The pace of change and disruption has accelerated faster than the ability for traditional management practices to keep up. Dozens of discrete frameworks have attempted to address this challenge, however, they fall short because the problem is not a discrete one. A comprehensive business leadership model is required, one that levels up critical capabilities in a comprehensive and iterative manner through various stages of growth, maturity, and renewal, to create value at increasingly higher levels over time.
As part of our research, we reviewed a broad cross-section of business leadership frameworks, the vast majority of which would be considered “discrete”, “piecemeal”, or “point solutions”, focusing on one or more areas of management practice. Only a few integrated business leadership models have been developed and gained traction over time. The two most widely adopted are the Entrepreneur’s Operating System (EOS) based on the work of Gino Wickman and published initially in his book, Traction in 2007, and Scaling Up, by Verne Harnish, published in 2014. Both frameworks are effective for companies at certain stages and with certain characteristics, but do not adequately address the fundamentals of value creation, which are universal for all companies.
The “Why”: The Need To Fill The Opportunity Gap
John Kotter of Harvard Business School refers to an “Opportunity Gap” as a point in time when the rate of change in the external environment outstrips the operational capabilities of traditional companies.
The opportunity gap manifests itself in a number of ways that we term “AND” challenges. The fundamental AND challenge requires business leaders to rapidly create value at higher levels by optimizing the historical business while pursuing new opportunities in a shorter timeframe than previously, requiring structural, cultural, and technological changes.
Exacerbating this opportunity gap is the increased influence of professional private investors such as Private Equity and Venture Capital firms that achieve above market returns by identifying high potential companies in which to invest, rapidly working with them to create value, and then quickly monetizing their investments by either selling, recapitalizing, or taking their investee companies public.
The result is intense pressure on professional investment firms, and in turn on company leaders, to quickly create financial value and then to do it again and again often with different, stage-specific investors that look at value creation differently based on their stage focus and investment thesis. The same is true for public companies that already have scrutiny on their quarterly results and value creation capabilities. To fill the opportunity gap companies must not only become more agile, but iteratively grow their value creation capabilities at increasingly higher levels.
The “How”: The Integrated And Iterative Value Creation Process
Companies that repeatedly create value at higher levels do so in stages by simultaneously elevating a number of critical capabilities. Amazon is a modern-day example of such a company. From its beginnings selling books online Amazon grew to become the “everything store,” selling almost anything a consumer could want online with ever improving delivery. From there it leveraged the value it had created in its underlying technology platform to create its AWS division, selling computer infrastructure to businesses in bitesize chunks at a fraction of the cost than was previously available to companies. After that it made moves into devices, logistics, groceries, healthcare, online advertising, and more. It did this in stages and with experiments that did not always work, but overall led to successful paths for growth.
The Amazon story provides insights into how to seize successively larger opportunities by elevating four critical capabilities through an integrated and repeatable value creation process involving multi-dimensional strategy, the ability to elevate four critical capabilities, and utilization of an agile and accountable execution process. (See figure, right.)
Multi-Dimensional Value Creation Strategy
Strategy is an overused term and means different things to different people, however, multi-dimensional strategy for value creation starts with leadership’s goals and aspirations, and then integrates market, financial and operational elements. Market strategy, popularized by Harvard Professor Michael Porter’s work, at its essence involves evaluating the external environment to make critical, multi-year decisions that improve a company’s market position, differentiation, and defensible competitive position.
Financial strategy incorporates the investor perspective of value creation focused on return on investor capital (ROIC) and growth in enterprise value as a result of clear, multi-year moves, investments, and initiatives that create the greatest financial value within a defined timeframe. Finally, operating strategy focuses on the operational elements required to support value creation initiatives, and improve stakeholder value for customers, employees, partners and communities. These all need to be integrated and in synch to create value.
Elevation Of Critical Capabilities
After developing goals for value creation as part of strategy, there is a need to identify the leadership, business operating system, capital & board governance, and tech-enablement capabilities required to achieve the strategic goals. The desired outcomes include:
• Evolutionary Leadership & Culture: The right senior leaders are in the right positions with the right skills, working effectively together to support the strategy, while creating a culture of purpose that engages employees, customers, partners, & investors, and evolving over time.
• Agile & Accountable Business Operating System: The business operating system is agile, evolving in support of the strategy and to fill the opportunity gap. It also, leads to accountability with predictable outcomes.
• Value-Add Capital & ESG Governance: The right capital is accessible from the right value-add sources and governed by a diverse, value-add board. (Value-add includes the ability to secure talent, capital, acquisition candidates and more. ESG stands for Environmental, Social, and Governance practices which have been identified by investors and management as important.)
• Anticipatory Tech-Enablement: Tech-enablement not only supports digital transformation, but becomes anticipatory with AI to support greatly improved insights for decision-makers and proactive actions as defined by leadership.
Elevating these four capabilities in an integrated manner requires projecting and filling needs in the future with enhanced capabilities, which we refer to as the organization of the future process. For instance, elevating company and board leadership involves first designing the organization of the future with position descriptions and skills required for each position in an unbiased manner, and then placing existing management and board leadership in the upgraded positions along with and needed leadership development and recruitment plans. Similarly, the elevation of the business system, capital, and tech-enablement follows the value creation strategy. If the strategy, for instance, requires the launch of new products in new geographies, capital, business system, and technical capabilities must support those moves.
Agile & Accountable Execution
Many would argue the vast majority of value created by a company is a result of superior execution, which involves mastering agile planning cycles and an accountable execution process. When done well, agile and accountable execution leads to clarity of focus, improved alignment, increased accountability, rapid learning, accelerated speed of execution, and better agility to adapt in real time to internal changes and external disruptions.
Agile planning is like climbing a mountain in stages with typically three planning cycles. Initially, planning is conducted for the overall climb, which is like architecting the multi-year value creation plan, typically for three to five years; followed by planning for major sections of the climb, akin to annual budgeting and alignment; and then detailed planning for the immediate next stage of the climb, similar to what we refer to as the agile business sprint plan which can be as short as one to three months. (Note that PE firms also have an initial sprint cycle they refer to as the 100-day plan where they synch up with their investee companies and identify the initial value creation moves the company will make.) Although most of the time is spent on actually climbing, these planning cycles keep the climber focused, aligned and on track to reach the summit in the desired timeframe.
Concurrent with the planning cycles is an accountable execution process that involves Roadmapping, Orchestrating, and Instrumenting (R.O.I.). Roadmapping is the process of visually creating a timeline, milestones, deliverables and resource requirements for advancing the critical few initiatives that drive the vast majority of value for business. Orchestrating people involves regularly evaluating the organization’s design to ensure there is a single point of accountable ownership for critical functions and cross-functional initiatives, ensuring the right teams with enough capacity are in place to support the achievement of these initiatives, and conducting “rhythm of the business meetings” to ensure everyone remains aligned. Instrumenting is the process of establishing and tracking critical financial, operational, strategic and stakeholder metrics, and ensuring they cascade and are aligned throughout the organization.
Companies that strive to grow and flourish in today’s rapidly changing, global, tech-enabled business environment require a new business leadership approach, one that is adaptable and evolves through stages of growth, maturity and renewal. Any new framework or system must also be capable of creating value at increasingly higher levels by iteratively leveling up critical capabilities. The outcome of such a system is the iterative creation of strategic, financial, operational, and stakeholder value resulting in more sustainable growth in enterprise value.
Note: The Elevate Framework is supported by a playbook and case study that can be found at www.theelevateplaybook.com.