The first time published on JANUARY 30, 2018
Organic business is a special model of business that can be and should be deliberately designed. Though approaches are known for many years, we define the design principles the first time and ground them on five concepts of organic business.
This work is undertaken and presented now because the dynamics of market changes are the first time recognised quite high and accelerating. They have reached the degree where traditional hierarchical business structure, so widely employed in the industry, steadily and speedily loses its efficiency and effectiveness.
Many companies have realised a need for transformation into operating models more agile to their markets. A new requirement for those models is obtaining a capability of keeping up with the changes.
Organic business design targets such business models where all its internal structures – organisational, operational, financial, management, relationship, productional, and so forth – support business flexibility and responsiveness to the environment dynamics. Organic business model is the one that focuses on continuous agility to market. The principles of the organic business design form the backbone of the design that fit with the aforementioned purpose. The design policies, which are derived from the principles and individual for each organisation, govern the details of solutions and operational patterns. The organic business design principles are the following.
- The highest priority is to generate defined business values for external and internal customers through servicing their needs.
The business values may be defined by market demand, by corporate management, by the statements of corporate strategy – its goals and objectives. A business value is a relative matter – in all cases, we have to identify the subject to whom an outcome of activities appears as a value.
2. Incessant, consistent and scrupulous feedback from the market.
The feedback can come from external consumers, partners, suppliers and even competitors. The feedback can indicate whether the estimate of market trends and dynamics were accurate, can they be used further or require corrections. A feedback is one of the mechanisms of responsiveness.
3. A corporate service ecosystem of contracted ‘business partners’ operates on the basis of Service Contracts across internal corporate boundaries.
A Service Contract describes all aspects of consumer-provider relationships, includinga)
a) All interface means (channels, protocols, endpoints) offered by the service provider – manual or automated,
b) Service Level Agreements (SLA) for each interface,
c) All policies and regulations under which the provider guarantees the SLA characteristics,
d) All information and operational modes/patters the service interacts with the consumers.
A Service Contract should be agreed between the consumer and provider explicitly or implicitly. An explicit contract takes place where the consumer and the provider negotiate terms of the contract, e.g. a consumer uses only a subset of the service features and reduces the cost of the service. An implicit contract is preliminary defined by the provider and the consumer should agree with it before engaging the service, i.e. if a service is engaged, it is assumed that the consumer had agreed with the contract already.
An implicit contract example is an Amazon’s store opened the first time without payment-points; the Service Contract here is that the customer has to install a special mobile application on the phone and provide his/her credit card attributes. The application recognises the customer and what s/he places in the shopping basket; then it charges the credit card. No application/contract – no shopping.
4. Reduced number of management layers and increased spans of management.
An increased span of management is based on the policies or “rules of engagement” – it is not a command and control, it is a task and directed results. The cascading management is in defining what the outcomes should be produced/delivered, when, where and for whom, not how they can be manufactured.
5. Priority of business flexibility in adopting the market changes.
Business flexibility is defined based on the cost of adoption, adoption time to market and the cost of change of adoption implementation for adopting a next market change. All three aspects should be minimal for gaining the higher flexibility. When choosing between alternative solutions, the one with the higher flexibility should be preferable. Business flexibility in a dynamic market is a new competitive advantage of the organic agility to the market.
6. Complexity of solutions should not be simpler than necessary.
Increasing dynamic of the market requires increasing business abilities to adopt it. These abilities are, obviously, adding complexity to the organisation in comparison to the situation with a slow-moving market. In practice, a few per cents of extra investments usually result in doubled ROI. An additional complexity is that mandatory reserve, which enables business flexibility. Oversimplification reduces agility and responsiveness.
7. Risks and business execution context drive managerial decisions in when designing the Target Operating Model.
Changes in the business execution context, which is represented by a combination of local laws, regulations and social-cultural environment, impact internal and external behaviour of the businesses more and more. While some changes may be irrelevant to the company, others can generate risks of different severity, which corporate management should consider when modifying major corporate structures like organisational, operational, financial, management, location and technology.
8. Priority of business unit specialisation and cooperation in Target Operating Model over continuous modifications.
If the changes in the market are massive and accelerating, the only scalable collective form of work is cooperation where the business units continue producing their outcome and someone (another unit) combines and re-combines these outcomes at the needed scale. At the level of people, collaboration is a powerful instrument for the successful work; however, at the level of business units, collaboration means a unit’s readiness for changing own internal organisation, processes and activities for the sake of the shared collective task. Such behaviour pattern does not scale because if a business unit participates in multiple collective works, it might need to change internally all the time and, possibly, in contradictive directions.
9. Harmony and unity of objectives throughout the entire organisation with the priority of the organisation’s interests above the interests of its parts.
A complexity of market changes in the globalised economic environment and increasing flow of government regulations require a strict discipline inside the business. Such discipline may be efficient only if set via a harmony and unity of objectives; command-and-control method has demonstrated its inefficiency when the changes reach a certain level of pace and complexity.
10. A company organises such internal climate and culture that maximises individual contributions in the collective work on the basis of “wo/men best fitted for work”.
Organic business relies on the collective teamwork of professionals. Certainly, such business trains and grows specialists, but the organic business cannot afford an “office plankton” due to a need to frequent and fast changes and re-arrangements.
11. Proactive change management that enhances people collaboration, responsibility and transparency. A necessity in more accurate estimate and forecasts of market trends.
To be successful in the dynamic market, the business has to monitor the market changes and proactively react to its trends. This is the first rule of competitive advantage. Reactive change management is still possible, but for slow moving markets.
12. Balance of risks and opportunities in tactical and strategic solutions.
The balance of risks helps in reaching higher stability and survivability in the dynamic market. If, for example, all investments are flowing in the direction that demonstrated a big success yesterday, this can result in a disproportional transformation of the company tomorrow, which is fraught with a survival risk going forward.
13. Priority of keeping specialised Agile Business Capabilities under a full control over outsourcing them.
When the company outsources its capability as a whole, it loses this capability. If a company defines needed capabilities to deliver against its strategy tasks, it can outsource the supplemental materials and activities to the contracted service providers. This principle states that the company has to stay in full control of the business functionality while, if short of resources, relying on the moving market of implementation resources. Preserve business rationale, specialisation cantered in people and stimulated communications when using Agile Business Capabilities, Part 1, Part 2 and Part 3.
In our work, we are uncovering a better way of designing business organisations when the pace of changes outside risks to exceed the pace of changes inside and sink the company. We trace organic design from the corporate strategy to the Target Operating Model and further into actual operations. We continuously monitor the business environment and adjust company operations accordingly on the way to the strategic goals and objectives. As a result, we design a company that is agile to and organic with the market.
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