Wouldn't it be great if you could take a money-losing business out of your
international portfolio and turn it into a profitable one?
Wouldn't it be even better if you could extend its success to a dozen countries,
with a very limited investment, in a two-year time? How would you define your objectives?
How would you choose the right team? What would your priorities and approach be?
If you are an entrepreneur, a manager or a business consultant and you are facing a
somewhat similar challenge, stay tuned and you may get some useful hints.
The story I'm about to tell you is based on a real case. As such, it is not intended
to describe a one-size-fits-all method. Still, my intention here is to make you
reflect on contextual similarities and differences with other real cases that
you may be aware of or that you may be personally facing right now. My hope is
that you'll get at least some kind of learning from it.
And, yes, the story has a happy ending.
After long years of one-business, one-country successes, this B2B services
company has started diversifying and growing internationally, by means of
acquisitions. It is now reflecting on its achievements. In particular, the second
largest of its lines of business is dramatically underperforming. To make it
even more complicated, results are inconsistent volatile and hard to
predict across different country markets. Reasons for success or failure are unclear
As a result of incomplete post-merger integration, more than 10
countries operate a variety of heterogeneous and apparently
inconsistent models. Country-by-country market conditions are hardly known at a
central level. Rather than an organically designed building, the business looks
more like an assemblage of business models, having little to share with each other.
Although results may vary from country to country, the overall balance
for the business line is heavily negative.
It's time to do something.
Let's see how our case developed from goal-setting
to governing a successful international business.
The underperforming business line, as we said, is under the spotlight.
The company's top management believes that, besides reversing negative performances,
setting up clear and international business model rules and guidelines would
bring in at least three advantages: 1) Providing a shared language and a
communication framework, to quickly read actual practices and performances.
2) Orienting local managers toward improved results, by setting clear expectations upfront.
3) Establishing a straightforward and convincing
cross-country positioning of the business, especially when facing
large international customers.
Having these three strategic objectives in mind, a
team is now needed to carry on a transformation project.
The company CEO is the first character of our story. She hires a new global head
for the business line.
Let's call him Jack
to steer it away from troubled waters. Jack's vision about how things should
work is clear. His solid market knowledge and his sales experience make him
qualified for the job and a credible interlocutor
of the top management. On the other side, Jack's strong interpersonal skills will
help him in winning business people's confidence throughout the change process,
at an international level.
Jack gathers a small and well assorted
task force to participate to his endeavor. He calls Amy to join him.
Amy is an experienced, hands-on operations manager, coming from the field.
The team wouldn't be complete without Bill, the person who told me the story in the
first place. Bill is a project manager and a former
management consultant. He's got a strong methodology mindset, a structured
approach to problem solving, and a deep and diversified international background.
The first decision to be taken is about where to start from. Again, the company
top management will provide a key hint.
Besides being the largest revenue generator, one of the countries involved
is also responsible for the largest net cash outflow. Total revenues even fail to
equal the biggest cost component, that is personnel. It quickly becomes evident
that this country is the priority.
Despite the widespread sense of urgency,
however, the team doesn't forget that the ultimate goal is international by scope.
So, before digging deep into their immediate priority, they decide to invest
two full weeks in a round of remote interviews, with a sample of the other
countries. The intended objective of the preliminary interview round is to
quickly produce a first high-level picture of the main commonalities and
differences across the existing business models. The team spends some time to
prepare an interview guide, which they will use consistently with all the
analyzed country businesses. Rather than just sending out a questionnaire, they
prefer to hear stories from the live voice of the local business managers they
interview. To keep costs low, though, they choose to do so via videoconference.
The sample of countries which participate to the interview round is chosen
with a view to capture the largest possible degree of variability. One geographically
dispersed, and one concentrated country. One mature, and one emerging market. One
large, and one small local team.
The interview round allows the team to reach
at least a broad understanding of the many different models being operated
under a common denomination. They also get a comparative understanding of the
main factors that determine differences. As it turns out, some of the differences
appear to be induced by objective environmental and market variables, while
some others are the result of discretionary management choices
at a local level. Then, as soon as the team has completed the international interview
round, the first real challenge is to fix the prioritized country. First analyze, and
then redesign their business model.
Before moving into design, Jack, Amy, and Bill make a thorough analysis of the
'as-is' business model of the first country. They base their approach on two
distinctive pillars. On one side, they conduct deep, in person interviews, with
selected key people at all levels of the organisation. On the other side, they use a
solid conceptual framework to collect and organize results in a meaningful manner.
The conceptual framework the team uses is Alexander Osterwalder's and
Yves Pigneur's Business Model Canvas, or BMC. This very same framework is suitable for
both business model analysis and for its redesign. It is not my purpose here to
give a full explanation of the Business Model Canvas framework. I'll just point out
that it is a practical and intuitive way to divide the key aspects of a business
model into nine main components. These nine building blocks allow to describe
both the front stage, or client facing, peculiarities of a business and its
backstage, that is its functioning mechanisms. In a nutshell, the what and
the how of value creation and capture.
After a thorough analysis of the
starting point, the team use the same framework to blueprint the desired
target business model. At this point, while still starting from the nine
building blocks of the business model canvas, in a further effort to make
results even more intelligible by a broader audience, the team then
concentrate their attention on five specific focus areas. And these include:
1) the value proposition, 2) the organization structure, 3) business processes
4) the data model, and 5) information systems.
To make an example, let's take one key
business model feature: the decision to structure the organization into three
specialized divisions. Each of the three divisions is focused on one defined and
specific area of expertise. As a consequence, clients that need different
areas to be covered, will have to get in touch with multiple points of contact.
This choice directly affects both front stage and backstage components of the
business model. In particular, value proposition, customer segments, and the
way customer relationships are managed belong to the first or front stage
category. On the other side the way people are organized, how sales and
operation processes and information systems are designed and configured, as
well as the underlying data model, belong to the second or backstage category.
As soon as the new design is ready the team works on the transition to the new model.
Change management activities take place, and the business is quickly reorganized
according to the new guidelines. Meanwhile, a new local manager has been
hired to lead the business in the first country. She will make it grow according
to the newly established model. Jack and his team can now proceed to the next
steps of their international business challenge, and the very next one will be
the definition of a truly global model.
The first country implementation has worked as a pilot test and a design
laboratory for the new business model. With that experience in mind, Jack, Amy,
and Bill take the model, piece by piece, and revise it critically.
The team tries to figure out, at the best of their capacity, what would work and what would
require adaptation to work elsewhere. Different market conditions, company
sizes, regulatory constraints and maturity are some of the elements that
they take into account. Rather than a monolithic construct, the international
business model is made up of three layers, implying a certain degree of
flexibility. The first layer includes the
foundational aspects, and the core mandatory features that are deemed
essential to the very identity of the business across all the countries. The
second layer defines alternative choices as a function of known contextual
conditions that may vary marketwise, and the third layer includes generic
guidelines for choices that can be left to the discretion of the local business managers
We can explain this sort of
stratified modelling approach in more
concrete terms. Let's take into account the divisional
model that we've mentioned before. The core layer defines the global list of
possible specialized divisions, their main internal organization rules, their
standard names, the related management reporting dimensions, and minimal
information systems requirements. The intermediate layer defines how the
number and size of actually implemented divisions can vary from country to
country, as a function of demand, business size, and maturity. And the third layer
defines recommended growth patterns for division startups, and career paths for
key roles in the organization. These are mere indications and can be overridden
by local country management rules and local HR policies.
Having a model doesn't mean you have to apply it mechanically and regardless of specific
market conditions. Moreover, model flexibility is a good starting point, but
even a flexible model must undergo a market test, before you can say it works.
Jack wants to act as serious value generator. His aim is always directed at
the customer. He knows that the model, after its initial definition, is still
just a theoretical construct, built up in a reasonably short time. The final
international business model will be an emerging consequence of its application
to the real world. The team is now eager to test it in new
markets, and a big part of the work is still there to be carried out.
Besides the initial pilot country, the company operates in ten more. These need
to be aligned to the international model.
Jack and his team prepare a roadmap.
Priority setting, now, takes into account two factors: the first is the
contribution of each country to global revenues, and the second is project
logistics. In fact, the team being small and geographical distances being large,
travel needs to be carefully planned. The model scaling approach is quite
straightforward and can be roughly summarized in three steps: 1) engagement,
2) training, and 3) follow-up.
First, Jack engages the Country Manager and the
local business manager. He illustrates the content of the project, the reference
model, the expected benefits, and the timeframe. They also identify the key
people that will act as focal points in the subsequent phases. The second step is
about training people. Peter, a guy from the IT department, has now come on board
and is part of the team. While the main focus of training sessions is on how to
successfully apply the new business model, Peter's job is to explain how to
leverage the functionalities of the newly configured information system in
day-by-day operations. After the first training wave, and after allowing some
time to digest the new way of working, the team delivers one or more follow-up
sessions. The number of the sessions depends on the country's feedbacks, and on
usage data extracted from the information systems. The sequence is
repeated for each of the 10 countries. This modular rollout approach allows
working with a two to four countries in parallel at a time. By now, the team is
traveling a lot around the world.
Meanwhile, Bill, the project manager, has
changed his role from an active part of the game to an observer. He is
particularly interested in verifying the effectiveness of the method, its strengths,
and its weaknesses. He is also working to formalize it
in a way that it can be possibly reused for similar jobs in other
businesses of the group. This is not a one-way game. Each new country
implementation contributes to enriching the understanding of the business. With
new experiences and best practices, the model depicts a living organism. One that
needs to be governed.
As Jack Amy and the new entry Peter deliver their training rounds across the
countries, the need to move on, from implementation to governance, starts
emerging. Meanwhile, the first financial results are coming from the countries
that have seen the earliest implementations of the new business model.
Following up the adoption of the global model involves performing a
number of activities, such as observing and measuring alignment, reinforcing
messages accordingly, sharing good practices, keeping an eye on market
evolution, updating the model. The utility of the data model, one of the five focus
areas defined during the design phase, becomes evident here. It facilitates
"reading" the newly rolled out businesses, and measuring their results. Identified
gaps between theory and practice lead to one of two outcomes: either the message
about the model is reinforced and the local business fills the gap, or, if good
reasons are recognized behind the gap, the model itself is adjusted, to
encompass the new variant. Sometimes, this kind of adjustment provides the occasion
to share a new good practice among other countries that turn out to be in similar
conditions. Another factor determining the evolution of the business model is
the observation of significant changes in the external environment. Far from
being a mere attempt to preserve a new level of stability, the whole governance
process is one of continuous adjustment for the better.
The above-mentioned governance activities imply intense two-way communication between the center
and the peripheral businesses. It turns out that a common language has been
established. Thanks to the very formalization of the model, the newly
introduced vernacular proves a formidable enabler in model adoption.
A dozen countries can now produce simple standardized reports, that
everybody can make sense of. In most cases, they use shared information
systems and operate common procedures without major misunderstandings
in their application, and without feeling penalized by the typical
rigidity of centralized governance models. Three years after its
implementation, the model is now generating a net positive cashflow, at
an international level. Revenues have now reached one hundred and fifty percent of
their value at the start of the work. Countries operating the model for longer
are the same that show the best performances. At the company headquarters,
the top management has started considering extending the application of
the newly developed methodology to other businesses in the group
Let's now review the sequence of seven steps, followed by Jack and his team. This
is easier done if we group the seven steps into three parts or phases: setup,
execution, and governance.
In the project setup phase, the dedicated team
1) set clear objectives upfront, 2) hired a team with a good cross-functional mix of
skills and a strong degree of cross-cultural awareness,
3) quickly gained a first level of understanding of the bigger picture,
doing this with a view to prevent major rework in the subsequent generalization phase of the
model. In the execution phase, they 4) gave priority to one country and did a good
job there, 5) generalized the results, in the form of a formalized flexible model,
6) rolled out the model, knowing that, at times, this involves challenging business
as usual. In the governance phase, they 7) initiated model governance, by following-up
change, sharing good practices, and incorporating field-generated hints into
the model itself. Besides the overall purpose of reversing the negative
performances of the business line at the beginning, let's also recall the initial
objectives that have been associated to the introduction of the business model.
These were: 1) providing a shared language and a communication framework, to quickly
read actual practices and performances, 2) orienting the local managers towards
improved results, by setting clear expectations upfront, and
3) establishing a straightforward and convincing cross-country positioning of
the business, especially when facing large international customers. Evidence
suggests that at least the first two objectives have been definitely reached.
On the other side, evaluating the success on the third point will require a longer
period of observation.
Now, retrospectively deducing the
general validity of a method from one success case can be a tempting hobby. A
self-convincing exercise in the first place and secondly a self-selling one.
As for me, I tend to be wary of those who try to
persuade me of their theories, based on alleged cause-and-effect relationships
between their actions and their successes. Reality is that there are
always a number of plausible determinants of the success or of the
failure of a business transformation initiative. In fact, modern organizations
are complex socio-technical systems. We cannot reduce them to a set of linearly
interacting parts. We will never really know which has been more important,
whether the rigorous application of a structure method, the inspirational
effect of a committed and trustworthy team, or the charisma of a leader. Or else,
the self-reinforcing loops arising among all of these factors together.
Nevertheless, if I had to face a similar case, there are at least a few points I
would definitely borrow from the story I've told you, and save for future use.
These are: 1) context dependence, what works in one place whether the geographical or
metaphorical, won't necessarily work the same way
elsewhere; 2) dynamic adaptability, what works today,
even if conditions look the same, won't necessarily work the same way tomorrow;
3) centrality of language, before being able to fully communicate something, you need
to give names to the concept you want to use; 4) market first, no business idea is
good in itself or, as Steve Blank brilliantly put it in a 2010 blog post,
"no business plan survives first contact with a customer", and the market will
always be the ultimate referee of your game. Finally, allow me to briefly
trespass the border of opinion and belief, just to say that the effort of
building trust and acting as a giver can profoundly influence the outcome of a
business initiative, such as the one I have just described. I've told you my
story because I believe it contains a number of useful hints. Every business is
a different case and it would be plain wrong
assuming that what has worked so well in a certain context would automatically
lead to success elsewhere. With the necessary adaptations, though, you might
find at least some elements of the approach that has proven successful in
that context effectively applicable to a number of similar ones.
I can only presume that, among those of you who had the patience to stay with me
to this point, a fundamental doubt may have arisen in your minds. The latent question
that may be more or less consciously puzzling you is: do you really need one
model? Have I read your minds? Well, I want to be straight and clear: my
answer is no. Expanding a bit on this, I would add that it depends on the context
and on your objectives. The business world is full of success cases in which the model
shrinks down to a few accounting and reporting rules, and a code of ethics, maybe.
On the opposite side, you may find companies that rigidly impose one model,
without any adaptation to market conditions, even if this implies
renouncing to a share of the business, in favor of a simplified center-periphery
information exchange and understanding. Within an ideal continuum
between stiffness and near anarchy, in order to choose your "whats" you will have
to answer your "whys".
Has this story made you think of some personal experience of yours? Would you
be able to list one similarity and one difference with any of your cases?
Feel free to use the comment space below, to share your remarks! Also, what is the
element of the approach, among the ones described, that you would most likely
want to replicate in your case. Please, use the same comment space to let me know.
Subscribe to my channel, if you haven't done it yet, so you make sure you won't
miss the next episode. If you want to read the full text of this post, you can
find it on my website: lucaorlassino.com
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