The deceptively difficult question: “What business are we in”

I recently came across an interesting post in a LinkedIN forum.  One of the forum members, Patrick McFadden, made a simple but extremely valuable observation:

 

 “Want to stump your employees? Ask a simple question: What business are we in.

 

Figure standing in the middle of four red crossing arrows, representing a number of directions that are availableThis is an extremely valid point.  Go into any large or mid-size organisation and ask a question like “What business are we in” or “What is this organisation for” and you’re likely to get a number of subtly different answers – or in some cases wildly different answers.

 

Let’s take the theoretical example of a motor (auto) insurance company.   On the face of it, we’d expect the answer to our question “what business are we in” to be simple – we’re in insurance, right?  That is certainly true, but often when delving deeper some intriguing differences start to emerge.  These differences can exist at all levels of the organisation.  We might get responses like:

 

  • Marketing Manager: “We’re in the business of selling peace of mind to our customers, through comprehensively designed insurance policies”
  • Underwriting Manager: “We’re in the business of selling optimally priced profitable insurance within our target market”
  • Actuary: “We’re in the business of spotting analytical trends that our competitors can’t so that we can offer great value insurance premiums whilst reducing our risk exposure”
  • Customer Services Manager: “We’re in the business of selling great value insurance whilst offering excellent service to our customers”
  • Claims Manager: “We’re in the business of delivering on our promises and helping our insurance customers in their time of need”
  • CEO: “We’re in the business of designing and developing market leading insurance solutions whilst delivering market-leading profit and ROI to our shareholders”
  • Shareholder: “You’re in the business of staying profitable and keeping dividends high!”

 

What these different perspectives show are a difference in each stakeholder’s worldview, and also the transformation that the organisation carries out – i.e. how it adds value to the customer.  (These are terms derived or drawn from Checkland’s soft systems methodology, and this article is also inspired by some of Checkland’s techniques).   This can cause particular challenges if there are differences at the top of the organisation that haven’t been discussed: Imagine working for a clothes retailer where one senior executive’s view was that the organisation existed to “Sell practical clothes at low cost” yet another senior executive’s view was that the organisation existed to “Further fashion and promote the works of local fashion designers”.   It’s likely the organisation would be in constant tension!

 

This is an extreme example, but more subtle differences amongst the upper ranks of organisations are more common that you might expect. The key is to get them out in the open, agree some kind of consensus and then understand how this affects the business.  Clearly, if an organisation decides to be a ‘pile ‘em high’ clothes retailer then the business model and the types of activity that it would carry out would differ from that of a high-fashion retailer.   The key performance indicators (KPIs) it would be interested in would be different, and the analytic insight it needs would be different.

 

This links back to the original statement I mentioned at the start of this article:

 

“Want to stump your employees? Ask a simple question: What business are we in?”

 

Clearly a way of gaining a consistent view throughout an organisation is through the communication of vision, mission and strategy.  However organisations also send more subtle messages by the way they  measure success (and what objectives are set for staff ) A high-fashion retailer might be more focussed on innovation and early identification of trends – perhaps staff might have these written into their objectives.  A ‘pile ‘em high sell ‘em cheap’ retailer might focus on throughput.  The key is to ensure these metrics are balanced and in line with strategy.  Organisations cause contradiction and confusion when their success metrics are out of line with their strategy: Can you imagine the impact of having a corporate mantra of “excellent customer service at all times” but then lambasting call centre staff who don’t achieve an average call length of 3 minutes?

 

In summary: The key is to discuss the differences, ensure the business is carrying out the right activities, balance the critical success factors and KPIs, and communicate clearly.

 


 This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet. I’ve been compensated to contribute to this program, but the opinions expressed in this post are my own and don’t necessarily represent IBM’s positions, strategies or opinions.

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