A business is a compilation of several related processes into sub-systems and an overall system. All those processes must work together without friction. Every process must do the right thing at the right time, so that the related processes can also do their part. All processes are organized into a hierarchy of sub-systems and constitute together an overall system. Obviously that system is only as strong as its weakest process.
Here is a list of the most important processes of a typical business:
- Production creates value
- Marketing and sales are responsible for monetizing the value created
- Investment makes sure that all the right assets needed for all those processes are available
- Purchasing is responsible that all the supplies are at the right time available
- Human Resources makes sure that the right people with the skills needed in each process are available
- Accounting sets benchmarks for every process and monitors their performance
- Another process needs to look into the future and identify upcoming opportunities and challenges early enough. The planning process needs to draw up plans for different scenarios and update those plans continuously.
- Finally, there is a process bundling all information provided by the different processes. This is the domain of the top management. All strategic decisions are made in this process.
All those processes will work in a well-managed business system seamlessly together.
Defining Systems and Processes
Business systems can be rather complex. Therefore, I am going to use in this episode the water circulation system as an example to discuss generic concepts of processes and systems.
The water circulation system is a combination – if you allow me that simplification – of four distinct processes: The water rains on land. Then it flows down through a system of small and big creeks, rivers, and streams back to the ocean. There the sun shines on it, transforms it into steam and lifts it up into clouds. The wind blows now the clouds carrying the water back on land. There it rains again down on the earth.
A process on the other hand is one-dimensional. It has often a specified trigger and consists of one or more steps lined up one after the next in a timeline. And finally, a successfully executed process leads to a defined end result.
I know that this is simplified elementary school level. But even if reality is much more nuanced, this simplified picture is a good illustration of a system binding together four processes.
Water flowing back through a river into the ocean is one of the processes of the water circulation system. Whenever the land surface cannot soak up all the rainwater, it will follow gravity and start to flow downward.
The shape of the land surface determines the route and speed of water on its journey back to the ocean.
From a given location, the flow passes certain predefined steps. it could be sinking down in the soil until it reaches a layer that does not allow water to pass through. Then the water will flow on the surface of this layer until it reaches a place where it can return to the open. We call such a place a “spring”.
The spring is the starting point of a creek. The power of gravity forces the water and the creek to take a certain way. It will unite with other creeks into a river. The river slows down or speeds up according to the shape of the surface. Sometimes, a river morphs into a lake. But it will certainly leave that lake again and becomes a river, again. Several rivers will unite into a stream, and finally the water will reunite with the ocean.
The shape and physical attributes of the soil clearly define the steps the water has to pass through before it can reach its destination. The rainwater coming down at a certain location must follow that route, passing one step after another until it can return to the ocean.
Returning to Business
At this point I want to dig a bit deeper into business processes. I use an example of my choice: a coaching business.
The value creation process for coaches
So, what does value creation for a coaching business mean? Simply said, the client has a specific problem, and the coach uses his knowledge to guide him to a solution.
Let me now do a backward planning sequence to define the steps in this value creation process.
- Problem solved
- Execute necessary steps to solve the problem
- Define necessary steps to solve the problem
- Find the barriers between the current situation and the desired outcome
- Understand the desired outcome
- Understand the current situation
- Listen to the client and other relevant people
Therefore, coaches have a clearly defined step by step process in their drawer. Those action plans tell them, what to do in which order to guide his client to a solution.
Processes and Systems for a Coaching Business
Obviously, the coach needs relevant knowledge and skills to do that. But building, growing, and maintaining this body of knowledge is not part of the actual process of value creation. The coach needs to do that before he works with the client.
The same is true for the necessary skill set. At the time, when the coach meets the client, he must already be a good listener and he needs already a well-structured approach to analyze problems. If he thinks, he knows it all, and tries to prescribe the same solution to everybody, he will not create value. In this case, he will destroy value.
The example above makes it already obvious, that the coaching process needs support by other processes.
The coach also needs to build a body of knowledge related to the problem of his clients. He cannot get there without a good research system. The research system binds, like other sub-systems of a business, several processes together.
A coach needs for this research access to the current thinking of his peers. Additionally, he needs to find as many information sources as possible and soak up their content, as long as it is relevant to his field. Finally, he needs to put aside the time and undertake the effort to relate all this information snippets from many sources and connect them into a more and more sophisticated model.
Of course, he cannot do the necessary research if he has no idea about the problems and aspirations of his prospective clients. He must do some market research and define his target market.
Then he must make himself familiar with the common pain points of his prospects, and how they try to find solutions. With the help of this information, he can now target his research process and develop a specialized body of knowledge to help his clients solve their problem better and faster.
The coach must also determine the cost of the unsolved problem for his prospects. Without this information, he cannot set the right price for his services.
The three processes above perform together the functions of the marketing department. To name them again, they are
- defining the target market,
- finding the wants and pain points of prospects and
- judging the value of a solutions for your clients
You have probably noted that marketing comprises several processes. They run in parallel, but all processes are connected together into the marketing sub-system. But they deliver a common result to the business. They help determine, which product to develop for which market at what price point. They form together a sub-system.
Next, the coach needs to sharpen his coaching skills. To do so, he needs a process to review his activities, bench-marking the results, and improving his methods. This is an internal quality control process.
This is not easily done, because it demands a look from the outside on the day to day activities of the coach. Many coaches hire another coach to help them benchmark their results and improve their methods.
A business plans for the future, otherwise it would not be a business. Planning means to have a budget, setting out a path for growth and invest at the right time at the right place to avoid bottlenecks.
But planning for the future means also watching your performance and the business environment carefully.
You have a huge advantage if you can see and observe possible developments early on. In that case, you can think through the implications upcoming scenarios early on. You can identify upcoming challenges and opportunities and plan for them accordingly.
Whenever you are prepared, you have a big advantage in the moment a change reaches the surface and becomes part of the commonly recognized reality.
Some competitors will remain staring with fear and awe at the new situation, unable to react. But you will be able to open the draw of your desk, pick the proper plan and do what needs to be done.
The classic business functions
Add to that core processes and sub-systems of a coaching business the classical business functions: accounting, purchasing, human resources and sales. They all are also organized in processes and sub-systems. And each process contributes in one way or another to the success of the whole system.
Integrating Business Processes into Systems
In an efficient and successful business all processes and subsystems work without frictions together.
It is probably safe to say, that every product of a business is backed by a value creating process. And all those value creating processes need the support of other processes and sub-systems to function properly.
All those processes and the resulting sub-systems together integrate into a single system. We call this such a system business. A business system can be simple. There are only two conditions for a business to prosper:
- every business function must be performed
- all processes and subsystems in a business must work in harmony
It is the main responsibility of a business leader to understand this system, maintain it and improve it continuously.
This was the manuscript for episode 15 of the Podcast Success and Inner Growth. You can expect episode 16 after a short summer break at the beginning of September. We will examine how to design a business for stability, and how owning a business can bring stability into your life.