Archives

In my previous posts on business strategy I talked some about business-unit strategy.  Sometimes a business unit is focused on a particular market.  If an organization wants to create a strategy for a market segment, but for whatever reason doesn’t want to create a business unit around it, then what do you call it?

I call it a “segment strategy”.   The customer segment being important enough to warrant executive leadership (and a strategy) but not important enough to warrant a business unit.  In banking, a “Retail” business unit is typically broken down into broad customer segments such as Ultra High Net Worth (UHNW), High Net Worth (HNW), Affluent and Mass.  These, being broken down further into micro-segments on the way to nirvana where every customer is “a segment of one”.

The segment strategy inherits all of the business-unit strategy content that is general across all customer segments.

A segment strategy provides all the product-market strategies for a broad customer segment, including the 4 P’s.  then it amends the business-unit strategy as needed for the customer segment.  For a retail banking business unit this would include things like how to attract, organize, use and retain key skills such as local/regional private banking and SME expertise.

The standard definition for “business model” is an articulation of how an organization creates, delivers and captures value.

Business Model Generation breaks a business model down into 9 building blocks:

1. Customer Segments
2. Value Propositions
3. Channels
4. Customer Relationships
5. Revenue Streams
6. Key Resources
7. Key Activities
8. Key Partnerships
9. Cost Structure.

They organize it all into a “business model canvas” and provide useful and entertaining artwork (see below).

We spend a lot of time creating target operating models (TOMs)–sometimes prematurely in my view.  A telling fact is that businesses create TOMs without anything in writing about the existing operating model or business strategy.

When I learned about target operating models I, thankfully, first grounded myself in what an operating model is, why it is important and how it is used.  Some published material that I have enjoyed reading is in the reading room at OperatingModels.com.

In particular, I like the following documents:

• Introduction to the Target Operating Model
• The Importance of Organisational Trajectory within Transformation.

The Intro to TOMs provides a simple diagram about operating models that I think explains the purpose and use of operating models nicely.

They also have a book on operating models but the essential content has been replicated into the TOM document.  I suspect that is because no one downloads the operating models book.  Why bother with an operating model when you can create a target operating model!

My advice is to read the book on TOMs but focus on the part about operating models.

Another book worth sharing is “Defining your Operating Model: Designing a Foundation for Execution“.  The key points are:

• The operating model is a key enabler and constraint on the business model
• Two key dimensions of operating models are process standardization and integration.

They provide a 2×2 grid that breaks down into 4 operating models:

• Diversification (processes are neither standardized nor integrated)
• Coordination (processes are integrated but not standardized)
• Replication (processes are standardized but not integrated)
• Unification (processes are both standardized and integrated).

I started my journey to understand target operating models (TOMs).  It didn’t occur to me to first understand what is an operating model until I tried to understand the big picture and how everything fits together.  Note to self:  Before writing a TOM go back and review operating models.

A target operating model (TOM) envisions how the business will operate in the future.  Creating a TOM requires two primary prerequisites:

1. An operating model for which a detailed and shared understanding exists, and hopefully documentation
2. A business strategy for which a detailed and shared understanding exists, and hopefully documentation.

The TOM envisions how a new (transformed) organization will operate that is substantially different from the way the organization operates today.

Some published material that I have enjoyed reading is in the reading room at OperatingModels.com.

In particular, I like the following documents:

• Introduction to the Target Operating Model
• The Importance of Organisational Trajectory within Transformation.

Principles are general rules or maxims that have repeatedly proven successful when followed.

There are guiding principles for just about everything.  I know of the following kinds of guiding principles for strategy:

1. Guiding principles to guide the formulation of strategy
2. Guiding principles to guide the implementation of strategy
3. Guiding principles for business strategy
4. Guiding principles for IT strategy.

Note that in the above the first two overlap with the second two.  They are not all mutually exclusive.

Strategic guiding principles are both a key input and key output of business and IT strategy processes.  Guiding principles that the organization has accumulated over time are reassessed in light of a modified mission and changing environment.  New strategy is restated in the form of guiding principles to constrain the operations of business and IT.  Strategic principles provide guidance when designing the operating model and allow the operating model to be assessed to determine alignment to the business and IT strategies.

Principles meant to guide the formulation of business strategy are frequently taken from military strategy.  They are general in nature (as opposed to being specific to the organization’s strategy).  Bernard Boar lists the following such principles in The Art of Strategic Planning for Information Technology:

• Adjust your ends to your means
• Keep your object in mind (focus)
• Choose the line of least expectation (surprise)
• Choose the line of least resistance–it is better to win through indirection than by direct confrontation
• Choose a line of operation that offers alternative objectives (adaptability)
• Ensure that both dispositions are flexible and adaptable to circumstances (maneuverability)
• Do not throw your weight into a stroke while your opponent is on guard
• Do not renew an attack along the same line or in the same form after it has once failed.

Principles meant to guide the implementation of a business strategy are typically very specific to the strategy itself.  These are generally called principles but stretch the definition given in the first line of this post.  I give examples if this kind of principles here.