Align and Thrive: The Importance of Organizational Alignment and Agility

Align and Thrive: The Importance of Organizational Alignment and Agility

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Introduction: The Need for Alignment in Agile Growth Companies

During a recent conversation with a fellow professional, the topic of organizational alignment arose. For a company to grow and adapt, it must be aligned, with all activities reinforcing its objectives. Alignment begins with the CORE – Core Values, Core Purpose, Core Customer, Brand Promise, and Profit/X, and these elements form the foundation upon which everything else is built.

Building Strategy Around Your Core

Once the CORE is established, you can develop a strategy that includes your Flywheel, BHAG, 3HAG, and 13-Week Sprints. The strategy should be based on the CORE without contradicting any of its elements. With a solid strategy, execution then focuses on achieving the targets set out in the strategy.

The Pitfalls of Misaligned Goals

Many companies set Core Values, a five-year plan, and annual goals but fail to align these with their CORE. This misalignment can result in pursuing revenue at the expense of profitability or prioritizing profit to the detriment of essential investments in people, processes, and equipment. Such scenarios are common in Corporate America and often wrongly attributed to short-termism.

The Power of Alignment and Agility

Alignment and agility are crucial for sustainable growth. When a company is aligned, its activities reinforce its Flywheel, target Core Customers, meet customer needs, deliver products and services efficiently, fulfill the Brand Promise, and achieve the Profit/X goal.

Agility enables an organization to respond effectively to a changing world. In an ever-changing environment, decision-making must be pushed to where the information is. Proper decision-making can only happen when the decision-maker knows the organizational intent (Strategy) and the framework for making that decision (CORES).

Conclusion: Aligning Your Organization for Success

To achieve the growth and success you seek, identify your CORES and develop a strategy accordingly. Ensure that everything in your organization aligns with these CORES, and you will be well on your way to thriving in an ever-changing business landscape.

Copyright (c) Marc A. Borrelli 2023
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In a meeting last week, one of my Vistage members discussed his expansion into a new business area and how to price his services. The way he described the new market was comprehensive. As usual in Vistage, this led to a great discussion challenging his assumptions, followed up with some excellent ideas. However, several of us, including myself, asked the critical question, “What precisely are you offering your clients.” I believe everyone needs to ask this question and drill down to the micro-level because, as a coach once told me, “You have to be famous for something!”

Why You Need to be Famous for Something

As an entrepreneur, focusing on a specific area of expertise is essential instead of accepting any work that comes your way. This focus allows you to clearly understand your products or services, which is crucial for generating referrals and building your brand. By defining and communicating your target audience, you set yourself apart from the competition and make it easier for potential clients to understand your value proposition.

What is the job to be done?

The concept of “The Job to be Done,” introduced by Clayton Christensen, suggests that people purchase services or products to fulfill specific needs. By identifying the core problem your clients want to solve, you can clarify your value proposition and better communicate your offerings. Understanding the “job” you’re hired for makes it easier for potential clients to grasp your expertise and ensures that you stand out in the marketplace.

My Definition

As a growth business coach, I work with CEOs and leadership teams of companies with revenues from $5MM to $50MM. This niche allows me to focus on helping these clients build a growth engine for dramatic profitable growth. By narrowing down my focus, I can clarify my message, making it easier for potential clients to understand my expertise and the value I bring to their businesses.

It feeds Jim Collins’ BHAG.

Understanding what you can be the best at helps frame your passion and gives your business direction. By identifying why your company exists, you can develop your BHAG (Big Hairy Audacious Goal), which is the foundation of your long-term strategy. Clear answers provide clarity and direction for your business, ensuring you stay on track and focused on your ultimate vision.

People know what you do.

Describing the job you do clearly and concisely enables people to understand why they should use your services. Specializing in a specific area makes it easier for potential clients to connect with you based on their needs. Providing a clear message about your services increases the likelihood of referrals and creates a strong foundation for your business.

You can find your tribe.

Specializing in a particular area helps you identify your target audience or “tribe.” Knowing your tribe allows you to understand their preferences, characteristics, and habits. This targeted approach enables you to create marketing efforts that resonate with your audience and generate better results, ultimately leading to increased success and growth for your business.

If you focus on a “job,” you can do it well.

Specializing in a specific area allows you to develop increased skills and recognition in that field. You can achieve better results and differentiate yourself from competitors by honing your expertise. Avoiding the commodity trap and staying focused on your niche ensures your business remains competitive and successful.

If done well, you sell “Value.”

By focusing on providing value to your clients, you can move beyond pricing based on time and materials. Instead, you can adopt a value-based pricing approach, which improves margins and allows you to maintain your leadership position in the market. This pricing strategy ensures your business remains competitive and maintains a strong market presence.

Discovering Your Niche

Determining your niche takes time and effort but offers substantial returns in the long run. Engaging a coach or working with your team to facilitate discussions can be beneficial in identifying your niche. Investing time and energy in finding your niche maximize your business’s potential and sets you on the path to success.

 
 

Copyright (c) 2021, Marc A. Borrelli

Schedule a Call

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I recently facilitated a workshop with several CEOs where we worked on the dramatic business growth model components. One of the questions that I had asked them beforehand was, “What is Your Profit/X?” The results showed that there this concept is not clear to many. So I will try to provide some clarity below.

What is Profit/X?

Jim Collins, in Good to Great, said,

“The essential strategic difference between the good-to-great and comparison companies lay in two fundamental distinctions. First, the good-to-great companies founded their strategies on a deep understanding along three key dimensions; what we came to call the three circles. Second, the good-to-great companies translated that understanding into a simple, crystalline concept that guided all their efforts … one particularly provocative form of economic insight that every good-to-great company attained is the notion of a single ‘economic denominator.'” 

The economic denominator is Collins refers to is “X.” So if you could pick just one “profit per X” ratio to increase over time systematically, what “X” would have the most significant and sustainable impact on your business?

Whatever it is, it is your single, overarching KPI, and to achieve that status, it needs to meet the following:

  • Everyone in the business knows it.
  • It is the factor by which all significant, strategic decisions are measured.
  • It has a positive impact on revenue and is cost-effective
  • More “X” is desirable.
  • It is tightly aligned with your long-term vision.
  • It is unique within your industry.
  • It should improve your team’s discipline and focus.
  • It should decrease the likelihood of spending on initiatives that end in failure or don’t align with your strategy.
  • It can always tell you whether you are trending forward or backward? 
  • Everyone understands their role in driving its improvement.

How do you determine it? 

Again from Good to Great, “The denominator can be quite subtle, sometimes even unobvious. The key is to use the question of the denominator to gain understanding and insight into your economic model.”

So, determining your “profit per X” is not just choosing what appears to be the most obvious answer, as many do. Instead, you need to understand your company’s economic model. Don’t just accept any denominator, but figure out what is the strategy to increase it.’

However, determining your “profit per X” is difficult! It requires an investment of time and effort and will be the source of many debates and disagreements. Not only that, but once you do agree on your unique KPI, it needs to be managed, which is also tricky. Finally, it requires the discipline to review and monitor it continually; otherwise, it won’t provide helpful insight.

Determining your unique economic denominator is difficult. Because it’s complicated, many companies are unwilling to invest the time and effort required for this exercise to succeed. 

Remember, what works for one company may not work for yours!

Those who struggle to determine it?

Some of the CEOs I asked struggled to develop their “profit per X.” What is apparent is that those companies are not clear on their core customer and marketplace, so they cannot clearly articulate what problem they’re solving and for whom.

A CEO didn’t have the data on their profitability per client, so without that, they couldn’t determine effectively who their core customer is. However, he informed us that the larger customers were the most profitable. Suppose the data shows that is the case. In that case, they are probably over-servicing their smaller clients and making barely any money from them.  If the company lost all these smaller clients, they would be only marginally worse off.  It would be better for them to focus most of their resources on our higher value, larger customers, which will lead to exponential growth.

It needs to align with your strategy.

It is critical that “profit per X” is tightly aligned with your long-term vision. Many companies either pull a random number out of thin air or align it to a vague aspiration statement. That will not work! Your strategy and “profit per X” must support each other, and your strategic goals should be measured in the same units as “X.”

Some of the CEOs I mentioned said “gross profit per FTE” and another revenue per FTE with a general assumption on profit levels. The latter fails the test above because no one in the company knows it, gets behind it, and it’s not measured regularly. Gross profit per FTE reflects efficiency, but does it align with the strategy and drive growth? If the strategy is to be the most efficient in the industry, maybe. But if your strategy is to grow to $XMM in revenue and be the market leader, probably not. Using up valuable management cycles and energy to improve efficiency will distract from your growth objective. Instead, find a “profit per X” that drives revenue growth.

Unique within your industry.

When discussing this concept recently, someone mentioned that they didn’t believe it needed to be unique to your business. However, suppose the key driver in your economic engine is the same as your competitions’. In that case, you are all focused on pursuing the same outcomes from the same market. The result is that you are viewed as a commodity rather than differentiated from your competition. Once you’re a commodity, it is a race to the bottom.

Also, a good “profit per X” can provide an advantage to your business even during an economic downturn by differentiating the company from the competition and focusing on revenue and costs containment. It can help a business succeed, even if it’s in a dying sector.

Here are some examples of how uniqueness can enable your business to scale dramatically.

Walgreens. In Good to Great, Collins uses Walgreens chemists as an example. The industry model was profit per store, so to increase “profit per store,” the trend was fewer larger stores. Instead, Walgreen adopted the Starbucks model of profit per customer visit. As a result, they focused on opening lots of smaller stores instead of a few big ones. With more (conveniently located) stores, customers’ likelihood of coming to one of their stores increased. Since the customers were no longer visiting for a single purpose, customers’ spend per visit increased.

Southwest Airlines. The world’s most profitable airline. Southwest identified that their core customer was someone who would otherwise get the bus or drive. They weren’t solving the problem of a Fortune 1000 executive who needs to fly from the US to Europe on a flatbed. With customer clarity, their “Profit per X” was profit per airplane. They made their money while their planes were in the air. They identified their competitors, not as other airlines, but bus companies. So, their business was focused on price. They stripped out food and assigned seats to increase profit per airplane and only used one model – the 737.

Autopia car wash. Like many companies, it was focused on “profit per customer.” While they offered car wash memberships, the “profit per customer” metric showed membership customers were less profitable. They took up more admin time to update credit card details than single-transaction customers. 

However, looking at the data and examining the company’s economic engine, the CEO realized membership customers were ten times more valuable, not the inconvenience he perceived. The company pivoted its model to focus on memberships, making customer satisfaction and member benefits central to the strategy.  Profit per membership card became the new “profit per X,” the one metric that drove the company’s growth. (Thanks to Doug Wicks, a Scaling Up coach, for sharing this story).

New System Laundry. New System Laundry serviced the hospitality industry, picking up and delivering laundry. Again their “profit per X” was profit per customer. However, given their core customer, they could only scale the business by increasing business per customer or prices. They re-examined their business and economic model. Changing their “profit per “X” to “Gross profit per truckload” enabled them to focus on reducing cost per delivery through more efficient delivery routes and schedules, customer clustering, and core customer locations. They added new customer locations strategically, and the business grew dramatically! 

A jewelry design firm. Their initial “profit per X,” like many, was profit per customer. However, looking at the data, it was apparent that many showroom customers were not profitable as they took up too much time and didn’t spend enough. As a result, the owner closed the showroom and moved into a studio, taking customers by appointment only. Taking appointments on weekends and offering champagne and hors d’oeuvres while customers shopped, revenue per appointment increased over 400%. As a result, “profit per X” is now “profit per appointment.” By optimizing appointments, the business can scale dramatically. (Thanks to Glen Dall, a fellow Gravitas coach, for sharing this story.)

So what is your “profit per X?”

As I have tried to show above, profit per X is different for everyone. It needs to align with your strategy and drive dramatic growth. What works for one company doesn’t necessarily work for you. 

Below are some examples to get you and your team’s imagination going about what is the unique economic denominator for your company:

  • Profit/customer visit or interaction
  • Profit/customer
  • Profit/employee
  • Profit/location
  • Profit/geographic region
  • Profit/part manufactured
  • Profit/division
  • Profit/sale
  • Profit/purchase
  • Profit/life of the customer
  • Profit/plant
  • Profit/brand
  • Profit/local population
  • Profit/invoice
  • Profit/market segment
  • Profit/store
  • Profit/square foot
  • Profit/fixed cost
  • Profit/recurring revenue client
  • Profit/seat
  • Profit/plane
  • Profit/product line

If you would like help determining your “profit per X” and dramatically scaling your business, contact me.

(c) Copyright 2021, Marc Borrelli

Schedule a Call

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EOS is just that, an Operating System

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Welcome to those unfamiliar with EOS, the Entrepreneurial Operating System. This system aims to bolster businesses by synchronizing six key components that optimize operational effectiveness. These components include:

  1. Vision
  2. People
  3. Issues
  4. Traction (meetings and goals or “Rocks”)
  5. Processes
  6. Data

I advocate for EOS, as every company should utilize a system that enhances its performance. However, through my experiences working with clients implementing EOS, I’ve realized that it serves primarily as an Operating System rather than a business model that creates an agile growth company.

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.” In a business context, I describe it as “a framework that underpins a company’s essential functions, like establishing a vision, assembling the right team, refining meetings, setting goals (rocks), and so on.” Although I risk ruffling the feathers of EOS Implementers®, I contend that EOS meets these criteria to a certain extent but often falls short of empowering companies to construct a growth engine.

Let’s delve into what is required to create a growth company.

 

The Hedgehog Concept

In Good to Great, Jim Collins discussed the Hedgehog Concept named after Isaiah Berlin’s essay, “The Hedgehog and the Fox,” dividing the world into hedgehogs and foxes. The theme is based on an ancient Greek parable: “The fox knows many things, but the hedgehog knows one big thing.” Collins found that those companies that became great followed the Hedgehog Concept. Those companies which didn’t tend to be foxes never gained 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 confluences 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, so many companies using EOS have goals and strategies based on bravado rather than understanding what will enable them to be great.

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 good but indistinguishable from many others. If you stand above the crowd if you are the best at something. Finally, the economic engine keeps the company focused on a metric that drives profit.

Vision

While the EOS Method® works to develop a ten-year goal, I find that it 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” immediately; 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 Everest or going to the moon, which at first glance, no one in the company knows how on earth you will achieve.

As Collins 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 is 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 decide how to spend money. When developing your Profit/X, you need to have one that is unique and not the industry average because if you choose the latter, 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.

Value Creation

“A Business That Doesn’t Create Value for Others is a Hobby.” So, what value does your organization create? Value creation is linked to what your company can excel at. However, businesses must identify the problem they aim to solve for their customers. Clayton Christensen defined this as “What is the job your customer is hiring you or your products to do?” Many organizations mistakenly define the job based on their activity rather than focusing on their customers’ needs. Identifying the job to be done can help target marketing and sales efforts toward addressing customers’ problems rather than simply promoting the company’s activities. The EOS Model® does not sufficiently address this essential question, which is critical for a company’s growth.

Core Customer

Understanding your company’s Core Customer is vital. If have found that many businesses cannot identify their Core Customer. Some of the key metrics of a Core Customer are one that pays on time, allows you to make a satisfactory profit, and refers you. Focusing on the wrong Core Customer can lead to misguided marketing and sales activities, reducing profitability and cash flow and ultimately weakening the company’s performance and growth.

Brand Promise

The EOS Model® does not address the question of Brand Promise, which is crucial for a company’s growth. Your Brand Promise is what convinces your target audience to buy from you, stands as a testament to your commitment, and serves as a measurable benchmark for your company’s performance. Some organizations have a Brand Promise, but if it’s not quantifiable, it becomes “valueless” because nobody knows if you’re delivering on it, rendering it useless to prospects and clients.

Value Delivery

Value delivery is essential for understanding how customers perceive your organization’s performance. While the EOS Model® discusses various metrics, value delivery does not receive adequate attention. Companies must determine whether their customers are satisfied with their performance. A CEO might assume that their customers are “Very Satisfied,” but they may be overlooking the reality of customer dissatisfaction and lack of recommendations without measuring it.

Critical Number and Counter Critical Number

The EOS Model® effectively deals with goals (Rocks) and meetings but fails to align Rocks with the long-term goals of the company, Rock should be tied to the quarter’s Critical Number, which drives the organization toward its long-term goals. Tying Rocks with the Critical Number maintains organizational focus. In addition, a Counter Critical Number is crucial to prevent the critical number from overwhelming the company and causing unintended consequences.

Focusing on a Critical Number and Counter Critical Number during the 13-Week Sprint is crucial for developing focus and alignment within the organization.

Team Alignment

While the EOS Model® effectively addresses having the “Right People” in the “Right Seats,” it does not consider alignment among the leadership team and employee satisfaction. Assessing the alignment of leadership and employee satisfaction is necessary to ensure everyone is working in the same direction and committed to the company’s success.

Conclusion

While I appreciate the EOS Model®, I believe it fails to address many aspects required to develop a healthy agile growth company. By incorporating additional elements from the Gravitas’ 7 Attributes of Agile Growth® model, businesses can create a more comprehensive system that promotes agile growth while maintaining smooth operations. The 7 Attributes of Agile Growth® focus on Leadership, Strategy, Execution, Customer, Profit, Systems, and Talent.

If you are interested in transitioning to an agile growth company with the help of a certified Gravitas Agile Growth coach, please feel free to reach out to me.

Copyright (c) 2021, Marc A. Borrelli

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Who is your Core Customer?

In working with many clients on improving their business and developing a growth model, we soon get into the issue of their “Core Customer.” I have realized that many have not given this much thought and cannot easily define their “Core Customer.” Your Core Customer is the customer you are targeting, the customer that is preferred, and the one that your marketing and sales efforts are focused on. A Core Customer has the following attributes:

  • A real person with wants, needs, and fears.
  • Will buy for optimal profit.
  • Has an unique online identity and behavior.
  • Pays on time, loyal, and refers others.
  • Exists today among your customers

Not knowing your Core Customer is not a terrible problem, as we can quickly work through a session to put a definition in place. However, a more complicated issue is knowing their Core Customer but unable to define their “Economic Engine,” or profitability per customer. Lack of good data is always a severe problem! If you can’t measure something, then your performance is purely an assumption, and down that road is chaos.

Profit per Customer

If you don’t know your profit per customer, the customer you consider your “Core Customer” may generate sub-par profits pulling down the company’s performance. During a recent conversation, a CEO told me their metric was revenue per employee. While that would generate top-line revenue, it does nothing for profit, efficient customer targeting and marketing, or market differentiation. The business adage, “We are losing money on each item, but will make it up on volume,” seems to be the driving force.

Many companies I have worked with cannot tell me the profitability per customer and so work on the assumption that they are performing well, but cannot understand why they cannot scale and have profit and cashflow issues. Also, often their data is corrupted by the “Flaw of Averages.” So to paraphrase the proverb, “First get your data.” Sometimes getting good data on project costs is difficult, but without there cannot be:

  • Knowledge of performance;
  • Plans for improvement;
  • Measurement of improvement.

And “Hope is not a strategy.”

Select the Right Core Customer

Once we have data showing your Core Customer’s profitability, we can determine if they generate optimal profit. Since a requirement of a Core Customer, as mentioned above, if your Core Customer is not generating optimal profit, then there are one of two choices:

  1. Change your economic model so that they do, or
  2. Change your Core Customer.

When examining the data, many companies have found that the companies they were targeting as their “Core Customers” were their less profitable customers and ones that everyone in the market was fighting over. Targeting a different segment of customers that generated optimal profit could increase its profitability and differentiate itself from its competition, a great “Blue Ocean” strategy.

Lake Truck Lines, a Gravitas client, was focused on large customers. However, when analyzing its data, Lake Truck Lines realized that everyone was targeting those customers so there was pricing pressure and low margins. By make mid-sized customers its Core Customer, the company was able to operate with less competition and generate the optimal profit per customer. Similarly with Build Direct, focusing on young women seeking to do DIY, it was able to realize a much higher margin and operate in “Blue Ocean” waters compared to when it was focused on supplying general contractors.

The time spent analyzing your clients, their profitability, and your Blue Ocean possibilities can result in you operating at higher margins with less competition.

Profit / X

I have discussed the “Economic Engine” before, but it is the concept of “Profit/X,” Profit/X is the crucial part of your strategy, and it must:

  • Tightly aligns with your BHAG®
  • Be the fundamental economic engine of your business
  • Be a single overarching KPI to scale your business
  • It must impact revenue while controlling cost.
  • More X must be desirable.
  • It must be unique within the industry – you have to differentiate yourself from your competition.

What is critical is finding a Profit/X that is unique within your industry. If you choose the same Profit/X as everyone else, you are all competing on the same drivers, and you cannot differentiate yourself from your competition. Having identified our Core Customer, the appropriate Profit/X can be identified. Picking the wrong Profit/X given your Core Customer again will lead to sub-optimal results. These two concepts are interconnected and for you to achieve the best results, you need to determine both and have them connected.

Having the Right Profit/X

If your Profit/X is defined as profit per employee, you have only three ways to achieve this: increase the price, improve employee performance or cut the product’s quality. Since price should be driven by value creation, not employee profitability, raising prices may be difficult. We do not want to cut value delivery, and driving employees harder is no recipe for success. Thus a better metric may be profit per customer.

With customer size, if you are servicing large customers it may require longer larger projects compared to mid-sized companies. If mid-sized companies have more set up and administrative costs then your Profit/X must be different between the two.

There are many examples of Profit/X from Southwest Airlines’ profit per plane to a dry cleaner who measured it by profit per delivery truck. The key is to find the one that drives your business and will also differentiate yourself.

Conclusion

Many CEOs and Business Owners are salespeople and are not interested in digging into the financials and getting to the data I have discussed above. However, the effort is well worth it, as once you have a clear understanding of where you are, you can:

  • Target marketing towards your Core Customer;
  • Differentiate yourself from your competition;
  • Ensure that all projects, services, or products meeting your Profit/X to ensure profitability; and 
  • Position yourself for growth and profitability. 

Get your CFO, your team, and a coach and spend a day or two to determine the ideal results. The payoff will be huge.

 

Copyright (c) 2021 Marc A. Borrelli

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