Optimising Business Systems for Peak Performance 

by

Optimising business ecosystem

Business is a sensitive ecosystem with butterfly effects you can optimise to multiply returns on every effort and every asset

Financial intelligence is often associated with understanding numbers, interpreting financial statements, and making informed business decisions. But in practice, at its core, it’s the art of leveraging resources and advantages a business has in the marketplace to maximise its performance and exponentially increase the value it generates, with certainty and precision.

 

This aspect is seldom taught in traditional financial education, and even at the MBA level the economic principles that connect nearly all business functions are separated from their environment. I practice the systematic approach based on awareness and understanding of key components of any business and how they interact so you can find leverage points of maximum impact.

 

If you understand what every moving part is doing to the overall profitability and you are trained to search for these kinds of insights, it can transform your business perspective.

 

 

Navigating the Business Ecosystem

 

A business can be viewed as an ecosystem with numerous interconnected moving parts. Recognizing and continuously leveraging these connections to optimize the system is the Secret to long-term Business Success and profit sustainability.

 

It is impossible to improve anything in its entirety but it is possible to break the system down into components to understand the patterns, the cycles and the behaviour each subsystem has.

 

Only when components are tuned in with the bigger picture, the synergy and unison effect can emerge. Just like the tuning process for a guitar begins with the first string, setting the foundational tone. From there, each subsequent string is tuned in relation to the first, creating a harmonious interplay of sounds. A lot of businesses operate in a cacophony among their departments purely because periodic tuning-in is not a part of their business plan.

 

 

The Core Components of a Business System

 

 

At the heart of any business are its core components – Sales and Marketing, Production and Sourcing, Distribution and Delivery. All other functions exist to support and enhance these pillars, generating greater value for the customers they serve.

 

Sales and Marketing

Every venture begins with a need, a frustration, a desire, or a drive. This is the starting point for Sales and Marketing departments. Their job is to find the match, and sometimes, even drive the creation of the product that fits the bill. Finding these individuals in the marketplace and motivating them to do business with us is not an easy task. Sometimes they know what they want, sometimes they don’t. But in most cases, people are looking for someone to solve their problems or offer them value they could not find before. How we offer this value and facilitate the match is crucial.

 

Businesses exist because people do. To succeed, a business needs to be great with people, regardless of the product. Sales and Marketing are the frontline. Listening to the information from the frontline and understanding the triggers that make the product-market match easier, cheaper, faster, more productive and more rewarding is the key to anything else that is going on in the business.

 

If you have no customers, you have no business. It does not mean that they are always right. It means that the marketplace where customers aggregate with their problems, fears and desires is the starting point of any business system. This is where most of the leverage can be found and applied. It is the foundation sound everything else in the business needs to tune into to create music.

 

Production and Sourcing

Then we have the production and/or sourcing process. This is where value is created and customised to customer needs. Value can take many forms – tangible or intangible, realized or unrealized, perceived or hidden. It can also be packaged in many ways. If done correctly, a package can represent a greater value for the customer than its components individually.

 

The more creative the production process, the more value the business can generate for its customers. The supply chain is part of this creative process. Every element in the supply chain and production process carries costs and generates value. It’s both an art and a science to optimise production and the supply chain to maximise value generation while considering all cost elements.

 

 

Distribution and Delivery

Achieving a perfect product-market fit is a continuous process. It is informed by Sales and Marketing and facilitated by the business’s Distribution and Delivery system. The delivery process is a critical stage where additional value is infused, and further cost elements are integrated into the overall value proposition of the business and the results it yields.

 

This is where business operations must be optimised for speed. Delivery speed matters. It does not matter how much the business can sell if it cannot deliver the same volumes. The goal is to operate at a maximum capacity with the intention to deliver more and increasing value over time.

 

 

Overheads, Boosting Effectiveness and Return on Efforts

 

While there’s a multitude of department names and functional divisions, the core components of any business boil down to these three: Sales and Marketing, Production and Sourcing, and Distribution and Delivery. All other functions exist to lubricate and enhance these systems generating greater value for the owners and the customers the business serves. When these systems are not efficient, the administrative component expands to bridge the gaps, which in turn increases the overall system’s cost.

 

We call these overheads.

 

Overhead is an essential part of every business, ensuring the effectiveness of each system and driving continuous improvement as new knowledge is developed.

 

Overheads touch every core function. The name comes from the fact that it can’t always be associated with each individual product, project or customer. In fact, about 10-20% of all activities in each department should be overheads, dedicated to improvement and exploration – a future-oriented space that can’t be readily applied to current sales and market operations.

 

Businesses that consistently create new value have departments designed to discover better ways to generate more value in satisfying customer needs, frustrations, desires, and drives, like Research and Development, Design and Engineering.

 

The Customer Experience or Customer Service department aims to facilitate the customer’s journey. When this journey is well-designed and supported, it paves the way with products and services including aftersales, leading customers into the future with you while generating increasing value for them. So once a customer becomes used to such a path, it is actually very difficult for them not to come back every time they feel lost in the marketplace.

 

Then come Finance and IT. Finance plays a critical role in ensuring the overall system doesn’t deplete the resources necessary for its operation while generating desired outputs. Information Technology, on the other hand, ensures information is efficiently collected and disseminated among all players, accelerating processes and multiplying insights. If the processes are bad, bad processes will be accelerated by technology. If the insights are confusing, confusion will be multiplied.

 

The role of General Management is to oversee the optimisation and coordination of all systems, ensuring they perform at their highest capacity and capability.

 

Beyond these functions, every business revolves around people, and so a People and Culture function is important to ensure motivation, trust, negotiation between internal parties, and management of other human elements essential for value generation. Cooperation is better when this function is optimised and tuned in with the business needs.

 

Understanding how components work is the only way to see potential improvements for the system to operate better, faster, cheaper and to generate more value for all involved.

 

Business system and its components

The core components of any business boil down to these three: Sales and Marketing, Production and Sourcing, and Distribution and Delivery. All other functions exist to lubricate and enhance these systems generating greater value for the owners and the customers the business serves.

When these systems are not efficient, the administrative component expands to bridge the gaps, which in turn increases the overall system’s cost.

 

Balancing Efficiency and Effectiveness in Business Systems

When systems are inefficient, the administrative component expands to bridge the gaps, and we see growing overhead costs. Another symptom of that is exhausted and frustrated people who have to battle through their days to deliver the results that are expected from them.

 

While efficiency is about the process, effectiveness is about the end result. An efficient process gets more done with less, whether that’s time, money, or effort. An organisation can be efficient without being effective if it’s doing things right but not the right things.

Conversely, a business can be effective without being efficient if it’s achieving its goals but using more resources than necessary.

 

An effective business is one that delivers what it promises to its customers, regardless of the resources it uses in the process. The aim is to be both efficient and effective, doing the right things in the right way.

 

When coordination is not executed properly and cooperation is not hapenning, the cost of operating a business can surpass the value it generates for its people, customers, and owners. In such scenarios, the business requires additional resources to maintain its market presence.

 

This is why it is absolutely critical to address the return on resources because if the situation doesn’t improve, the business can become a costly liability for its owners. The only exceptions are if the business generates other forms of value for them, such as prestige, access, or leverage for another venture that covers the expenses, which absolutely can be the case.

 

 

I worked in the McDonals supply chain for 7 years or so and they truly amazed me in terms of their innovation, their IP, their competitive strategies and their risk management.

Sure, they have tangible assets like real estate and their location formula. But their most valuable asset? It’s their system. Now, think about it. There are countless places where you can get a burger that’s arguably tastier than what McDonald’s offers. Yet, no one ever outperforms them. Why is that? It’s because they’ve mastered the art of system optimisation.

During peak hours, other establishments struggle with efficiency. Their staff are tripping over each other, the orders are delayed, and the cash register isn’t ringing as fast as it should. But at McDonald’s? It’s a different story. Customers are in and out in no time. The service is swift and consistent. The taste of their food is the same, whether you’re ordering in Sydney or Singapore.

Great system.

McDonalds System

 

Your Business Model Influences The Outcomes

 

The underlying problem for most struggles a business has is often in its business model. The business model is the fundamental process through which a business fulfils its purpose and generates value. If it’s well-designed, it aligns with the company’s values and offers a unique value proposition that makes it different in the marketplace.

 

It’s not a static blueprint, it’s a dynamic system that needs to adapt to market cycles and business growth. A slight tweak in one part of this model can create a butterfly effect, rippling through the entire system and leading to significant changes in business performance. And for that reason, understanding and continuously refining the business model is an art and science that every business needs to master to maintain competitiveness and achieve long-term success.

 

While each model can be unique, there are some elements that are known to make business operations easier, faster and more rewarding and some that have been shown to create risks and even put constraints on the benefits generated within the system.

 

They are mostly around the Unique Value Proposition (UVP), customer acquisition, onboarding and re-engagement strategies, funding the process, and distribution of benefits.

 

Some examples of the successful elements include the following:

  • Customers pay before the product is made
  • Once acquired, customers continue to receive increasing value just by being part of the business ecosystem, leading to regular and increasing deals over time
  • Diverse and non-interdependent revenue streams
  • Serving more than one market
  • Incorporating innovation as part of the business model

 

This is not a definitive list but you get the idea.

 

These elements not only contribute to the success of a business but also help mitigate risks and ensure a steady flow of benefits.

 

Some other things to consider are connecting the business with a purpose and adding elements of a game. Adding a purpose that resonates with people can amplify the energy and motivation around a business model. Incorporating elements of a game can further multiply these factors, enhancing the speed and precision of the paths people take to the results the business wish to accomplish.

 

These are subsystems that can be integrated into any business model.

 

Optimising and tweaking the system, its subsystems and their elements to find leverage requires an understanding of fractals (patterns within patterns) and how they’re nested in cycles and paths.

Very often managers confuse the influence of a cycle with their performance, especially in the case of a tailwind. Things become interesting when the wind changes.

What to look for to find leverage for Optimal Performance

Headwinds, tailwinds and the hand we are given

 

Optimising and tweaking the system, its subsystems and their elements to find leverage requires an understanding of fractals (patterns within patterns) and how they’re nested in cycles and paths.

 

Managing paths is as critical as managing cycles. While cycles represent recurring events and processes businesses are subjected to, paths represent conscious sequences that people and businesses can choose to follow. Cycles create headwinds and tailwinds. Very often managers confuse the influence of a cycle with their performance, especially in the case of a tailwind. Things become interesting when the wind changes.

 

Demand for a certain product is part of a product CYCLE. Cycles follow patterns. The ability to recognise patterns is very valuable because it helps to predict the probability of an outcome with a degree of certainty. The more we know about a pattern the more precision we can achieve in a decision. Patterns within patterns are called fractals. Examples are seasonal cycles, economic cycles, buying cycles,

 

Strategy is a PATH. KPIs are the markers along the way. Incentives are measures to keep people on the path selected by the management. Paths create motivation and energy in all aspects of a business. The customer journey is a path. The employee onboarding process is a path.

 

It is worth noting that not everyone starts walking the same path the same way. It is not just the cycles that affect how easy or difficult the path gets but also it depends on the hand that we are given at the very beginning. The way to the top will be different when you start on a paved road versus when you start in a muddy pit in the middle of nowhere. I’ve been in both places and sometimes you just need to peddle through mud, sweat and tears to get somewhere when for outsiders it is puzzling why it is taking so long.

 

The key to finding unique and effective leverage points in any business is breaking the system down to its bare elements and tweaking one at a time to see the effect they produce while tuning the subsystem in with the information that comes from the marketplace. When we invest time in understanding the patterns, cycles, the reality of a given moment in time and how the elements work, we can come up with a better path and put measures in place to keep each operating element within the boundaries we set.

 

 

Why Testing is the Secret Ingredient to Business Success

 

The process of tweaking business models and internal infrastructures to maximise returns on every effort and asset with a high degree of certainty is both fascinating and rewarding. The butterfly effects are everywhere, often concealed, but this is where the real leverage hides.

 

More often than not, testing is necessary to optimise any system. It’s through this iterative process of trial and error that we can find the hidden connections, identify areas of improvement, and ultimately, create a more efficient and effective business model.

 

Testing the system is not just about identifying inefficiencies; it’s about understanding the interplay of resources and results. Some elements of the system will consume more resources, while others will consume less. Simultaneously, the contribution to the desired result is not always proportional. Understanding this dynamic is central to assessing the return on efforts and the effectiveness of resource allocation.

 

The elements of the system that generate the most results per resource consumed in the process are the likely candidates for urgent tweaking (as well as those with the opposite effect). But before we start on this, we need to define what represents success and quantify every resource consumed in the process, including the overheads that are often not accounted for when we are assessing projects.

 

Testing and tweaking is not a one-time event, but rather a continuous cycle of improvement. The business environment is dynamic, with customer needs, market trends, and competitive landscapes constantly evolving. What works today may not work tomorrow. And so, when we design any sort of solution or change we need to try and run it through all scenarios that do not necessarily exist today so the solution is solid and flexible for when things change.

 

Each tweak to an individual element can have ripple effects throughout the entire system, sometimes in unexpected ways. Those who are not ready to pull back or go all in, depending on the results, may suffer or miss out on opportunities. Never design anything to be a final solution because life does go on and things do change.

 

While the goal is to optimize the system, perfection is not the aim. Instead, the focus should be on making incremental improvements that move the business closer to its goals. Small, consistent changes can lead to significant improvements over time.

 

Analysing information that the system generates can help find where that leverage is and to optimise the relationship between costs and the value the ecosystem generates in the marketplace, improve profitability and sustain growth in any business.

 

One more thing… While data and analytics play a crucial role in this process, so too does intuition and experience. The numbers can tell you what is happening, but they often can’t tell you why. Correlations exist everywhere but causation requires proof over time.

A lot of people are too happy to make decisions to change things on the basis of bad data or assumptions taken as facts.

butterfly effect in business

A business is not a simple collection of subsystems, it’s a sensitive ecosystem with butterfly effects that can be optimised to multiply returns on every effort and every asset within the business.

When using a systematic approach based on awareness and understanding of components and how they interact, we can find leverage points of maximum impact.

Tags:

You may also like...