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Optimizing your core processes to execute successfully
The way the key disciplines and core activities have been grouped within each primary process is deliberate. Each of the primary processes requires its two disciplines to be able to effectively fulfill its role. For example, the Market process needs both the sales and marketing disciplines to be able to attract, win and grow customers. Similarly, each discipline must comprise the set of core activities listed. If any of these disciplines and core activities are missing, partially implemented or implemented badly, the business will see a direct bottom line impact.
Note that the two core disciplines within each primary process are fundamentally different. Each of these disciplines requires distinct skills, and it is rare, in our experience, for people to be truly excellent at more than one of them. It is a constant challenge to blend the two disciplines in each of these primary processes. They need to work together seamlessly to execute their primary process, yet they see the world through very different eyes.
This has important implications for who should be on your team, how you assign responsibilities, and how you design your organization. While there are strong arguments to have one person leading each of the five primary processes, the fact that few people know both disciplines well argues for having a leader for each of the eight disciplines, and perhaps a ninth for Support. However, many new ventures do not have budget for that many executives, so in practice end up assigning more than one discipline to a single executive.
What further confuses matters, and ensures suboptimal performance, is assigning responsibility to one executive for disciplines from different primary processes. For example, it is not uncommon for business to have one person managing engineering and operations, or another managing marketing and product management. Even in very small companies, these kinds of organization structures typically do not work well, as the executive will focus on the primary process and key discipline with which he or she is most familiar, to the detriment of the others.
Develop – research and development
The research and development process is responsible for defining two foundations of the business model – the market and product. We use “research” because Develop includes market research and research into different technologies to decide which makes best sense for the product. It does not include primary or applied research, which we see as an upfront investment that is not part of the business model.
In many technology-based companies, engineering is the driving discipline. However, for an optimal business model, engineering should be given no greater or less weight than the other five central disciplines (those in Develop, Market and Deliver) that collectively are at the heart of creating value in a business.
In many engineering groups, particularly early stage ventures, the emphasis is on development. However, arguably design and testing create more value than development, so it is important to ensure that all three core engineering activities receive proper attention and are executed well.
Product management is a critical discipline that is often poorly understood or only partially implemented in new ventures. For optimal impact, product management should not be part of the marketing or engineering functions, but should be its own discipline, partnered with but separate from engineering, and working closely with sales, marketing, operations and customer service.
One of the common flashpoints in a technology business is the tension
between product management and engineering. Venture leaders need to pay
this constant attention, as a breakdown in the Develop process will torpedo
the Market and Deliver processes.
Market – sales and marketing
The Market process is the one that investors are typically most interested in hearing about and that many innovators find most challenging. This emphasis on sales and marketing to the exclusion of the other primary processes is understandable, but actually is often the result of flawed thinking. The real secret to winning customers lies in the market and product components of your business model, not your sales and marketing process. Selling a clearly superior solution to a large market with urgent, unmet needs is always going to be a lot easier than selling mediocre products to people who don’t want them! Sales and marketing is as vital as the other primary processes, but it cannot make up for fundamental product and market weaknesses.
The Market process should be designed around the customer’s buying cycle – how the customer learns about, evaluates and decides to purchase a solution – and not your sales cycle. Marketing is responsible for the first half of the buying cycle – from initial awareness through to the point at which the customer is interested in evaluating the solution. At that stage, sales takes over, and is responsible for helping customers properly understand the solution in the context of their specific needs, evaluate it against their other options, and make the decision to purchase as easy and enjoyable as possible.
To define an effective sales and marketing capability that effectively and continually brings in new customers, think through each of the six core marketing and sales activities listed in Table 1, and determine what mix of these activities, and what specific tactics within each, will best meet your customer’s needs across their buying cycle.
Like with the other primary processes, there are often tensions between marketing and sales that need to be managed.
Deliver – operations and customer service
The Deliver process encompasses delivering and supporting the complete
value proposition – products, customer experience and the
“whole solution” – from initial purchase until the product is no longer
in use by the customer.
The operations discipline includes producing and delivering both products
and services. With professional services, in some cases production and
delivery happens simultaneously at the customer and in other cases production
can be separated from delivery (for example, a custom application is
developed and then later implemented at the customer).
The nature of the core activities within operations will vary widely depending on the particular product market, but the activities listed in Table 1 are normally recognizable in most technology-based businesses.
Yet again, within the Deliver process we see two disciplines with different perspectives. The core focus within operations is typically on quality and efficiency. Customer service, by contrast, focuses on the customer, and doing everything necessary to ensure customer satisfaction.
Manage – general management
The general management process comprises two key disciplines: planning and control (which is essentially about managing the process component of the business model), and stakeholder management (managing the people component of the business model).
These are usually the two core responsibilities of the CEO, though in some cases he or she delegates some of these responsibilities to other people. It is not untypical to see a CEO who is more of a people person focus on stakeholder management, while a COO focuses on planning and control. Similarly, a CEO more comfortable in the planning and control discipline may have a VP Business Development doing quite a bit of stakeholder management.
Support – internal service activities
The Support process is essentially about managing the business’ resources – its cash, people, data, etc. The key disciplines are typically finance, human resources, information technology, legal and facilities management. Each of these is distinctly different, with its own language, skills and world view.
These disciplines provide services internally to the “line” managers of the Develop, Market, Deliver and Manage processes. In large corporations these functions often assume great importance, particularly where the businesses are decentralized and the primary function of the corporate center is to provide these internal services to the businesses.
For early stage businesses, however, these functions should generally be outsourced as much as possible, as they tend to be fairly standard and horizontal across businesses, and they drive value only indirectly. It is generally best not to get to distracted by these support functions, and rather focus on optimizing the other four primary processes.
Value and cost analysis
Once you have determined the complete set of primary processes, key disciplines and core activities in your business model, you should do a value and cost analysis at the level of the core activities. For each core activity, define:
- To what extent this activity is currently a strength or weakness
- What value this activity drives
- What costs are associated with this activity.
You then can explore all options to improve both the effectiveness (value created) and efficiency (cost) of those core activities which are currently rated weak, create little value and / or are high cost.
One important option to consider is what should be done internally and what should be outsourced. Several writers have made the case for keeping core skills in-house and outsourcing the rest 6,7, but we believe that each business model is unique and should be designed accordingly. In some cases, as discussed below, insourcing activities that the industry has traditionally outsourced can create huge value.
Industry value chain analysis
Designing your process model should be done within the broader context of understanding the total value chain in your market, and where your business would best be positioned within the industry value chain. Ideally, this includes analyzing the total profit potential across your industry value chain, and then exploring whether the value chain can be reconfigured in such a way as to change the total profit potential, or to capture more of the value in the part of the chain where your business will focus.
For example, the total profit potential of the PC industry value chain prior to Dell was shared between manufacturers, distributors and value added resellers. By eliminating the channels, Dell greatly increased the total profit potential of that part of the value chain that accrued to manufacturers, and in fact was able to capture the majority of that incremental industry value for itself.
It did so in large part through its innovative process model. Dell was able to eliminate distributors and value added resellers by insourcing some of their key activities, getting customers to take over some activities, and by eliminating some activities. For Dell, designing a new process model was very valuable indeed!
* * *
In summary, this paper has presented a framework and set of guidelines to help you design the process component of your business model.
- Processes are critical, because they are how you execute – without processes, nothing happens!
- Many new ventures have suboptimal processes, because of the prior experience and biases of their leaders, and a lack of a holistic way to think about processes.
- Businesses are made up of five primary processes; the four processes most important in a new venture, Develop, Market, Deliver and Manage, comprise eight key disciplines and twenty four core activities; the fifth, Support, should generally be outsourced as much as possible in the early years.
- There are number of guidelines to consider as you design each of your primary processes.
- Once you have identified all your processes, disciplines and core activities, evaluate your current strengths and weaknesses, and conduct a value and cost analysis as a basis for rethinking your process model.
- Conduct an industry value chain analysis to identify the current and future profit potential in your industry as a context for your process and business model design.
References
- Porter, Michael. Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press, 1985
- Gluck, Frederick W. “Strategic choices and research allocation,” The McKinsey Quarterly, 1980 Number 1
- Chesbrough, Henry. Open Business Models. Boston: Harvard Business School Press, 2006
- Kim, W. Chan, and Renee Mauborgne. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Boston: Harvard Business School Press, 2004
- Lanning, M. and Michaels, E. A Business is a Value Delivery System. McKinsey Staff Paper, 1988
- Hamel, Gary, and C.K. Prahalad. Competing for the Future. Boston: Harvard Business School Press, 1994
- Moore, Geoffrey A. Dealing With Darwin. New York: Portfolio, 2005
About the author
Michael Lurie is Founder and CEO of Blue Mine Group in San Diego, CA. Blue Mine Group provides courses, workshops and consulting in business model design for technology innovation.