Growth

January 9 2024

A New Perspective on Business Strategy: The Systems Thinking Approach

AdamM Agile, Back to the Basics, Growth, Tools 0

If you’ve ever looked at your electric panel, you may have noticed a lot of circuit breakers. These little devices are in place to protect the system downstream from them. Each one may have several light switches, light fixtures, outlets, or appliances. In the panel, or nearby in some cases, these breakers are all protected by a master breaker.

To use bigger appliances, larger breakers are needed, but they require thicker wire and more robust outlets. If you get too many big breakers in place, you need a larger big breaker. The main lines feeding the panel need to be large enough for the big breaker – the larger the breaker, the larger the lines. In this way, any change to the electrical system must be made with a mind for the rest of the electrical system lest you cause problems. This is an example of systems thinking.

Systems thinking. It’s a term that many are familiar with, but most are not, even though they likely employ it in some capacity. As with many terms, the specifics of what it means and how it works are different for different people. From a broad perspective, systems thinking is characterized by observing and understanding complex entities and situations as whole units and interconnected relationships instead of breaking things down into component pieces. That doesn’t mean we aren’t going to acknowledge there are independent components or processes, but rather that we’ll focus on how they are related, connected, and dependent on each other. A primary result of this is we realize that changing any individual component changes the whole.

Understand the Business as a Whole

Any business solves problems for customers. This is true for physical widget building, running apps as a service, and even entertainment companies. This is done through a system of processes and tools. This series of processes and tools is the system of the business.

Seeing the business in this way allows you to make changes to pieces with a view of how they will affect the whole. At a glance, nothing but good can come from improving a process. Making the sales pipeline 50% more effective could result in more sales. However, the new influx of customers could overwhelm the support team or cause more errors in a production line.

By approaching the business as a system, we focus on improving processes and tools within the context of how they interact with each other. This results in improvements that don’t cause more problems than they solve.

Understand the Environment

Taking a step further back, the environment the business operates in can be viewed as a system. This could be a market or a physical location. It could be the collection of similar businesses looking to solve the same problem. There are multiple systems the business is part of.

Understanding the system that the business is part of is a vital part of strategic planning. Just as improper optimization can result in sub-optimal business operations, over-optimization of your business could result in more harm to the overall system than good. Perhaps you lower your defect rate to the point you stop getting customer feedback. The lack of feedback means you no longer get better at solving your customer’s problem, and over time, you get edged out of the market by competitors that respond to the customers’ needs.

Knowing the system your business operates in allows you to adapt to the system as it changes. This means your business maintains, and possibly increases, its relevance in the system.

Understand the Parts of the Business

Not only is the business a system but it is also made up of systems. Some of these are the processes and tools directly involved in delivering value to the customer. Others are supporting functions that are not part of that delivery. Often, HR and IT are examples of this; facilities or a cafeteria would be another.

Software development has the concept of the Application Programming Interface (API). This is essentially a black box in which you give an input and can expect a specific type of output. Thinking of our business as a system, we may have decided there is a set of interrelated black boxes. To improve on any of them, we need to go into the black box. Inside each one is another system, another collection of interrelated pieces dependent on each other to perform as a whole entity.

The downside here is some of these systems may be inaccessible, specifically any outsourced ones. A good example is in smaller, growing companies. Often, companies like this may outsource some business functions, especially ones that aren’t directly related to solving the customer’s problem. Suppose your accounting department is a separate company that you interact with on a quarterly basis. In that case, you may not believe you have much influence or insight into the systems that create that function. In reality, you might be able to sit down with the provider to gain insight and influence.

Taking a systems view is difficult, especially if we are part of the system. It’s best to start with a visualization exercise. Creating a map is an excellent first step. This can be a simple line of boxes listing the steps of a process or as complex as a mind map-style web of interconnected circles with steps, tools, sub-processes, and information. The exact format isn’t that important. It’s the process of visualization that allows us to start seeing patterns and connections we may have previously missed. This is where we begin to build our system view from which we can move forward.

Sometimes, the best way to shift to systems thinking is to bring an outside perspective in. We can help from mapping out a customer journey to finding interconnects between the different parts of the business. Contact us here to set up an initial consult call and see if working together is right for us.

Feedback Loop Comments Response Roads Words 3d Illustration

January 2 2024

Feedback Loops: The Lifeline for Sustained Business Growth

AdamM Agile, Growth, Implimentation 0

A business without a customer is a business doomed to fail. While it may be arguable who the customer is, there is a customer, and they are the driving force behind business decisions.

One reason businesses experience growth stagnation is the loss of clarity on their customer’s needs. Other growth inhibitors include serving the wrong customer or focusing too much on the customer’s wants. Regardless of your business vertical, these problems are real, and real solutions exist for them.

Solve the Customers Problem

You are in business because you solve a problem for your customer. The thing is, you may be solving a different problem than you realize. The early days of UnPakt.com give us an example. They started out trying to make booking movers easier for people trying to move. They thought the problem that needed solving was central access to booking movers, similar to a central booking site for flights. When their expected growth did not come, they had to re-evaluate the actual problem they needed to solve. How did they find the right problem? Feedback loops.

They essentially had two customers they needed to solve problems for, the moving companies and the people moving. They adopted a wide variety of techniques for getting user feedback, such as A/B testing, survey rewards, and direct user interviews. They discovered the problem they needed to solve was trust, not access. (https://www.forbes.com/sites/forbesnycouncil/2018/02/21/are-you-solving-your-customers-real-problems-heres-how-to-find-out/?sh=3bd0b2034bb8)

The problem you think you’re solving for your customers may not be the problem they’re solving. Alternatively, it may no longer be the problem they want solved. Implement feedback loops to identify the problems you are solving and the problems your customers need solved. Act on your findings, and keep seeking feedback.

Know Your Customer

Your customer is the person using your product to solve their problem. If you don’t have a customer avatar, that’s an excellent place to start. You may have customers you don’t realize, though. Sarah Moore’s interview with Shaan Puri has a great example of this. In it, she mentions that what she initially perceived as an “egg company” was actually a specialty packaging company where “40% of our business comes from things entirely unrelated to eggs.” (https://shaan.beehiiv.com/p/1-woman-50-fake-ids-egg-business) As she got to know the business better after purchasing it, she realized her customers were not just chicken farmers but anyone who needed specialty packaging.

If you ignore 40% of your customers, you’re leaving a lot of opportunities on the table. All customers will pay more for a better solution to their problem, especially if they are an edge case. With proper feedback mechanisms, you’ll have a feel for who your customers are. If you see organic growth of new customer verticals, it’s worth taking a step back and looking for the opportunity. For instance, Nvidia is seeing fantastic growth by shifting its focus from consumer graphics cards to business-focused AI cards.

Watch for novel uses of your solution worldwide, even if it isn’t your product, and you may unlock many new opportunities for your company.

Know the Real Problem

When Business Insider talked with Kaite Dill, VP of Design at Lyft at the time, about Steve Jobs’ famous statement that customers don’t know what they want, she mentioned the importance of observational feedback over solicited feedback. (https://www.businessinsider.com/steve-jobs-quote-misunderstood-katie-dill-2019-4) The idea is that asking people what they want to change about a product will sometimes yield different results than observing what they do with it.

The classic example is people wanting their horses to go faster but not having the imagination to conceive of the automobile revolution hastened by Henry Ford. This is an example of pursuing the solution instead of the problem. When we solve a customer’s problem, we do it by providing a solution. The trick is how we come to that solution.

The most obvious way to solve a customer’s problem is to ask what they want and provide it. There is nothing inherently wrong with this approach. In fact, as it involves a feedback loop and concentration on customer value, there is a lot right about it. To truly scale and innovate, something more is needed. Feedback has to come from beyond customer reviews and surveys. Some of it can come from observation, but even that has limitations.

Imagine you run a hammer-making company. You are going to favor solutions that require the use of a hammer. You may find solutions to problems customers didn’t think of, but they’ll still be through the viewpoint of having a hammer to sell. You’ll need to think beyond the hammer, the faster horse, to truly innovate. Try bringing someone in from outside to help observe your customers and find solutions. Their fresh perspective could be just what your company needs.

Some companies struggle to move past growth plateaus; some struggle to stay relevant in a rapidly changing environment. Any company that does not have a feedback loop is doomed to fade over time. That may be from losing customers as their needs change or a new solution emerges elsewhere. It may be from a dwindling customer base when there is a world of other customers that need the solution.

If you don’t have feedback loops in place, get them. If you aren’t sure where to start, contact me. We’ll set up an introductory call. I can help you discover your true customer, the problem you actually solve for them, the solution you really have, and ways to get valuable feedback loops in place so all of that can grow and change as our world does.