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Ann MacTaggart joins Derek to talk about the advantages of creating a business model for your organization.
Join Derek Hudson as he explores Essential Dynamics, a framework for approaching the challenges facing people and organizations. Consider your Quest!
Welcome to the Essential Dynamics podcast. I'm Derek Hudson. Essential Dynamics is a framework I've been developing to help us think through our most important challenges and opportunities. In this podcast, we test the concepts of essential dynamics through deep conversations with interesting people. And today, I'm really excited to have my friend and colleague, Ann MacTaggart, back on the podcast because we're intending to have a, deep conversation, and at least one of us is interesting people.
Derek:So, Anne, thanks for, thanks for being with me today, and thanks for being interesting.
Ann:Well, thank you for labeling me as the interesting one. I appreciate it. It's great to be here today, Derek.
Derek:Hey. It's, this is a conversation that's long overdue. And let me just kinda back up a little bit and and set it up. So essential dynamics is something I've been working on that I think really helps us view a lot of things we do in life as systems. And in the first couple of seasons, we were pretty broad.
Derek:And in season three in the podcast, we've been focusing more on business applications of the concepts of essential dynamics. So I guess where I could start this particular topic is when I sat down sat down at the beginning of pandemic to try and put some pieces together to to my problem solving framework, to put that together, I really was thinking about the idea of a business model. And it wasn't the first time that I'd done that. I'd been working for some time on what is a functional business model of an organization, and how would you set that up, and how did it work, and does that adequately describe, some of the things that I've learned about business over the years? And I was surprised, actually, because essential dynamic dynamics is not strictly about business, and it's broader than I expected.
Derek:And it hung together really well, so so well that I think we're on episode 61 right now of the podcast. There's lots going on, But I still, I really want to get back to this idea of a business model. Because I think that a lot of organizations, with some time and attention and deliberation could understand their businesses better and gain a lot by having what I call a business model. And I know that we've talked about it a lot. We've actually worked with clients to refine or implement business models.
Derek:Even probably going back to when we didn't know that that's what we were doing.
Ann:Yep.
Derek:So what we wanted to do, I think, for this episode is to just to have the conversation where we explore some of these ideas. So I think my first question, and it's for both of us, because we wanna we wanna put this as in a firesat fireside chat, kind of context, is why would it be valuable to an organization to have a defined business model? So why don't you start, and I'll jump in.
Ann:Sounds good. Why would you have Why is there value in creating a business model or understanding your business model? I would say right off the top that if you don't understand where you are, you also may not be able to plan where you're going very well.
Derek:Do you find that organizations, don't understand where they are?
Ann:Sad to say, yes. If I look back on my, university days, there's always a textbook that has this textbook organization that runs so well. But now that I've had a few years of experience in my career, I realized that the textbook is nirvana. And the clients that we have worked with over the last few years that we have been together and I have worked with over my career as well as even as an employee, there's always something that can be made better or improved to achieve, a goal or a or a vision of an organization. And if you kind of know where you are, and how things work in your business, you can do a better job at guiding the business to that goal.
Derek:Well, I'm gonna pick up on the phrase know how things work in the business. Because one of the things we and we've talked about this before in our discussions of systems thinking. One of the things that we do to make complex systems manageable is we break them up into parts. Mhmm. And in an organization, we call those departments or divisions and put a vice president or director in charge.
Ann:Yeah.
Derek:And one of the things that that does in my mind is actually almost ensures that there's no person that understands the whole company's business model. Heather Lucky Penney
Ann:Yes, definitely. You and I have had that conversation around the the departments and the leadership. And when you bring everybody together, it often just creates thicker walls of silos. And I look back. I look back as well on my career and I think, well, I didn't view it as silos, but that's exactly what it was.
Ann:I always thought the problem was that people didn't communicate well enough across the organization. But I think when you think about it in the terms of the business being a system, no one really understands the whole system is really the problem.
Derek:So one of the advantages then of a business model is that it is, by definition, a system view of an organization.
Ann:Yeah.
Derek:So let me try one thing. I know we've talked about this. Organizations are complex. There's lots going on. They're not designed like electrical schematic.
Derek:Like they they grow organically over time. Many people's decisions are involved. Reaction to many inside and outside events create the way a business operates. But if you step back, I think if you do enough work, you can create a system view of an organization by, you know, using what we call a business model. And if you have that, it's not necessarily completely accurate.
Derek:But what we're looking for is to have a theory or a hypothesis of how the business actually functions that's useful. It may not be perfect, it may not be complete, but we want it to be somehow useful to leaders of an organization. If you don't have that, then, you know, what are you doing? How do you run the company? And, just thinking back in your experience, Anne, have you had experiences where there was a business model that, you know, actually, practically people didn't understand?
Ann:I short answer is yes. I think people think they have a business model, or they go through a process of, let's call, strategic planning, and they think that that's that process then yields them a business model. So there's sort of a camp there. There's also a camp of folks that even your auditors, when they're doing process mapping and looking for controls and things like that, they think that that's a business model, but it's not the business model. It's pieces of how things work, but it's not the full the full picture.
Derek:Yeah. So so pieces of a system are not the system?
Ann:Correct.
Derek:And so if you have oh, gross. You've you've triggered me.
Ann:Account Sorry.
Derek:Audit permanent file, process documentation of the purchasing system, that's that's not the system. Nope. No, that's a piece of it.
Ann:It's the system that goes with the silo that it goes with.
Derek:Right. Right. So you need something more integrated.
Ann:Yeah.
Derek:So let's, there's a couple different directions I want to go. Actually, I want to go, I want to come back. Let's go, let's move on to pulling the system together a little bit later, because I want to come back to this idea of having a theory. Okay. I found this quotation, well actually I read it, it's a great book.
Derek:I'll link it in the show notes. Drive by Dan Pink. And, and he said for too long there's been a mismatch between what science knows and what business does. And and, Dan's work in that book was talking about what motivates people. Mhmm.
Derek:And spoiler alert, it's not money. Money can be demotivating or neutral, and for in a sustainable way, it's never more than that. But yet, you know, all kinds of work is spent on these compensation plans to try and, like, incent people to do stuff, and it doesn't work, and the science doesn't doesn't hold up. So there's this, idea that business operates in a in a level of that's that's not as scientific as it could be. So if we think about the scientific method, it's really a function of stating a hypothesis Mhmm.
Derek:Based on how we understand nature functions, and then testing the hypothesis under different conditions to see if it holds up. So if you don't have a theory about how your business is supposed to operate, then you don't have an hypothesis to test. And so when the result is different from what you hope for, I think you'd need to you just what are you stuck with trying other random activities? Right?
Ann:Or you have no idea why. Like, if you don't you don't know why the the outcome was what it was if if you didn't start somewhere with a hypothesis.
Derek:Right. And and you might not if you have a hypothesis, you you still might not know why, but over time and with, careful attention to designing experiments and observing them Mhmm. You you might get a better idea of why. I think that's, that's pretty significant. So another way I would look at that is if you have a business model that expects a particular outcome, and you don't get the outcome, as a sort of seasoned manager, my first question would be to someone, well, did you follow the model?
Derek:Mhmm. And if the answer is you didn't follow the model, then we can't make any judgments about the model.
Ann:Yes.
Derek:All we can do is say, well, why didn't you follow the model? And, you know, is there something impossible in this, in the approach we're trying to take? Or do you not understand it? Or are you lazy? Let's follow the model and run the experiment again.
Ann:Yeah. And see if the result's different.
Derek:Right. And if you consistently follow a model and don't get the results, now you can question. Yeah. Now you can question the model. I think I think there's something to that that would make businesses more scientific.
Ann:I agree. I also think that when you're looking at the model and after you validated it, that it really is the way things work, then looking at the things that influence the trajectory the model takes you is where the leader or the person that's looking at the full system view, to where, what can we change in the model? What are the big levers to make the outcome better or progress?
Derek:Absolutely. You know, the the levers that was the that was the word that was in my head that I was gonna, like, word associate and throw back at you, but you beat me to it. There's big levers, and then there's all kinds of little things you can tweak. And what we wanna do is design a business model where we understand what the big levers are, what the things that that you should pay attention to are. So that brings me to another topic, which I know you wanna talk about, which is the advantages of having a business model in recognizing that the one of the biggest limiting factors an organization has is how much time and attention management can pay to something.
Derek:Mhmm. So what are your thoughts on that? And, like, what are you what are you seeing, and what have you come up with?
Ann:Well, I have a couple of thoughts on that. One is if you understand your business model, and I'm gonna call that, like, a foundational piece to your awareness of where you're going and how you're gonna plan to get there. I think that the that awareness allows you to understand the priorities and those big levers and therefore where I'm going if I'm the leader, where I'm gonna focus that attention. But if you don't understand the full picture, you spend more time, I'm gonna call it, in a reactive mode, or I like to call it with some clients that we all we do is just play the game of whack a mole. And you're busy, you know, putting out fires and not really having a plan to, you know, a false fire suppression system.
Derek:So so we have this, this premise then that one of the critical resources an organization has is management's capacity to pay attention to something. Mhmm. And when we don't manage and control or focus that energy, it's gonna get used.
Ann:In the right places. Yes.
Derek:So if you don't focus in the right places, it's still gonna get used up. Mhmm. And, it's and it's a non renewal it's a non renewable resource in the in the extent that when the workday's done, you don't get that time and attention back. You've got some more for tomorrow, but today's is gone. And if you, if you played whack a mole all day, and so, and so having a, having a business model, perhaps takes a lot of that noise out.
Derek:And like you said, you talk about levers, and you and you're looking for the things you can do to really make a difference in the organization, and the business model helps set those out. And then management can be careful about whether they pay attention to a particular thing or not Yes. Based on how the business model is is set up.
Ann:Yes. And I also think that the, the business model, once articulated and understood by the manager, is also the greatest, taker down of the of the silo walls, but also a communication piece and decision support for people to use as a as a rubric to help them choose a path if they have choices.
Derek:Okay. You just said, like, three important things.
Ann:I know. Sorry.
Derek:I'm trying to catch catch them all. You talked about silos. Yeah. You talked about, a communication piece, and you also talked about a decision making rubric. Yeah.
Derek:Which one do we wanna pick up first?
Ann:Well, let's let's let's first talk about the the whole silo silo reduction program that a business model the business model will give you. Because I know that you've had in your experience and us in our combined experience, we've talked a lot with clients around, you know, when they get it and they they've put the effort in to figure out that business model, and then they see it, and then they start to communicate it with their with their leadership team or their their their wider team that the light goes on, and they're like, oh, this is this is actually going to help us a lot in we're not working you know, when you look back on how you were working, you realize we were working at cross purposes or in our own little silos, and you can actually see the silos and people then can recognize that. But I know you have a client that, you know, had had a big epiphany with their with their, business model. You should tell people about that.
Derek:Well, yeah. So this is just just a point that I wanna mark and we'll, and I'll carry on with your question. And that is that the business model is a opportunity to create a new mindset in an organization. Yes. I haven't seen strategies do that, but I've seen business models do that.
Derek:And and so there's that. So the client that you're talking about, specifically, we are in a conversation, with the CEO and another senior leader. And as we were talking about these silo problems and and, trying to get the organization focused, I apparently, I said the business model is the boss. Mhmm. And the boss picked up on that so much that he tweeted about it, got t shirts made up with the company logo, and it said the business business model is the boss.
Derek:And that created a mindset shift in the organization that it's not whatever the boss is thinking in a particular day that's the important thing, which was a frustration to the boss, because he's a creative guy.
Ann:Mhmm.
Derek:But we're gonna build a model and the model's gonna be the director of, you know, and and it's gonna house the strategy and the decisions.
Ann:And it's gonna be the
Derek:rubric Right.
Ann:To help.
Derek:And the boss might have ideas about changing the business model, but until the business model is changed, the business model is the boss. And and that is, that's pretty profound. Now one of the ways that breaks down silos then is people see what they can do to contribute to success in the organization in a different way. I don't know how many times when I've asked people about an organization, or I've received documentation on an organization, even when, like, in mergers and acquisitions and stuff like that, one of the first three pieces of paper you get is an organization chart, which is like the chart of silos.
Ann:Yes.
Derek:And one of the things that we do when we document a business model is we always try to get to a value chain, which is a process flow at the highest level, which is how we take the inputs the organization, you know, purchases, and step by step creates the value that the customer is looking for and will pay for. Yep. And a process flow is, Oh, I hand it to you, and do you do the next thing, and then you hand it on, is a very, very different view of an organization than a static org chart where it almost you almost see the walls between the between the boxes.
Ann:Yeah. Yeah. Definitely. I wanna add one, other thing that the business model does to kinda go back to where before you started talking about the difference between that and a process map. And that business model, once it's, the epiphany happens and it becomes the boss and the rubric for decisions, it also provides, management that are often in a I'm gonna call it not a pleaser mode, but they're trying to honor honor the the leaders, vision and requests, but they're also trying to get the work done in the best way possible.
Ann:So with the business model, if if everybody agrees that the business model is the boss, it allows them to kinda pull it up and say, wait a minute. You said the business model was the boss, and it gives permission to that employee to say, I don't understand how this your request for this choice or that path fits into into this this business model that we agreed on, you know, when we when we talked about it before. Help me understand that. So it's a polite way of saying no if the boss or someone comes to you and says, hey. We wanna go over there, and that's not where we agreed we were gonna go.
Derek:Hey. That's really powerful, Anne. Thanks for bringing that up. I blogged about that last week, only it was, in the context of boards and working with management. And, you know, if you have a business model that the board and management have agreed to, then the board is gonna get resistance if they toss out ideas that aren't consistent with the business model.
Derek:Absolutely. And if management comes with some great idea, the board can just say, well, how does that fit the business model?
Ann:Yeah.
Derek:And and my experience has been a lot of times without that anchor in place, the board members have hobbies, there's stuff they're interested in, they want you to chase it down. It's a waste of time, you shouldn't do it. It's hard for management to tell the board, well, we don't wanna do that. But a business model is provides that, that consistency and that and that filter to keep the crazy ideas, like, off the table until they make make sense. It doesn't mean you can't do skunkworks projects and stuff, but to get pushed off your business model at the whim of any particular person is probably not the best idea.
Ann:Yeah. And it applies to your home as well. Like and your family. If we all agree that we're, you know, we have this set of values and we're gonna operate this way and we're gonna go on this trip or whatever and what the opportunities are to make sure that we achieve that. If someone says, honey, we're saving for a trip, and then somebody says, hey.
Ann:Wait. I wanna go buy a boat or whatever. You can come back to the business model and say, woah. Wait a minute. Our business model is to ultimately end up at Disneyland.
Ann:If we buy the boat, we can't go to Disneyland. So help me understand how it fits.
Derek:That that is that's fantastic. So I want to bounce from that to one thing I wanna cover as as this podcast winds down, which is which is crazy. It's going so fast. And that is the idea of purpose and shared purpose. And as we talk about in the essential dynamics, purpose x and purpose y, you can't have a business model without a defined purpose.
Derek:It doesn't make sense. There's no way to create a business model because a business model is designed around creating an outcome. And so there's discipline. If you attempt to put a business model together and you don't have a clear purpose, it'll expose it and you'll have to work it through, for sure. But then it really gives you that communication tool and that alignment tool, because we've agreed on the purpose or ideally, you know, the purposes, the complimentary purposes, and we've also agreed on the major steps in terms of how we're going to get there.
Derek:Yeah.
Ann:Through the process.
Derek:And that's not a a lot of times you don't see that in a strategy. I I have a quotation from another great book I wanna plug, which is called Good Bad Good Strategy, Bad Strategy by Richard Rammelt, and he said most corporate strategic plans are simply three or five year rolling budgets combined with market share projections. Yeah. Right? They don't talk about how you're gonna do it.
Derek:And so shared purpose is one of the steps, but a shared commitment to the path that we're gonna take to get there, means that a family could have the conversation about the boat versus Disneyland.
Ann:Yeah.
Derek:And, like you said before, it becomes less personal. It's it's just a little bit more lodged in reality. We wanna do this. We can't do that. And let's follow let's let's make the business model the boss, and we don't have to keep having those conversations again.
Derek:So I think I didn't think we get, this all done in one episode. So we're gonna come back. And I think if we, if we can think about it in the time in between and talk a little bit more about what's in a business model, and how one might get started thinking about a business that way, I think that would be productive. Anything else we should be thinking about right now?
Ann:No. I think that's a a logical next step. Let's do it.
Derek:Okay. Okay. Well, nothing nothing like, Anne and Derek getting together and talking about stuff because time time flies and and, you know, people learn things from it, I'm sure. So I I would just like to thank Anne, you for, spending some time with me today and to thank our listeners for their support for what we're doing here. Essential Dynamics is brought to you by Unconstrained, our consultancy, which helps leaders work through their trickiest opportunities.
Derek:And you can find both Anne and I at getunconstrained.com. Join the conversation, on Essential Dynamics in LinkedIn and, Anna Taggart, thank you very much. Brynn Griffiths, thanks for your support in the in the background. I'm Derek Hudson. Until next time, consider your quest.