business design

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Business design and strategy --
Business design, or business organization design, is the other side of the coin of strategy development. The output of strategy development is not only the actions to take and performance results expected, but the objective of those actions in the form of a business model which is intended to produce the performance results. Business design innovation stimulates strategy formation; strategy formation stimulates business design innovation.

Business design approach --
The business design is done in conjunction with strategy development in the create art stage of the strategic management process. The business model provides a ""guiding light"" to the inquiry processes used to explore design alternatives. Business organization inquiry - with its inquiries such as comprehensive inquiry, strategic focus inquiry, and culture inquiry -- produces idealized designs to spur innovation of the business organization. The comprehensive inquiry delves into all aspects of the business organization, including the aspect integration inquiry that delves into the interrelationships that produce synergy, new unique capabilities, and competitive advantage. Specifically, the inquiry includes an exploration of the competitive advantage factors to further spur innovative thinking in regards to competitive advantage. The resulting design is then the basis for the strategy deployment and the business organization transformation.

Business design criteria --
To design a business, for business design innovation to reach its full potential, there must be a business design construct and a design process which meets the following criteria --

  • Logical derivation and organization of the business design construct -- The business model/business design construct is derived from and organized by the social system construct variables, or aspects, of environment-purpose, function, process, and structure. This forms a holistic structure that guides thinking and organizes the elements of the business model.
  • Completeness of the design construct -- All of the elements of the business organization, all of which can have a role in business design innovation and business definition -- must be expressed in the model.
  • Integral to the strategic management process -- Model preparation of the current state and the business design (next state(s) business model) is integral to the strategic management process. It serves to organize the understanding, innovation, and design processes.
  • Simplify the view of complex businesses -- Without a business model / design construct, the business organization is thousands or millions of elements at various levels of detail and with massive numbers of interrelationships. The organization of the business elements allows for multiple representations of the business, some holistic, some of specific aspects, some at high levels of detail, and some at lower levels of detail. The flexibility of the representation of the business organization of the design construct enables management to focus their attention on the business elements and their interrelationships that are essential to the particular are of focus of the task at hand. The use of the design construct to reflect the current business can also reveal unhealthy complexity of the existing business organization. Following systems thinking principles, the level of complexity employed is determined by what is appropriate for the exercise.
  • Unconstrained creativity and innovation -- The design construct is non-prescriptive as to what the strategy or the structure of the business should be. The construct and the strategy formation processes serve to stimulate unrestricted creativity and innovation of the business design.
  • Strategy expression and validation -- As a logically complete expression of the strategy, the business design construct serves as a test for the congruity and completeness of the strategy to verify that the strategy. Simulation of various types can also test for the expected performance results of the model.
  • Focus, iteration, innovation, and competitive advantage -- The model supports the iterative discovery and learning process necessary to stimulate innovation, develop a competitive advantage, and sustain a competitive advantage. See iterative inquiry.
  • Competency development -- The strategy formation exercises associated with the strategy and business model develop stronger organization member capabilities such as strategic thinking and business savvy.
  • Realistic business assessment -- Preparation of the current state business model serves as a strategic assessment tool as well as an initial step in strategy formation.

Objectives of business design --
The ultimate objective of strategy and business design is to develop an organization that sustains a competitive advantage. This objective has several dimensions.

Achieving an initial advantage --
In order to sustain an advantage, an advantage must be developed in the first place. In one respect or another, this requires the development of a business model with a unique value proposition. A unique value proposition requires some sort of resource and competency advantage - a distinctive competency. Distinctive competencies are generally developed by people motivated to invent and innovate, producing the technologies necessary for the competency. The motivation does not happen randomly or in a vacuum, but in the context of an inspiring purpose. This purpose has implications for societal improvement -- the world being a better place because of the organization's pursuit of its purpose. It is this purpose which energizes the organization members to innovate.

Sustaining advantage --
Though it is difficult to develop an advantage, it is much harder to sustain an advantage over time. A business organization able to sustain an advantage must be designed to be an evolving organization, one that has the learning, exploration, adaptation, and exploitation capabilities to both perform in the here and now while transforming the organization to its next advantageous configuration as the existing one fades over time.

Management's job --
In light of the ultimate objective, top management's job is not to create strategies per se, but to design and build an organization that is capable of producing competitive strategies and transforming itself to adapt and evolve to advantageous configurations in an ever evolving economy - producing new business concepts. This requires creating what Hamel (2000, pp 244) calls ""habitually and perpetually innovative organizations.""

Business design innovation --
Business design innovation is the conscious pursuit of new business designs with heretofore undiscovered competitive advantages. The premise of the BAi approach to strategy is that business design innovation is a core competency required in order for a business organization to sustain a competitive advantage.

...for competitive advantage --
Business design innovation is the means to compete without competing directly. With a unique configuration of business model elements, each business model can be designed to produce a unique value for its customers in a way that is not easily imitated. A business organization has a unique context, competencies, values, mission, culture, etc. Therefore, a business organization design is impractical to replicate. The impracticality of replicating a business model is both due to its complexity and the principle of path dependence.>/p>

Development of a business model with a unique advantage is the strongest and most durable form of competition due both to the superiority of the model vs. competitors and the impracticality of replicating the business model. Practically, the only way to defeat a superior business model is to create yet a better model, which is no trivial achievement. This approach to competition avoids the head-to-head competition of similar offerings, produced by similar processes, delivered in similar ways. The objective of business design is to produce an 'unfair' advantage in meeting the needs of the market.

...techniques (Hamel, 2000, pp 138-144) --
Gary Hamel identifies techniques to stimulate the rethinking of a business design (model) in order to spur business model innovation. These techniques are meant to deconstruct the existing set of beliefs around ""what business were in"", ""how we make money"", ""who our customers are"", and so on, then move on to the design of more competitive business models and form strategy based on those models. Those techniques are summarized below. See Hamel, 2000 for further explanation.

  • Make existing paradigms, models, & constructs explicit
  • Explore conflicts & incongruities
  • Challenge convention
  • ""Why"" and ""what if"" - questions to ask on a regular basis
  • Let non-experts ask stupid questions
  • Explore pushing out performance boundary conditions
  • Find the ""and"", eliminate trade-offs
  • Distinguish between form and function - distinguish between the function and the thing
  • Strategy & innovation, not budgets and operations - see strategic vs. operational.

idealized design (Ackoff, 1999, pp 87-105) --
See idealized design.

Design rules for perpetual innovation (Hamel, 2000, pp 244-275) --
Gary Hamel developed the business design rules for building an organization which habitually and perpetually innovates, thus achieving and sustaining competitive advantage in an evolving economy. These rules are summarized below. See Hamel (2000) for further explanation.

  • Unreasonable expectations - no company outperforms its aspirations. See vision and purpose for a discussion of the power of purpose and ambitious goals related to that purpose.
  • Elastic business definition - sorting out ideology from goals, actual laws from perceived dogma, principles from practices, frees up the organization to see possibilities in line with their values and inspiration reason for being.
  • A cause, not a business - being wedded to a cause is inspiring, motivating, and energizing - leading to ongoing innovation in pursuit of the cause. Being wedded to a business leads to mediocrity if not extinction - all businesses lose their ability to survive over time. An explicit and promoted transcendent purpose gives people the courage to challenge the status quo and transform the business.
  • New voices - New thinking and voices must continually incorporated into the organization. See March (1991) for he vital role of new members and thinking in sustaining an organization. In a turbulent environment with a significant number of competitors, exploration, which brings in an influx of new knowledge from members, new technologies, and cultural diversity all increase the variability of change in knowledge in a positive way, which increases the odds of an organization having a competitive advantage.
  • An open market for ideas - Encourage and invest in new ideas within the organization much like the venture capitalists do outside the organization.
  • An open market for capital - Use venture capital investment criteria - do not screen innovative business concepts based on operational capital investment criteria.
  • An open market for talent - The best talent will go where their talents can produce the best upside for themselves. Get the best talent on the best new opportunities and offer the chance for wealth accumulation that comes with successful ventures. Move from resource allocation to resource attraction, having ideas attract people and investment based on the merit of the idea vs. having a centralized planning function allocate resources from on high.
  • Low-risk experimentation - Experimentation is a must for creating variety and testing hypotheses. Experiments are just that, experiments. Risk is contained. Many experiments lead to increase learning and innovation without ""betting the farm."" See evolutionary algorithm and exploration.
  • Cellular division - Free up new business models from the current dominant model. Though this reduces the potential for scale, it results in speed, flexibility, and focus.
  • Personal wealth accumulation - To develop entrepreneurs, provide entrepreneurial rewards. Decouple compensation from hierarchy and tenure.

What business design (model) innovation it is not (Hamel, 2000) -

  • It's typically not blue sky R&D. This type of innovation coming from big science typically removes physical constraints to innovation. Business model innovation needs to deal with removing mental constraints. Industry revolution is conceptual innovation.
  • Forecasting attempts to predict what will happen. This is largely futile. The future is unpredictable.
  • Typically, not scenario planning, which is typically threat focus versus opportunity focus.
  • Strategic flexibility, which certainly helps one to reconfigure products, channels, and skills is essential to maintaining one's relevance in a world that is dynamic. But agility is no substitute for a vision of a radically new business model. If a company is no more than agile, it will be a perpetual follower.