Strategic Control Systems
Construct adequate control systems on each area critical to your business model rather than concentrating all of your controls in one or two areas. There are ten major areas that combine to create a business model. We collapse them down to five major areas of strategic attention. Outcome or performance standards should be set for all five of these areas. Finally, a reliable observation or measurement technique must be devised to compare actual results with desired standards.
Why should I read this?
My business is up and running, I don’t want to have too many rules and measurements and kill the creative joy of the work, I just want to make sure we are monitoring the strategically important things, like achievement of our mission, and continuously improving the overall resilience of the business.
Keeping Control Systems Strategic
There are ten critical parts to a business model. Alex Osterwalder’s “Business Model Canvas” gives us nine of them (collected by Osterwalder by digesting a number of other famous models in his 2004 dissertation). We have found that the canvas misses one additional critical area: leadership and employee motivation. Thus, in our opinion, the ten areas of the business model are: Value Propositions, Customer Segments, Revenue Streams, Channels, Key Activities, Key Resources, Key Partners, Customer Relationships, Cost Structure and Employee-Leadership Relationships (Osterwalder & Pigneur, 2010).
At Crafting A Strategy we have combined and overlapped these ten areas into five ‘ingredients’ of strategic management thinking that make up our Core Curriculum: Business Model Innovation, the Value Chain, Brand Community, Controlled Operations, and Leadership & Culture. The Controlled Operations ‘ingredient’ contains thinking about value propositions, key activities, costs, and revenue generation and employee relationships and motivation. The Leadership and Culture ingredient contains employee relationships, leadership, value propositions, key partners and key activities; The Value Chain ingredient covers key partners, key resources, channels, and cost structure and revenue streams; the Brand Community ingredient contains customer relationships, customers segments, key partners, key resources and even some value proposition tactics.
From management control systems design perspective, it is important that each of the ten main business model canvas areas has some monitoring and control in place, and that your standards are aligned with the underlying management principles. For example, when designing customer relationship controls and customer segment controls, make sure the very first standards are consistent with brand community thinking. When designing key partner controls and key resource controls, make sure you set the standards using value chain thinking.
Most existing businesses carefully monitor and control three things: costs, revenues, and customer relationships. Having controls in place is very different than using them effectively – how does one choose where to focus? Additionally, the word ‘controls’ doesn’t reside well with many creative or artisanal entrepreneurs, as it sounds boring and like minutia best left to ‘business guys’. Due to these connotations, many of the craft brewery owners we speak don’t think creatively or passionately about controls, and they bogged down and bored with such mundane activities. They also get frustrated when there’s no money left at the end of each month…
The good news is that standards need to be set for the other seven areas as well, along with actual performance measures. Figuring it out how to do it is a creative, innovative and rewarding. The strategic manager’s challenge is to figure out how all ten of these areas contribute to the business, how they fit together, and how to monitor all of them. Each one needs to be carefully considered, a feasible and internally consistent tactic put in place for each, with performance/outcome standards set and monitored.
Think of them as the ten basic ingredients to your business. Your business recipe is how you combine them. If one of the ingredients goes bad, the whole recipe will not taste right. So how are you going to measure each one and keep each area consistent over time, with the least amount of your time and money? We’re here to help, and we have specific white papers and videos on revenue controls, behavioral controls, and many others. We’ll help you craft a creative and profitable beer business – just explore our site and keep reading.
Osterwalder, A. & Pigneur, Y. 2010. Business model generation: a handbook for visionaries, game changers, and challengers: John Wiley & Sons.