After reading about business model, strategy, and processes in a previous MANAGEMENT TIPS you may be wondering: how do these fit together?
That is a natural question, and today I will try to provide a satisfactory response.
I will use a model that I present in my classes and lectures when I talk about business management within a systemic approach, and which seems to work well as a teaching tool.
Based on corporate governance, a company chooses a management model — for example, strategic management — and develops its strategic planning process that will result in a business strategy.
The company defines the business statements, vision, mission and values, and then, after discussing previously developed environment scenarios and internal diagnostics, the organization structures the SWOT matrix, identifying threats and opportunities in the external environment and weak points and strong points in the internal environment. The purpose of the SWOT matrix is to ensure that the organizational strategy and ensuing business model are consistent with the scenario the company envisions.
In order to define an organizational strategy and develop a business model that is consistent with the prevailing scenario, a complete analysis of the company’s environment is conducted. The most widely used technique is the SWOT Analysis, where Strengths, Weaknesses, Threats and Opportunities are identified, in order to derive a scenario as close to reality as possible to serve as a basis for decision-making.
The vision serves as basis for the development of the strategic objectives that the company intends to pursue throughout the year. To achieve each objective, indicators and strategic initiatives, or simply strategies, are selected for implementation. Previously, in other posts, I covered the topics of the strategic planning process, the definition of performance indicators, and appropriate targets for them. If you have any questions, I recommend you consult the archives.
Once the strategy has been defined, you should design the business model with its nine quadrants: Based on the definition of the business and taking into consideration strategic planning, the company defines its business model, which should include nine dimensions or quadrants — key partnerships, key activities, value proposition, relationships, target customers, resources, channels, cost structure, and sources of revenue. If your strategy formulation process does not address all of these dimensions, it will be necessary to add in what is missing.
By analyzing the information obtained, it is possible to identify competitors, possible challenges or economic, social and cultural opportunities, among other variables, all of which will assist a business in growing in an innovative, unique way. It is through the synergy of business strategy and business model that a company will innovate and stand out in an increasingly competitive market. Said synergy is ensured by the proper use of planning methodology, fostering true integration between strategy and business model.
After completing this step, it is necessary to validate what has been produced. The validation process consists of verifying that the business model is aligned with the defined strategy. So as to achieve the expected results, it is critical to identify any inconsistencies between business model and strategy. In other words, the implemented strategy must strengthen the business model.
Have I been clear? Strategy must guarantee necessary resources, and the target customers, among other aspects, must be identified. Remember: the strategy must attend to all nine dimensions of the business model.
I will return to the subjects of governance, management model, strategy and business model at another time. Presently, we still need to design the organizational architecture (or organizational structure) that will establish how work will be parsed in the company and define how to manage performance. Elsewhere I have touched on indicators, targets and performance review meetings. Finally, risk is inherent in all business activity and permeates all decisions made.
Now that you have understood the role of business strategy and the importance of aligning it with the business model, how about doing an analysis and verifying that your company’s decisions and actions are in alignment with both, creating synergies where possible? It’s an interesting, important exercise.
Remember: the implementation of strategy and business model takes place through the decision-making process. It’s no use having an agreed strategy and business model, if day-to-day decisions and actions do not support them.
Once the strategy is defined and the business model developed, it is time to align business processes with the strategy and, consequently, the business model. Business processes formalized in flowcharts will standardize which daily tasks will be completed and how. Subsequently, through indicators, you must monitor whether the strategy is being put into practice. Business results and achievement of goals will show if this is the case. Otherwise, course corrections must be made. The main benefit of this alignment is the effectiveness of the strategy and business model. In this sense, the initiative fosters correlation and monitoring of indicators, in order to facilitate necessary interventions and corrective actions in the event of non-compliance with corporate strategy. Certain previously mapped business processes will of necessity be redesigned to align with the new strategy and agreed business model.
Improving the integration between strategy, business model and business processes will result from learning experiences gained over several improvement cycles.