The 5 key contexts of Strategic Business Architecture series continues with this new article on how Strategic Business Architecture plays a critical bridging role between the external industry environment and enterprise Target Operating Model. Indeed, taking into account underlying industry dynamics creates a model that is flexible, agile and interconnected to channel enterprise resources to where needed.
In the earlier article on using scenario development to connect Target Operating Model with wider external context, I covered how understanding of the company’s external environment would help building a Target Operating Model that is up-/down-scalable and thus can cope better both when things are looking good and in downturn. Similarly, understanding of the industry context will have a profound beneficial effect on Target Operating Model design by making it able to accommodate successfully a broader range of opportunities potentially open to a modern business.
An industry environment of a firm has several important dimensions to consider. Most obvious are the intra industry dynamics – such as consumer-specific developments, client needs and wants, distribution channel developments, supplier/vendor landscape, partner and investor expectations and similar. Inter-industry relationships are also not to be forgotten since what happens in one industry may have an effect on what happens in others. As a very pertinent example, lower oil prices have brought pain for some players but benefits for many others by keeping inflation close to zero. That said, too cheap oil will hurt companies relying for their growth on emerging markets, especially those dependent on oil and other commodity exports.
Competitor landscape and moves are the next on the list. In Jack Welch’s view they are so critical in importance that he devoted to them two out of five questions that make strategy real. Clearly, knowing your present competition is vital, yet anticipating your next competitor is likely to be even more so, especially considering that the most profound market disruptions of recent years emanated from ‘wild cards’ that no-one saw coming.
Technological advances within the firm’s or relevant industry (whether new equipment, ingredients or ways to reach out to you target base) come third. Appropriately harnessed, these will underpin service oriented components of the Target Operating Model and support the differentiating competitive advantage for the enterprise as perceived by its customer base.
Finally, evolution of specific regulatory oversight for the industry must be considered. This is somewhat narrower than the external PEST-type analysis we looked at earlier. Germany going nuclear-free for its energy needs may have certain relevance for an FMCG company, for example, but profound influence on Target Operating Models of a reactor engineering firm or a windmill manufacturer.
Moving on to the company’s relationship with its industry we have four spaces – traditional core, near-core, white and outer space. Their meaning is well known and I am only recapping them here.
Core space is what the firm considers its back yard, develops to death and defends at all costs wherever it is in the world. Near-core space is complementary to varying degree to the core activities but competencies may not be as developed or clients are not as confident in successful delivery. White space is something that could be developed in a certain market (perhaps leveraging experience from another place or entity) but is not done at the moment. Outer space is just that – the cosmos out there, and is a leap of faith or a pivot move to engage. For most companies, growth and business development opportunities would scale up the further they move from their core space towards the outside, especially if the existing marketplace is overcrowded and loyal client base can be leveraged in the process.
What makes Strategic Business Architecture approach and mapping unique is that ‘industry’ means different things to different companies. Today, industry is not a categorisation of services, but a competitive space identified by companies themselves during the business model exercise. For example, Sodexo’s view of its industry is not catering or Facilities Management, but Quality of Life offers and solutions.
This industry redefinition is a great strategic and business model exercise that must be supported through an appropriate Target Operating Model design. In too many companies decades-old operational structures are given fresh coats of paint (e.g.renamed) in the hope that they would become ‘strategically aligned’. This, unfortunately, is an empty hope.
If you always do what you have always done, you will always get what you have always got.
Without at least some degree of the Target Operating Model redesign, it is impossible to create a flexible, interconnected and agile enterprise that is successful in its chosen industry. As industries become redefined and reshaped by their players, so their existing operating models must be revisited to match aspirations of the business.
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