For those of you who are not aware of EOS, it is the Entrepreneurial Operating System. It seeks to improve businesses by getting six components aligned to enhance business operations. The six are:
- the vision
- the people
- the issues
- traction – meetings and goals (“Rocks”)
- the processes; and
- the data
I am a supporter of EOS in that I believe all companies should have some system to improve their performance. However, as I have worked with clients who have implemented EOS, I found that it is just that, an Operating System and not a business model that enables the organization to grow!
As defined by Wikipedia, an Operating System is “the software that supports a computer’s basic functions, such as scheduling tasks, executing applications, and controlling peripherals.” So for a business, I defined it as “a model that supports the company’s primary functions, such as identifying a vision, getting the right people in the organization, improving meetings, defining goals (rocks), etc.” At the risk of upsetting EOS Implementers®, I think EOS satisfies these metrics to a varying degree, but in most cases, doesn’t enable the company to build a growth engine.
Here is what I believe is missing to develop a growth model.
The Hedgehog Concept
In Good to Great, Jim Collins talked about the Hedgehog Concept named after Isaiah Berlin’s essay, “The Hedgehog and the Fox,” which divided the world into hedgehogs and foxes. The theme is based upon an ancient Greek parable where “The fox knows many things, but the hedgehog knows one big thing.” Collins found that those companies who became great followed the Hedgehog Concept. Those companies which didn’t tend to be foxes never gaining the clarifying advantage of a Hedgehog Concept, being instead scattered, diffused, and inconsistent.
The Hedgehog Concept is based on the questions prompted by the three confluence of questions.
- What can you be the best in the world at?
- What are you deeply passionate about?
- What drives your economic engine?
The EOS Model® doesn’t focus on the hedgehog concept, and so many companies using EOS have goals and strategies based on bravado than from understanding.
Knowing your hedgehog concept will keep the organization focused on something that aligns its passion with what it can be the best at. Being good at something means you are only good and indistinguishable from many others. If you are the best at something, then you stand above the crowd. Finally, the economic engine keeps the company focused on a metric that drives profit.
While the EOS Method® works to develop a ten-year goal, I find that is not as compelling as Jim Collins’ BHAG. A BHAG, Big Hairy Audacious Goal, is a clear and persuasive statement and serves as a unifying focal point of effort with a defined finish line. It engages people, is tangible, energizing, highly focused, and often creates immense team effort. People “get it” right away; it takes little or no explanation.
A visionary BHAG is a 10-25 year compelling goal that stretches your company to achieve greatness. It should be a huge, daunting task, like climbing going to the moon, which at first glance, no one in the company knows how on earth you will achieve.
As Collins’s noted, the best BHAGs require both “building for the long term and exuding a relentless sense of urgency: What do we need to do today, with monomaniacal focus, and tomorrow, and the next day, to defy the probabilities and ultimately achieve our BHAG?”
Profit/X = Economic Engine
The BHAG’s economic engine is the concept of Profit/X. In Good to Great, Jim Collins defines this strategic metric as “One and only one ratio to systematically increase over time, what x would have the greatest and most sustainable impact on your economic engine?” Unfortunately, too many companies don’t have an economic engine, so they fail to deliver hoped-for profits. This metric is not easily identified; however, Collins noticed that the companies that took the time to discuss, debate, and agree on one key driver for their economic engine are the ones that went from good to great.
Profit/X how you choose to make money; it is a strategic metric, not an operational one. This ratio is a key driver in your financial engine and when you make decisions about how to spend money. When developing your Profit/X, you need to have that is unique and not the industry average because if you choose the latter, then everyone will be pricing and driving costs the same way to maximize it. Like the BHAG, a correctly defined Profit/X will promote teamwork as everyone can focus on their role to drive the metric, from how many people to hire, where to open new operations, etc.
Here are some examples of Profit/X.
- Profit/customer experience or customer visit
- Profit/geographic region
- Profit/part manufactured
- Profit/local population
- Profit/market segment
- Profit/square foot
- Profit/fixed cost
- Profit/recurring revenue client
- Profit/product line
- Profit/life of the customer
To frame this in a real-life context.
Southwest Airlines: Profit per plane
Walgreens: Profit/Customer Visit
New System Laundry: Profit/Delivery Truck Load
I think the EOS Method® ignores the following areas, but to me, they are part of the Hedgehog Concept. If you are doing something with clarity and focus, you need to have clarity and focus on these areas.
It is said, “A Business That Doesn’t Create Value for Others is a Hobby,” so what value does your organization create? Value creation is part of what you can be the best at. However, organizations need to know, “What is the problem they are seeking to solve for their customers.” Christian Claytonson defined this as “What is the job your customer is hiring you or your products to do?” Too many organizations define the job to be done as what they do, e.g., “We integrate your systems.” While that is what they do, that is not the job they are hired to do. The job they are hired to do may depend on the client but could be, “Provide information from across the organization to make better-informed decisions.” Knowing the job to be done enables your marketing and sales efforts to focus on the customers’ needs rather than on what you do. No one cares about what you do; they care if you can solve their problem. I don’t see the EOS Model®’s focus on this crucial question, but it is central to a company’s growth.
Who is the company’s core customer? I have discussed this before, and many companies can identify their core customer. However, most haven’t analyzed their customers from the point of view of Profit/X. If Profit/X is the driving metric of the organization’s profitability, then failing to know which customers meet and exceed it is crucial in defining your Core Customer. There is little point focusing on a Core Customer that doesn’t meet your economic engine’s critical financial metric, hoping that somehow you will magically capture the lost profit elsewhere. Furthermore, if you don’t know your Core Customer, your marketing and sales activities will be directed towards the wrong groups, further weakening your performance.
What is your Brand Promise, and how is it measured? This question is one that the EOS Model® doesn’t address. However, it is crucial.
- It is what convinces your targets to buy from you.
- It is what you stand for and promise to deliver.
- It is the metric against which you will be measured.
Some organizations do have a brand promise, but it is not measurable. In that case, it is “valueless” because if it is not measurable, no one knows if you are delivering it, and in that case, it has no value to prospects or clients.
Value delivery is vital for knowing how customers value the performance of the organization. While the EOS Model® discusses many metrics, this one does not get enough focus. Companies need to understand if their customers are satisfied with their performance. Recently, I spoke with a CEO who said that 80%+ of their customers were “Very Satisfied.” However, on further investigation, I discovered:
- It was just a guess as they didn’t measure it.
- 7 – 10% of their customers had complained in writing about their product and delivery in the last year.
- None of their clients had recommended them.
Here is wishing over reality. I would expect that the company had a “Very Satisfied” score of less than 25%, and they should be working hard to improve their delivery and start collecting customer satisfaction data.
Critical Number and Counter Critical Number
The EOS Model® deals with goals (Rocks) and meetings, and that is one area that I think it does very well. However, I notice that the Rocks are not aligned to improving a critical number for the quarter. The Rocks should seek to improve some Critical Number each quarter. Without a Critical Number, you are once more a Fox, not focused. Those that use Scrums know the importance of the Critical Number.
Rocks are great, but they need to improve a single business area to have the most significant benefit. As the saying goes, “You cannot defeat ten soldiers by sending in one soldier every day for 100 days.” For example, if our Critical Number is Customer Service in a Call Center, then the Rocks could relate to:
- Hold time
- Time on the call
- Customer satisfaction at the end of the call
- Percentage of calls resolved in one call
- Employee satisfaction.
The Counter Critical Number is essential to preventing the critical number from overwhelming the company and leading to adverse effects. For example, if our Critical Number is project completion, then a Counter Critical Number would be customer satisfaction. This metric would counter the attempt to deliver incomplete or defective products or projects.
Focusing on a Critical Number and Counter Critical Number for the 13-Week Sprint is essential to developing focus and alignment within the organization.
The EOS Model® does a great job of looking at the “Right People” in the “Right Seats.” However, what it doesn’t look at are alignment among the leadership team and employees’ satisfaction. Is your leadership aligned around the company’s direction or not? Culture will bring them to agree on values, but not necessarily alignment.
Your employees may all have the correct values, which is crucial, but if they are not engaged or dissatisfied with the leadership, cultural values will not prevent them from leaving or, worse, showing up but not there. Companies need to survey their leadership teams for alignment and their employees for satisfaction to ensure everyone is working in the same direction and committed to its success.
Thus while I like the EOS Model®, I think it doesn’t deal with many of the key things involved in the Hedgehog Concept. This failure enables companies to perform but not grow at an optimum rate. I am not ignoring many of his other areas of focus in Good to Great; however, this refinement of the Hedgehog brings an additional guide that the EOS Model® doesn’t.
The above model is most of Gravitas 7 Attributes of Agile Growth® model, and if you add in the rest, you have a model that will propel you to growth while keeping your operations running smoothly. The 7 Attributes of Agile Growth® focuses on:
making it a more encompassing system. If you want to start your transition to an agile growth company as a certified Gravitas Agile Growth coach, please contact me.
Copyright (c) 2021, Marc A. Borrelli