through periods of problems with sustained business performance. Amazon caught traction in the marketplace after almost going bankrupt in the 1999-2000 time period and became a runaway success and value-creating machine. I have read nowhere in the business press of any current problems with business performance at Amazon. Everything they do seems to become a hit. But I can almost guarantee that Jeff Bezos worries about some aspects of business performance at Amazon. For most for-profit firms, there is always some aspect of business performance that can at least be improved.
In this article, I want to discuss why I think business performance can be elusive and offer a high-level plan forward. First a couple of my definitions:
Business Performance: a historic track record of growing the market value of the firm faster and larger than a market index or peer group of firms.
Competitive Advantage Period: the length of time into the future the firm is expected to continue to be a value and wealth-creating organization. It is fashionable these days to state that there is no more sustainable competitive advantage. The world is best viewed as a series of transient competitive advantages now and into the future. But a Competitive Advantage Period of two years is better than a Competitive Advantage Period of six months. Competitive Advantage Period is still a key factor in almost all valuation models used by the research security firms valuing publicly traded firms. What is Amazon’s Competitive Advantage Period? I bet at least five to seven years.
Organizational Effectiveness: the unique mix of capabilities, resources, processes, people, culture, tangible and intangible assets to execute future cycles of growing the market value of the firm faster and larger than a market index or peer group of firms.
If the reader will grant that these definitions are at least somewhat useful, how is business performance actually achieved? I realize there are thousands of blog writers on Linked In and in other places who have their version of how business performance is actually achieved. I will offer one more view at a “crow’s-nest” level that is not discussed very much. A caveat though: for this approach to work for for-profit firms, the firm must have good to great people. If not, this approach will be a waste of time and effort.
From my experience, business performance can be made less elusive and enhanced with the thoughtful and foresight blend of three Roles across four Levels of any for-profit firm. Figure 1 depicts this matrix:
Figure 1: Three Roles and Four Levels
So this view is “structural” in nature and has to do with allocation of thinking and effort. Why do I think this depiction is useful for framing how to enhance business performance? First, in my thirty-five years in working with and studying for-profit firms, I have found that many firms work in and around only part of this framework. Business strategists tend to work at the Enterprise and Business Unit levels. Organizational change professionals tend to work at the Team and Individual levels. This observation is not 100% universal. For instance years ago I was trained by Dick and Emily Axelrod, organizational change practitioners, in their Conference Model approach for organizational transformation. Their rich approach delved into all four Levels aimed at holistic, organizational transformation. Second, some to many firms may have energy and solutions across the three Roles, but that effort is diffused, ad hoc, disconnected and sometimes with little accountability. We all have read of classic current Visionaries: Jeff Bezos, Elon Musk, and Richard Branson to name a few. The Danaher corporation excels with Master Builders for the most part. Google perhaps values the Architect role over the other two Roles. But at many firms, no one can say with assurance wherein the firm these Roles reside and who the key people accountable for these Roles are. Indeed the real and true Visionary role is missing entirely at many firms. This is not a criticism but an observation. It is actually very difficult to be a real and true Visionary who guides the organization towards successive, winning futures. From my experience and research, all Four Levels and Three Roles must be worked in and at the same time to enhance business performance. Let’s briefly define the Three Roles and Four Levels:
The Three Roles:
Visionary: the role that provides foresight into what the firm can continuously become and win at into the future, not once, but at each successive cycle of the next future.
Master Builder: the role that focuses on people, operations excellence, world-class execution, and speed.
Architect: the role that provides the “blueprint” for the firm: its foundation of information technology, its processes, and the interconnections among the processes. Processes are Executive Processes (strategic planning, innovation, budgeting and resource allocation processes and the like); Operating Processes (supply chain, manufacturing, sales processes and the like); and Support Processes (human resources, legal, quality processes and the like).
The Four Levels:
Enterprise: the totality of the corporate center, the business units as a portfolio, and the geographies.
Business Unit: each separate business unit in the portfolio of business units.
Team: groups of individuals who try to exhibit the attributes of a cross-functional High-Performance Team.
Individual: people as individuals who are asked to give their valued time and talents for the firm and from which get a variety of benefits. Individual here also means an “individual contributor”: that expert who works individually outside of any team.
Let me pose a quick distinction. We are not referring here to departments and position descriptions within departments. Departments tend to be organized around functional lines. We all know the reason for this is to group like trained people who can further develop as experts in those functions. But we also know of the dreaded “functional silos” that can hamper and delay just about anything. Departments and position descriptions are important. But here we want to know where the three Roles are played out and these can be across several departments and positions.
This “crow’s nest” view can be a valuable audit tool for any firm. Where in your firm are the three Roles found across the four Levels? Each firm will solve this differently but my assertion holds: all three Roles must find a home in one or more of the Levels and the Roles must be visible and accountable. Top-down command and control firms will exhibit the Visionary role at the Enterprise and perhaps Business Unit Levels. The Architect role will be found at the Enterprise Level. The Master Builder role will be found at the Business Unit Level supplemented with that role at the Team and Individual Levels. It is fashionable now to criticize the top-down command and control firm. But most capital-intensive firms exhibit some degree of command and control styles. But Bottom-Up firms might solve this allocation of Roles over the Levels differently. In the 1990s Xerox had an initiative to “get the strategy of Xerox into the fingertips of its Individuals and Teams”. It noticed that their front-line people had a lot of insights into their customers from their everyday interactions with them. It was felt if they could somehow harness the information the front-line people were keying in every day, its business strategy could be enhanced. This bold initiative did not bear fruit for Xerox, but I think we can say Google has a similar approach. It is not inconceivable to envision an allocation where Teams and Individuals morph the firm to a new competitive strategy incrementally and the role of the Enterprise and Business Unit Levels becomes being champions and removers of barriers. Indeed many software development firms come close to this kind of allocation of the three Roles across the four Levels. Other creative allocations are possible to conceive and be made to be effective.
The elusiveness of business performance can be bridled by allocating the three Roles across the four Levels in a way that is unique to every firm. Perhaps this is a new form of more sustainable competitive advantage. A unique allocation and mix of the three Roles across the four Levels that has a track record of helping to grow firm valuation would be very difficult for a competitor to copy. How does your firm solve the allocation of the three Roles over the four Levels? What can be improved?
This article is part of a series on what causes a firm’s value to increase.
Dr. William Bigler is the founder and CEO of Bill Bigler Associates. He is a former Associate Professor of Strategy and the former MBA Program Director at Louisiana State University at Shreveport. He was the President of the Board of the Association for Strategic Planning in 2012 and served on the Board of Advisors for Nitro Security Inc. from 2003-2005. He is the author of the 2004 book “The New Science of Strategy Execution: How Established Firms Become Fast, Sleek Wealth Creators”. He has worked in the strategy departments of PricewaterhouseCoopers, the Hay Group, Ernst & Young and the Thomas Group. He can be reached at firstname.lastname@example.org or www.billbigler.com.