Platt Perspective on Business and Technology

Moving past early stage and the challenge of scalability 28: pursuing a performance based business model approach to improve business scalability capabilities

Posted in startups by Timothy Platt on April 8, 2013

This is my twenty eighth installment in a series on building a business for scalability and long-term success (see Startups and Early Stage Businesses, postings 96 and scattered following for Parts 1-27.)

I have been writing about lean and agile approaches to business operations and strategy as enablers of scalability for several installments in this series now, going back at least as far as Part 26: avoiding sclerosis and keeping the organization lean and simple 1 and with that discussion continuing into Part 27. I have also been writing in this blog about performance based business models, starting with a series in which I have systematically developed and presented at least core elements of that approach (see my series Moving Towards Dynamic Performance Based Business Models at Startups and Early Stage Businesses, postings 123 and following.)

I discussed in Parts 26 and 27 of this series, how a lean and agile approach would be specifically applied in planning and managing for significant levels of business scalability and expansion, and my goal for this posting is to specifically discuss how this could be carried through in a performance based business model framework. And I begin that type of business development process from a very detail-oriented operational perspective and with a list of business processes and benchmarks that would be strategically identified and operationally worked towards and through:

• Know what operational processes are in place in your business going into a proposed round of expansion, and what time scales they function over for single operational cycles.
• Know how and when their results and efficiencies would be determined and reported, and by whom and to whom – and how this feedback would or would not be accounted for in operational and strategic planning.
• Watch out for situations where reports, even if well thought through and written, simply end up on shelves collecting dust or in unopened file cabinets or in their electronic counterparts.
• If a new and novel problem or opportunity is developing, how would it rise to the attention of managers who would have to take action on it? Would this happen soon enough for an effective, proactive response or only after a potential positive opportunity was already lost, or a problem had to be corrected, reactively and after the fact and probably at an avoidably large scale?

Consider a purchasing and inventory control and management system as a working example, and the mix of scheduled and cyclical, and one-off and ad hoc purchases and item distributions that this calls for as a part of ongoing normal business operations. Specific purchases might be one-off and many very legitimately and necessarily are going to be. But overall process systems that would manage this flow of standardized inventory development and release, and one-off purchases need to be consistently operationalized and performance monitored. So a purchase might be one-off, and many might be but the processes for managing that side to overall purchasing, inventory and distribution should be consistently operationally standardized.

• Problems arise when basic processes underlying the management of this flow of purchases and inventory have to be set aside, with one-off and ad hoc processes having to be developed on the fly as solutions.
• As systems grow in scale, consistent processes that worked effectively enough in smaller operational contexts, can begin to break down. Consider the shift from centralized to geographically distributed and the potential for breakdowns in communication and information flow, where here and now decisions have to be made absent all necessary information as to what inventory is currently in place or already on-order in the overall system and where, and in what numbers per stock-keeping unit (SKU)-designated item type.
• This brings up the issues of scheduled processes and process reporting, and the need for reliable, consistent real time ongoing processes with real time reporting. Here, scalability has to include continuance and even improvement of real-time information management and sharing as an important working example.
• This is also where cost-effectiveness and risk management analysis can lead you to an in-house versus third party outsourced decision for business processes and services that might be more effectively farmed out. Fed Ex as an example here, offers outsourced supply chain management solutions along with offering shipping services.
• Would it make sense to develop and maintain this expanded process-supportive real time capability in-house or would it be more cost-effective and risk reducing to outsource at least portions of this overall system of processes and benchmarking to a specialist expert third party provider? If a service capability is to be outsourced, what parts of it need to be retained in-house, and what would best be outsourced? Internal operational and strategic oversight have to be maintained in-house in most cases, but even there, the issues of what levels of oversight and control need to be in-house are not always immediately obvious.
• The important point of focus to keep in mind through all of this discussion is that all of this operational planning and execution has to be performance based, and with all performance measured and tracked and benchmarked according to a core set of performance metrics that are tied to the processes that create and sustain the business’ sources of unique defining competitive value.

And this brings me to the issues of, in an extreme case situation, scaling up the virtual company, where as many operational processes and functionalities as possible are outsourced and the business retains in-house, essentially just one thing: direct hands-on management and ownership of its sources of unique defining value that make it a viable competitor in its marketplaces (see Telecommuting and the Marketplace Transition to the Telecompany 4 – defining the business model in a telecompany and virtual business context 3 for further information on virtual companies per se, and how they can arise as an endpoint to a logical business development progression).

I am going to delve into some of the issues of scaling up a virtual company in my next series installment, beginning of what “scale” even means in that context. Meanwhile, you can find this and related postings at Startups and Early Stage Businesses. You can also find related material at Business Strategy and Operations and at its continuation page: Business Strategy and Operations – 2.

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