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Business
Issue
New
startups and new ventures in mature companies face significant business
and technology challenges as they emerge from proving their concept to
proving their ability to deliver. Foremost on many new entrepreneurs and
venture capitalists minds are:
- Getting beyond the "development phase" mentality
- Developing the set of Business Capability Requirements for the
production expansion phase
- Translating requirements into necessary business processes, information
technologies, and organizational systems for the next eight quarters
- Deploying a process for the rapid, ongoing realignment of key process,
technology, and organizational elements
While
many startups seem to be moving at Internet speed, they are also prone
to Internet speed related mistakes. Small mistakes can add up and cause
the company to lose its momentum. How can startups handle expansion and
stay focused?
Interviews
with over 100 executives in Information Technology and Operations areas
reveal several common root causes that lead to damaging missteps:
- Rapid changes in technology and business process requires a consistent
disciplined approach, yet most new ventures do not have skilled positions
in place to execute
- Incorrect decisions are made because current reality failed to
take into account predictable future events
- When companies execute business plans, they find themselves constrained
by past technology choices
- Even in new ventures, initiatives are often launched from silos,
lacking alignment and fit with respect to process, technology and/or
organization
- Financial planning and budgeting fail to take into account the
timing and interaction between projects
Business
Response
To
avoid missteps, business and information technology management must design
a coordinated response based on attaining both short and long-term business
goals. Business management must make objectives clear, and information
technology management must map technology capabilities to those business
objectives.
Consider
the case of a project team responsible for converting a startup investment
in four retail stores from a 10% per quarter investment rate to 20% per
quarter profit through self-financed expansion, in eight quarters. Throughout
the program, it would be critical that the team assessed the appropriateness
and fit of a solution to its target problem in the context of the complete
set of essential business capabilities. Key business capabilities that
needed to be enabled included:
- Process, organization, and technology infrastructure to support
development and operation of a chain of 25 stores within two years
and more than 50 within three years.
- Management structure to support a distributed workforce and relatively
high employee turnover.
- Rapid and effective means of training store personnel in product
capabilities, differentiation and demonstration.
The
next challenge was to extract business and IT requirements from the capabilities.
For example, IT requirements included:
- Leverage existing systems to expedite startup, minimize investment
and delay commitment to infrastructure until business processes are
stable.
- Design and deploy in-store and home-office systems that minimize
cash flow in the early stages when investment capital is scarce and
risk is high.
- Scaleable systems to support a growth plan.
Compounding
these challenges are:
- The tendency, sometimes at the insistence of investors, to change
the management team.
- Worse, there is often a desire to insert a layer of management
to propel the company forward after an Initial Product Offering.
This
new venture did have to lay in a few additional positions and there were
a few 'adventurers' who moved on to new startup initiatives. However,
the zeal and knowledge of the core management team was carried through
startup and expansion and on into productive operation of the unit. By
leveraging accumulated knowledge and continually reviewing the business
architecture, the team was able to refocus from 'make it work,' to 'make
it grow,' to "make it more profitable".
There
is also the presumption that senior information technology management
is necessary for this scale of business development. The retail new venture
was launched and sustained without the services of a Chief Information
Officer or anyone with similar technology management skills on staff.
The business management team borrowed a CIO from another business to guide
the process and coach the local technologists. The team learned quickly
that three practices empowered business managers to understand and direct
technical staff efficiently and effectively:
- Focusing on process capabilities instead of technologies.
- CIO coaching on business management and technology alignment.
- Challenging how every operational capability could and would be
delivered.
Architecture
Impacts
The
overarching guideline was to accept the "just enough principle - just
in time." For example, the team was able to use a cash register from Staples
for the first three stores rather than get bogged down with a choice between
NCR and IBM. Employing an architectural design, the teams quickly identified
essential components, created them, and qualified them. Knowing what subsequent
iterations would look like allowed simultaneous deployment and validation
of the first iteration while designing and qualifying components for the
second iteration.
Key
architectural guidelines that prevented hemorrhaging included:
- Support for multiple short-cycle iterations of business process
design and change at the head office and in stores.
- Identifying when scaleable head office systems had to be deployed
to support explosive growth and selecting them in advance.
- Support for a planning and replenishment cycle time of 1/2 week
to minimize committed inventory and maximize flexibility.
Business
Management Response
Capital
availability drove speed and thrift to allow early store profits to fund
later store openings. Realizing this early in the game forced the start
up team to focus on essential processes and capabilities. While testing
the business model, special attention was paid to the tradeoff between
fixed costs (capital investments) and variable costs (leases and contract
labor). Many operations that could have been automated were performed
by temporary labor to avoid distracting the technical team and making
capital investments. Knowing that the initial support systems could not
be scaled, forced an iterative approach to design, deployment and improvement.
Furthermore, a shared understanding of system weaknesses encouraged tolerance
and cross-functional support.
Key
success factors in this new venture were:
- Knowing 'everything' about its operational model q Knowing 'enough'
about enabling technology.
- Applying architectural and engineering planning for all physical
and business systems up front and at check points along the way.
- Thinking capabilities first - not systems.
- Thinking systems second - not products.
- Continually asking how to best use all available resources.
- Knowing how long a constraint built into a system, can be lived
with; what will be done to eliminate it; and what will trigger the
planned response.
- Employing talented and committed deployment teams who understand
the context and the goals.