As an entrepreneur or owner that wants to build a successful business, you know your system must change. Although it works, it’s not seamless. When you crank it up, you see things starting to crack. Or it might be you need to change direction or need something entirely new. In short, your systems are holding you back.
It’s not unusual. When you started the business, the team quickly put a system together to get the cash in. There are gaps, and key people are bridging those gaps with their experience. Therefore, the danger is that they quickly become bottlenecks. Or worse, they leave, taking part of your system with them!
Of course, you’ve evolved the business as you’ve listened to customers. You’ve also seen new opportunities to offer more value.
With a business up and running, it’s hard to get your head round system change. It seems too complex and there are too many threads. But even if you did, how can you get the right system in the end? One that works seamlessly and uses technology well.
If you want systems to build a stronger business, then this article is for you.
Table of contents
- Why Systems Matter to your Business
- Why System Change Matters
- Creating a seamless Business System
- Foot Notes
Why Systems Matter to your Business
Your business model is at the heart of your success. So, let’s ask why systems are so important to supporting your business model. Of course, business models come in different shapes and sizes, but at their core there are four main parts (adapted from Osterwalder, 2004).
- Customer (who): the target customer with a problem to solve
- Offer (what): how the business will add value by solving the problem
- Infrastructure (how): the resources, partners, and activities to deliver value to the customer
- Financial (the reward): the profits when you take the costs out of the income
The “How” part of the business model is where you get organised and get things done. In other words, you need to manage the system to get the best out of your resources, partners, and activities. If you want strong results, the entire system must work seamlessly.
But what if there was a better way of helping your customers? What if you could increase the value of your “offer” by changing “how” you did it? Transforming your “how” could be a game changer. The “how” is your business system.
But what exactly is a business system?
What is a Business System?
The business system is a view of the whole business and how it works together. It’s a model used to organise work to maximise value. That’s so you can design what’s going on in the business to create sustained advantage.
The concept has evolved. At first it looked at broad business functions (McKinsey,1980, 2009). Later, Porter (Porter,1985) viewed the business as a value chain. Instead of looking at broad functions, he looked at how activities added value.
Sustained advantage is from creating a unique mix. It’s a case of the business being greater than the sum of its parts. The competition can copy parts. However, it’s harder to copy a unique mix of strengths.
This is a quite different concept to the systems created within the functions of a business.
Why should leaders care?
I’ve not met an entrepreneur that doesn’t want business growth. Often, they have ambitious plans and want to achieve a certain level for an exit. But that’s difficult if they’re held back by their Business System.
A poor system means taking on too many people to achieve growth. Therefore, it’s hard to increase the revenue per head. You don’t enjoy economy of scale. Too many leaders live with systems that don’t work well. But that’s not good enough when you want to grow.
Leaders need to focus on the future. Yet poor systems will drag them into urgent day to day problems. So, it starves them of time to plan their business success. See Business Direction – Framework for SME Success
Business System vs Business Systems
It’s confusing when the same phrase means two different things. There’s business system that’s a view of the whole business. Then there’s business system as a part of the whole business. The latter is what you’ll most likely to find searching for ‘business system’. That’s why people can think it’s only about checklists and process.
Your business will be stronger by starting with the big picture. The big picture helps leaders focus on what’s important for sustained success. When you start with process, it’s detail and you’re already in the weeds. The big picture shapes the detailed design, not the other way round.
What good looks like?
A good business system helps you:
- Achieve your long-term goals. It blends strengths for a sustained advantage. If your offer is about low cost, then the design minimises cost. For example, Ikea who offer budget furniture, cuts delivery cost by using flat packs that fit in a car.
- Adapt to change. It’s easier to adapt with a modular design. Rigid designs take too much time and cost to change. See How to Adapt to Change in Business
- Plan change. A clear design that equips leaders to make better decisions.
Benefits of a well-designed Business System
A good business system is good for business:
- More income by creating value and making it better for customers. Doing so, they’ll reward you with larger deals and more repeat orders.
- More profit from a focused system that’s delivering unique value has less waste. Instead of trying to be all things to all people, it’s about excelling at what you’re good at. This translates to more profit.
- Reduce price pressures with a system that makes the best of your strengths and offers unique value.
- Precise because the system provides what customer’s need time after time. The offer is clear, and the business is focused.
- Faster by design and avoids delays. This means that the business can be quicker to adapt to its customer’s needs.
- Helps staff to be successful in their roles, it’s good for them and good for the business. Staff know what they’re doing and how to progress.
- Complete instead of in people’s heads. The business will survive the loss of a key person.
You might also be interested in Benefits of business systems & processes for scale-ups.
Why is poor design not good for success?
A poor system design isn’t good for business.
- Lost income from lost or lower order value. The business lets customers down because it depends on who’s on and how busy staff are.
- Less profit as the system is wasteful and needs more of people’s time.
- Poor outcomes. Instead of the system working smoothly together, parts are at odds and going in different directions. This means that staff must wrestle to make the whole thing work. The system gets in the way, making it frustrating for staff and for customers.
- Increased time spent on problems. When the system doesn’t work well, you end up spending more time on managing problems.
- Exposed if people leave. Staff adapt to gaps in the system by having the system in their head. If they’re sick or leave, the business will struggle.
Why System Change Matters
We live in a changing world. Customers expect more as they compare your offer to others. Changing laws and rules create new demands. As a result, the business must change. The better the business is at change, then the easier it is for the business to prosper.
As well as outside factors, leadership goals will drive change. Overall, leaders focus on sales and profit. But how they do that can lead to change. For example, they may want to grow an existing market or go into a new market. Or growth needs the system to manage more volume or do it better. On the other hand, it might need a new product or service.
The need to redesign
In time a business evolves and can create a jumble of tweaks. That is to say, adding one thing after another creates a tangled web. There’s no clear path, it’s a patch work of confusing methods.
You redesign when the system is not meeting your business needs. It’s like redesigning your kitchen. It worked well for a time, but now parts are looking tired. Now you’ve lived with it for a while, you see that it could work better if you made other changes. Leaders can fear making change because they can’t see how it all fits together. That’s understandable when it’s a patch work. But without the redesign, the chaos gets worse.
The role of leaders
Just as leaders own the strategy, so they must also own how that’s turned into action. When the system’s not working, they need to make changes. Sometimes a patch is the right thing to do. But other times they need to redesign to make it work well.
Leaders need a clear picture of the overall system to stay on track. The design is much more than systems and processes. If they focus on that detail, they’ll quickly forget what they’re trying to achieve! Leaders need to turn strategy into action. The business system is how they do it. Keeping that in mind will help them achieve more success. See also Benefits of business systems & processes for scale-ups.
In a healthy business, staff want to do an excellent job. Leaders look to align business and staff goals to help make change easier. In other words, it’s in the staff’s best interests to make change work. We all want to be on the winning team!
Change disrupts, so you want everyone on board. Everyone needs to know why it’s needed and why now. People resist change when they have unanswered questions. So, it’s vital to keep listening and everyone involved from the start.
Don’t forget that your staff can see problems that you’re not aware of. Because they are closer to the action, they can see other needs as well as solutions. This can help with the success of the change.
Don’t you want a seamless system?
In an ideal world, leaders want a seamless business system. That means it has to work with all the various parts of the business. Of course, the business is more than its systems. Its systems might be process and technology, but there’s so much more. For example, its values, how it’s managed, and the people of course. When looking at change, it’s helpful to use a model to see the relationships (Cadle, Paul & Turner, 2010).
When you change the business system, it helps to look at these four views. That helps ensure that any change will fit in like a hand in a glove. When you change one, it will impact the other areas.
- Organisation is the structure and how it’s managed. For example, a shift to online sales can result in a smaller sales force. That could mean sales in a central office instead of regional offices.
- Processes is the doing part of the business. It’s all the tasks for delivering products and services. It will also include supporting tasks such as finance.
- People are the people that work in the business.
- Technology is the devices and apps that support the work.
Changing one impacts the others. For example, a shift to online sales will change processes. The online system (technology) will automate most sales processes. People will need to learn new processes and the new online system.
Cost of change
Of course, there’s a cost of doing change well. But a clean well-designed system is easier and less costly to change. What’s more, you’ll engage your people and have a seamless system.
On the other hand, there’s a cost of skimping on change. Eventually, patching a system will cost you more as it gets harder to change. If you don’t take your people with you, you’ll be losing skilled staff. And you won’t have a seamless system!
Creating a seamless Business System
Creating a seamless business system is key to growth and success. That doesn’t happen by chance. It happens by design and by managing change. See also How to create a System for your Business.
As you may know, it’s painful to run a business with a system that’s holding you back. Rather than live with that pain, it’s best to get it sorted as soon as possible so that it’s a joy to use. When designed well, it will deliver more value and cost you less.
You’ll know about the issues, but also the cost of change. It takes time and effort to design and change a system. Avoid kicking the can down the road if it feels difficult. That’s because in time, the issues only get bigger and harder to manage.
You’re transforming the system from a current to a target state. In other words, you need to know what you’ve got currently, and what it will look like in the future. You can manage the change if you map out what’s changing.
The better your system design, and the better you manage change, then the better your business will adapt and grow stronger.
But where do you start?
Business System Goals & Strategy
It’s best to start with what you’re trying to achieve and how you plan to achieve it. But, when you’re looking at designing the system for the whole business, that’s going to be your business goals and strategy. It’s too easy to dive into the detail without a good understanding of the big picture. This results in fragmented and disjointed systems. Therefore, it’s wise to start with establishing where you want to end up.
Smaller businesses may not have a written strategy, or things may have moved on and it’s out of date. Or it might be in the owner’s head! In this case, one approach is to map out the operations and capture the decisions. It’s much easier to work with a strawman than begin from nothing. You can then revise the strategy to reflect the direction that you actually want to go! For example, one decision might be for direct sales rather than through a channel.
What do you want the business system to deliver? You might ask what customer’s really value. And what do others, such as employees or directors, value? These help frame the design.
Building the Big Picture for your System
You’ll want a picture of the whole business that includes all the key parts. That’s so you have an overview and know how it all fits together to deliver what you’re trying to achieve.
Let’s start by asking, what are the ten to twenty key activities in the business? You could break that down into:
- What are the sales and marketing activities?
- What are the inputs into creating your product (or service)?
- How do you turn those inputs into something of value?
- When you’ve created products, how are they delivered to customers?
- How do you make sure that each customer gets the most value from your product?
By focusing on the activities instead of functions, you can start to see how each activity adds value to your customers and others involved in the business.
Creating Business Value
It’s not just the activities that create value, but also the value from how they link together (Porter,1985). I guess, we’ve all had bad experiences when the people in a business don’t seem to talk to each other. So, you can see that building strong links between activities can create more value. For example, it’s easy for people to do business with you.
Create unique value that’s hard to reproduce by choosing activities and links that play to your strengths. For example, if you have a deep understanding of their needs; you build a strong relationship with your customers; and you can tailor a solution to meet that need. Together as a seamless solution may offer unique customer value that’s difficult to copy.
You can create a picture of your whole business with a simple drawing. You can sketch the activities (from above) on a whiteboard and draw lines between them. Add notes to indicate how activities and links might add more value to your customers.
What’s the Business Priority?
You can’t change your business system in one go. Therefore, you have to decide what’s first. But how do you do that?
The activities and links that play to your strengths will always be your focus. That’s because they strengthen your offer. They give you an advantage. For example, if you can provide a tailored solution which no one else has – you might start there. But it’s not always as simple as that.
If your business system is patchy and causing problems, you might need to first stop the bleeding. For example, slow response times that are losing orders.
Decide the priority by looking at the gaps and how it fits into the business. But you need to look at the links too, because something might not work well without a supporting activity.
You’re moving from the big picture to spotting the changes that will have the biggest positive impact. You’re going to focus on one selected area of the big picture.
The High-level Process
At this stage you’ve decided on one area to work on. Now you’re going to go a bit deeper, but not too deep! You’ll want an overview of the process for that part of the business to frame your solution. It’s like explaining an area of the business to someone that’s new.
You want a broad sketch of the business process. I’m not talking about the day-to-day process, it’s the logical overview. It’s more the “what” happens in the business than the detailed “how”.
Often the actual current processes are complex and not logical. They make sense at the micro level, but not at the macro level. When you design a new business system (or part of it) you want to keep close to that overall logic as this is more streamlined and faster.
This approach is powerful. It gives you a way to assess and question your current way of working.
The Outline Solution
Let’s recap. You’ve got the big picture, from which you identified an area of the business to work on: One that will have the biggest positive impact. You’ve sketched out the logical process to frame your solution. Now it’s time to work on a solution.
Why create an outline solution? Making a big change is a big decision and you want to get it right. Before you commit, it’s good to know that your chosen technology will work in the business system, how much it will cost and how long will it take. It’s a small investment to make a better decision.
This is where you get others involved. Who’s affected by the change and what do they care about. What does it need to do? What are the constraints? How will it fit and work with other parts of the business?
You use this information along with what’s out there to shortlist technology vendors. As you think about how it will work in the business, you’ll look at support, training and how you’ll make future changes too.
Once you’ve decided on your chosen option, you’ll get advice from the vendor on costs and timescales. You’ll want an outline plan so you have an idea how the change will impact the business.
Now you’re ready to make the go or no-go decision!
The Detailed Plan
Once you’ve decided to go ahead, you’ll want a plan for changing your business system. You’ll need to keep everyone informed, gather requirements, and have a design for how the new system will work day-to-day. Don’t leave anything to chance, you need to involve everyone and make sure everything’s covered off.
You can take everyone back to the business goals and the big picture as you plan the change. This helps everyone focus on what’s important.
Listening to the day-to-day experts means that you’ll end up with a better solution. They’re the ones that see what works and what doesn’t. Their insights can be helpful in creating something much more powerful.
Don’t forget plans for training, testing and how you’ll cut over from the old to the new.
Once you’ve got a plan, you’ll want to create a detailed design that will meet the business needs. But why do you need a detailed design? Why can’t you just get on with it? The short answer is that’s it’s less expensive to solve problems in design than in production.
Design is about making decisions. Each decision weighs up options, do we do it this way or that way? When using technology, one way of working might mean you can’t make it work in another area. So, you need joined up thinking. You’re looking to make the optimum choices.
The key aspect of this is to make sure the new system can do everything you need it to. And that it’s as easy as possible to use. Your chosen vendor will help you achieve that.
Building Your System
With a plan and a detailed design, you can build the solution. Often the vendor or a partner will help. The build should also include tests so that you can see that everything is working well. These might include end to end scenarios. You’ll also want to develop training so that users will know how to use the system.
Once you’ve built your solution, you’ll want to transition from the old to the new. That usually involves training and creating a sandbox. That’s so users can learn without the stress or worry about causing a problem in the business.
When you’re ready to switch over, you’ll need to setup the production system with live data. You may run both systems in parallel to make sure everything’s working. You don’t want to do that for too long as it’s costly, and usually planned for a quiet period.
Sadly, successful business entrepreneurs can struggle with growth. It’s really not fair after all the demanding work of building their business. Creaking systems, bottlenecks, and stress isn’t fun. The business system can hold them back. They should be enjoying their business.
That’s often because it’s built with functional blocks that don’t work well together. If the overall system isn’t seamless, and isn’t working well for people and the business, then everyone loses. The business can lose any advantage and find it harder to adapt.
A business gains from a system that brings out its strengths. A system that is seamless and works for customers as well as all those involved with the business. That’s where the value is. It’s also where the business gains growth and profits. A successful business doesn’t happen by chance, it’s by design. That’s also true for the business system. It needs a design that never loses sight of the goals or the big picture. What entrepreneurs’ thought was their sales system was in fact a subsystem of the whole business. It’s better to design the entire system. Then all those sub-systems can work together to create more value.
- Osterwalder, A. (2004). The Business Model Ontology. Switzerland: l’Université de Lausanne. Retrieved from http://www.hec.unil.ch/aosterwa/PhD/Osterwalder_PhD_BM_Ontology.pdf
- McKinsey and Company. (2009). The McKinsey quarterly – Enduring Ideas: The Business System. New York: McKinsey & Co. Retrieved from https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/enduring-ideas-the-business-system
- Porter, M.E. (1985). Competitive Advantage. New York: Free Press. p36
- Cadle J., Paul D., & Turner P. (2010). Business Analysis Techniques. Swindon: British Computer Society. p20
- Porter, M.E. (1985). Competitive Advantage. New York: Free Press. p48