The S-Curve is the graphical representation of the complex relationship between Performance and level of effort (or investment level). I have highlighted the critical importance of this concept in a previous post: “The Dark Art of IT investment“.
Businesses are adapting Organizations, Processes and Technologies (OPT) to deliver superior performance in a specific context. Adapting them means managing their investments, which could be done by changing any possible combination of OPT.
It will be interresting for any leader to understand the full potential of an OPT capability toward its potential performance limit. Driving therefore to design the best approach in managing his/her investment in changes. When this limit is reached, it is recommended to revisit the fundamental of the OPT combination, leading to an important paradigm shift in the business model (Often called the “Inflection Point”).
Let see some practical examples.
For Start-Ups, Entrepreneurs are assuming light organizations with cross responsabilities in term of execution and can implement rapid decision cycle. Processes are not clearly designed up front but tend to impose themselves as the organisation grows. Information Technology is introduced sporadically, delivering non measured benefits. It comes a time when the owner has to overhaul the fundamentals of its business model to ensure future performance. Bringing new people, structuring the organization in distinctive responsabilities, and one of them is IT. This new changes in OPT capability will drive performance according to this new context of growth.
For Corporations, we can observe effort to rationalize their processes by leveraging automation, introducing quality insurrance, and refining their go to market model. Acquisitions campaigns can lead to harmonization of technologies and applications or simple integration of common infrastructure. Continuous Improvement Program focused on the introduction of best practices in a particular industry using benchmarking.
At this point, let try to summarize some basic facts that we can all relate with our personal experiences:
Investment in changes can be done incrementally, introducing progressive adjustment of the OPT set, but there is a performance limit established by the industry itself. The question becomes how to reach as fast as possible this performance.
We observe different business phases as the organization grows, and context changes that required important investment in changes and will ultimatly drive the company performance to the industry standard. The question here is when to launch this critical steps (Inflection Points) if they are following the S-Curve model and generating disruption and drop in performance.
Last but not least, going beyond Performance of Industry Standards required radical innovations.
Structuring an OPT capability lead to an optimization of number of steps, a business can take to reach a specific performance. It is obvious that successive steps could create less risks for a company but will go with a much bigger effort in term of investment.
It is leaders’ responsability to establish the right path to reach ultimate performance according to the business context. Here are some examples of this context:
- Volume of process output, such as number of customer invoices to handle, number of products to manufacture, number of customers, markets to support, number of employees to manage, lead to adapt OPT to improve or sustain performance.
- Time is critical in term of ability of organization to change. Practicing on a regular basis changes lead to a more flexible and adaptable organization.
- Constraint – The current crisis is one example on how market condition can change the way we are investing in changes.
- Expectations in term of structure of value creation (Shareholder, customer, employee, communities…) can lead to focus our investment in specific value segment. Change in expectations for gross margin can lead to focus on low cost sourcing separating this function from engineering and leading to high Escape Rate.
Leaders should seek the optimization of their S-Curves. When and how to invest in OPT should be driven by the perceived change in context, the potential of an OPT Capability and the company appetite for risk.