Why brand? Because your brand is your
business. Whatever you do in your business, impacts your brand and that impacts
growth of your business. By growing your brand, you grow your business. Your
business strategy is indeed all about building and growing a brand.
When you think of your
organization’s business strategy, which factors come to your mind? Most people
would talk about customer segments, products, pricing, promotion, distribution
etc. How many people think of “operations”? Very few, I bet. But lets take a
step back and ask a fundamental question - why does a business exist?
As Peter Drucker said – “There is
only one valid definition of business purpose – to create a customer”. The
fundamental premise of any business organization (the firm) is that it creates
value for its customers, depicted in the form of a product or a service it
provides, which, in turn, creates value for other stakeholders and also builds
its brand. Value creation requires resources – financial, human and physical.
Investors provide the financial capital required for the acquisition of
necessary resources and the firm provides a return on capital to investors. This is depicted in the figure below.
Value Creation System in a firm can be
thought of consisting of two distinct components – an “external” component and
an “internal” component. The “external”
component deals with understanding customer needs through market research and
other means, segmenting the market, targeting specific segment(s), positioning
the products or services and making them available to the customers through
appropriate channels, promotional activities and building relationships with
customers and partners. The “internal”
component that may be dubbed as “operations”, consists of all the tasks that
are done within the extended organization (including the partners in the value
chain) to “build” and “deliver” the product/service
to the customer as well as support activities related to people, process and
technology.
The external
component is often depicted as the business model. The organizations typically
work in a top down fashion and also require an operating model to
operationalize their business model or, in other words, to execute their
business strategy. Three key components of any operating model are people,
process and technology. The Operating Model may not be documented or
articulated but implicitly, an organization “designs” an Operating Model,
normally in a piecemeal fashion. The real question to ask is - Do you always base
your business strategy on external factors and then build an operating model to
execute your business strategy (i.e. the
top down approach); or can internal factors also drive or influence your
business strategy and help you grow your brand (the bottom up approach)?
As depicted in the diagram below,
both external and internal factors can contribute to building a competitive
edge and evolving a value proposition for the business. There should be a two
way interaction between external and internal factors for formulating the
business strategy. While external factors may help in setting goals for
operational excellence, potential benefits of operational excellence may
provide a decisive competitive edge and influence the value proposition that
can be offered to the customers.
Most CEOs have a disproportionate
emphasis on the “external” component owing to the fact that they come from Sales
and Marketing background. The “internal” component is often thought of as a
cost to the organization and does not receive sufficient attention. Few CEOs
think of Internal factors while thinking about strategy. However, there are
some outstanding examples of organizations that have used operations as one of
the key components of their business strategy – Walmart, Citibank, Amazon, ICICI
Bank to name just a few.
How can “operations” be leveraged to build a
decisive competitive edge for your business? We will look at it in the next couple
of posts.
An initiative of a US based
insurance firm, that I was involved in, is an example of how both components can play
a complementary role and combine to strengthen the value proposition of the
firm to the client. This firm had a strong product development function that
used to roll out innovative products based on market research and actuarial
data. However, their time to market was very high – 18 months from idea to product
roll out. An external assessment of their business revealed that it was crucial
for them to reduce the time to market to capitalize on the first mover
advantage and gain high market share. However, they did not have any idea how
much this could be reduced. They launched a “Speed to Market” initiative to do
just that. What they discovered, with external help, was that they needed to
both optimize their product development process as well as overhaul their legacy
IT systems. The initiative that was implemented in multiple phases, resulted in
reduction of time to market by two thirds and significantly improved the
competitive positioning of the firm in the marketplace.
