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.