As a consultant, I’m an outsider looking in on organisations. This leaves me to often wonder why businesses I experience look and feel so different. As a customer or consumer we get radically different experiences of say our utility companies. One company seems really helpful, the other seemingly putting obstacles in the way of delivering my requirements. Even our experience of the same organisation through different channels can feel disjointed.
The anthropologist Pierre Bourdieu studied the Berber of Algeria after the Franco Algerian war (1). He asked the Berber why their houses were divided into two. The higher and larger part housed the weaving loom, was for entertaining and where the men slept. The smaller part was for the children, the animals and women. The Berber were puzzled by the question. This is the way of the world, the way they lived; the members accepted these arrangements as the ‘proper way’. It was their ‘common-sense’. Strange to us – but not to them. In this way the Berber classify their world. We equally assume and accept the classifications we inherit of our businesses.
Understanding the Dangers of Classification
Gillian Tett of the FT in her excellent new book “The Silo Effect” tells this story of social classifications amongst the Berber (2). She uses her anthropologist eyes to look at how we classify the way we experience life in general and organisations in particular. She tracks the negative consequences of the excessive compartmentalisation in Sony losing their global position in consumer electronics. Simultaneously launching products that compete with one another – each with different batteries and chargers brought home the consequences of making the business into a series of silos.
Like the Berber tribesmen, we all have the tendency to accept the current classification of things. The human brain is a sense-making machine and the way it does it is through classifying things, events and experiences. This is how we make sense of our lives. Without these classifications life would be a random jumble of an alphabet soup. But in these classifications lies a danger, the danger that we don’t see outside the classification within which we fit, or in Tett’s words, the silo. Which creates a disjointed customer experience and a box full of charging devices!
Within our companies we all have our classifications. It is obvious in company X what marketing does and equally obvious in company B what they do; the only issue being that what they classify as ‘marketing’ is quite different. In one organisation marketing is all about how you communicate to your customers the features and benefits of your product. In another, marketing is about understanding market needs and requirements, developing products and services to meet those needs and actually taking them to market.
We order and make sense of our business world through a wide lexicon of classifications. The words may be the same but the realities are quite different. Typically we classify activities into sales, finance, HR, operations, supply chain, R&D, business units, divisions and so on.
Take the customer for example. The idea of segmentation deconstructs and reinterprets what is meant by customer. It breaks down a single classification into multiple classifications of customer requirements. This then raises the question about different products to meet these different needs. The service offer of a private banking client is markedly different to that of the normal retail customer. Should then the same process deliver both or do we separate them?
Connecting the Business with the Customer Journey
A key role for the centre of the organisation is to be the architect of business, to create and develop its moving parts. Put another way, it is setting up the ecosystem in which the elements of the business will act and perform. We call it the business model. The inspiration for the ecosystem is strategy, that definition of purpose, direction and goals that defines the business in the next phase of its life. If the strategy is about developing closer, more personal relationships with the customer, then the ecosystem must reflect this. The way in which the organisation interacts with the customer is a vital part of this ecosystem.
Businesses in similar spaces have radically different ecosystems:
- Tesla, the Californian electric car company set up by Elon Musk makes the vast majority of its parts itself. For example, it is building a large new battery factory. Tesla is in contrast to the major auto companies who have outsourced as much of their component manufacture as they can
- Boeing outsourced so much of the 787 that they struggled to integrate the thousands of sub contracted modules
- Microsoft and Apple have different ways of driving revenue and customer value
- Successful retail giant Inditex manufactures some of its own garments, just as successful Primark does not
- Warner Bros’ Harry Potter experience has an integrated customer experience all being run by a single team where others break down the customer journey into segments being run by different teams.
Google, or should I say Alphabet, has changed its business model to separate out new business streams from the existing revenue generators of search and YouTube. The Eurofighter, an inherently unstable aeroplane requires sophisticated systems to keep it in the air – this gives it hyper manoeuvrability. Businesses if they are to be agile need to be in part unstable.
There needs to be parts of the ecosystem that are experimenting, challenging the existing order of the rooms and silos. Business models help us reconcile some of the internal competing tensions of efficiency, synergy and cost reduction. But in that internal drive the customer journey can get lost, the service becomes fragmented and the integrity of the business model starts to fall down.
Businesses need sufficient glue to hold them together – but not so much that they cannot move. We need to ask ourselves the question as to what is the maximum amount of dissonance we can manage and still hold together rather than how we can make ourselves really stable and too rigid? Continuing with the ecosystem metaphor we can all see parts of organisations that become toxic and infect the rest with their poison. So we need good governance of the ecosystem too.
What Does This All Mean for the Business Model?
This is where the idea of the business model or operating model comes in. Typically in the past, organisations have not had a guiding concept between the vision and strategy and the organisation chart.
The idea of a business model allows us to map how we are compartmentalising the organisational world we inhabit. It helps us think about what are the moving parts, how do they relate to one another and to our suppliers and customers. How we generate revenue and where we expend cost.
There are many frames or rulers we need to apply to our business model. ‘Cost’ and ‘efficiency’ are obvious ones; the customer or patient journey, where the end customer or consumer touches each part of the organisation is another frame. Our approach is to create a high-level entity map that maps the ‘moving parts’ of the organisation across a range of different dimensions. In this way we can create maps of the current organisation, highlighting the silos and the interfaces. We then can project alternative ways of working.
For example, Diagram 1 below shows how we align activities to process and structure.
We like working with the business canvas set out above. It was co-created by a great team of experts and provides one of the foundations for thinking about business models (3).
Each of the boxes in Diagram 2 represents a key element of any organisation. We sometimes add more, such as innovation. It is sometimes helpful too to map the external landscape within which a business thrives and thereby focus on the external or customer experience. But it forces us to think purpose, customer segmentation, our value propositions and importantly our revenue models.
For example, those organisations who claim they put ‘customers at the heart of the business’ might use the canvas to challenge their business model and what they deliver to the customer.
Getting an Outside Perspective
The love we have of identifying with a tribe or a team can blind us to the fact that so often the greater the cohesion within the tribe the greater the distance between the teams (the Achilles heel of team work!). This drives silo behaviour that takes us away from the interconnectivity that a business model demonstrates.
Many people I meet don’t know how their business or organisation is supposed to work. They know their job description and seemingly little else. The idea of business model is a powerful communications tool to bind everyone to an understanding of the ecosystem in which they play their part.
Going back to the Berber tribes – we are rearranging the rooms, we are challenging why there should be just two, perhaps one or three, we’re challenging the function of each and why life has become so orientated around this classification.
Now and again we must all become outsiders. Stand back from our accepted view of our position in the markets and how we engage with them. Business models allow us to do this leaving the crudeness and assumed hierarchy of the organisation chart to a different day.
- “Sociologie de L’Algerie” by Pierre Bourdieu (1962)
- “The Silo Effect” by Gillian Tett, Little, Brown (2015)
- “Business Model Generation: A Handbook for Visionaries, Game Changers and Challengers” by Alexander Osterwalder and Yves Pigneur (2010)