Building and Sustaining a Successful Enterprise (BSSE) is a popular business course from Harvard university. BSSE’s education objective is to “use well-researched theories about strategy, innovation, and management to understand why things happen the way they do in businesses, and to predict which tools, strategies, and methods will and will not be effective in the various circumstances”.
As someone interested in business, below is my summary of the 18 theories taught in the course.
- Best Customer
- Threat or Opportunity Framing
- Capabilities – Resources, Processes, & Priorities (RPPs)
- LBM or RBM – Theory of M&A
- Purpose Brand
- Jobs to be Done
- Dynamic Architecture
- Business Model
- Good Money Bad Money
- Misapplied Financials
- Strategy Development
- Aggregate Portfolio Planning
- Bounded Rationality
- Schools of Experience
- Motivating Employees
- Role of the CEO
- “Disruption” is not an event — it is a process.
- “Disruptive innovation describes a process by which a product or service powered by a technology enabler initially takes root in simple applications at the low end of a market typically by being less expensive and more accessible — and then relentlessly moves upmarket, eventually displacing established competitors. Disruptive innovations are not breakthrough innovations or “ambitious upstarts” that dramatically alter how business is done but, rather, consist of products and services that are simple, accessible, and affordable.”
- Source and Additional Readings: Understanding the Complete Works of Clayton Christensen on Disruption & Innovation
- Don’t get distracted by only incrementally improving the product (customer service, quality, experience) for your “best customer”. Although that is important, it is not a substitute for disruption or innovation.
- Furthermore, your “best customers” may distract you from a new product or solution to serve the underserved and unserved segment of your customers. For example, filtered vacuums vs bagless vacuums.
Threat or Opportunity Framing
- “Disruption doesn’t necessarily have to be viewed as a threat to incumbent businesses. True, disruption eventually comes to every organization in every industry, but before it becomes a threat, it’s also an opportunity. Clay says that the key for organizations wishing to harness disruption is timing.” – Source: Disruption Opportunity or Threat
- Managers and leaders should help frame disruption as an opportunity (rather than a threat). This framing allows the organization to view the disruption as a step forward.
Capabilities – Resources, Processes, & Priorities (RPPs)
- An organization’s capabilities are made up of its resources, processes, and priorities (RPPs). Resources are usually the most tangible of the three and include assets such as employees, cash, buildings and equipment. Processes are the ways in which resources get used. Some processes are codified, like how an organization does annual budgeting or hiring, while others are simply “how we do things around here.” An organization’s priorities, meanwhile, are restraints on how the organization can use its resources.
- Understanding the Resources, Processes, & Priorities (RPPs) help determine what incentives and outcomes the organization is setup to achieve.
- Source and additional readings for Capabilities (RRPs): What non-consumption means for investors and managers in emerging markets
LBM or RBM – Theory of M&A
- “Failure rates of mergers and acquisitions are somewhere between 70% and 90%”
There are two reasons to acquire a company;
- Leverage my business model (LBM) — acquisition is made in an attempt to boost current performance or cut costs. Often resources are extracted from the acquired company and plugged into the parent’s business model. An example is when Apple purchased chip designer P.A for $278 million to bring the talent and technology in-house and “leverage” apple’s business model of apple devices.
- Re-invent my business model (RBM) — acquisition is made in an attempt to reinvent your business model. This is done by buying and operating the acquired company separately and use it as a platform for transformative growth. An example is EMC’s acquisition of VMware — VMware allowed EMC to enable its customers to run multiple virtual servers. This enabled EMC to have a greater reach into customers’ data rooms.
- Source and additional readings for Theory of M&A: The Big Idea: The New M&A Playbook & Making Sense of Mergers
- “Culture enables employees to act autonomously but causes them to act consistently.”
- “ .. Organization’s capabilities and disabilities evolve over time — they start in resources; then move to visible, articulated processes and values; and migrate fully to culture”
- Culture should be cultivated to ensure the right values — for example — encourage or kill innovation.
- Source and additional readings for Culture: How to create a culture and structure for innovation & What is an Organization’s Culture?
- Purpose brand helps protect your product or service from being hired for the wrong job. With a purpose brand, your brand becomes synonymous with the job. Examples include Coca Cola and Nike.
- A clear purpose brand acts as a two-sided compass. One side guides customers to the right products. The other guides your designers, marketers and advertisers as they create and market new and improved products.
- Source and additional readings for Purpose Brand: Branding as Job to be Done – An Interview with Clayton Christensen & It’s the Purpose Brand, Stupid
Jobs to be Done
- “Jobs to be done” is a theory that helps explain why customers take certain actions. Consumers have a desired outcomes for which they “hire” a product to “get the job done”. A popular example is that a person “hires” the milkshake in the morning to help get through the long commute to work.
- Consider the challenge the iPhone posed to the BlackBerry in 2007. By all accounts, the iPhone initially was a poor performer in terms of call quality, battery life, and network usage compared with the BlackBerry, and it did not include the keyboard that BlackBerry users loved. But the iPhone’s fundamentally new product design, as we know with hindsight, represented the future, and customers began to embrace it. BlackBerry and its peers moved quickly to include iPhone-like features—such as a touch screen and a better web browser—but they were unable to compete effectively because the innovation required them to redesign the process for making phones from the ground up. Only newer entrants like Samsung, who were not locked into an existing production model and could more easily orient the organization around the new product architecture, were able to really challenge the iPhone. – Source: The Other Disruption
- Dynamic architecture can allow a company to adjust its business model quickly to new innovations OR start a separate division to create new innovations that require a different architecture of operation. Examples here include blockbuster and netflix, itunes and spotify, and, blackberry and iphone.
- A business model consists of four elements — value offering, profit formula, key resources, and key processes.
- Apple’s business model was combining hardware, software, and services into the iPhone — and later on other apple devices. This compared to the leading cell phone manufacturers — like Nokia and blackberry — was an innovative business model.
- It is important to realize when your business model is working for you, against you, or being disrupted.
- Source and additional readings for business model: Reinventing Your Business Model
Good Money Bad Money
- Theory of good money and bad money asserts that good money comes from funding sources that are impatient for profit, and patient for growth, while bad money comes from sources impatient for growth, yet patient for profit.
- Source: Clayton Christensen’s Cold Call
Theory of misapplied financials helps explain why managers can make faulty decisions based on financial modelling;
- While the mathematics of discounting is logically impeccable, analysts commonly commit two errors that create an anti-innovation bias. The first error is to assume that the base case of not investing in the innovation—the do-nothing scenario against which cash flows from the innovation are compared—is that the present health of the company will persist into the future if the investment is not made.
- “The DCF Trap,” the mathematics considers the investment in isolation and compares the present value of the innovation’s cash stream less project costs with the cash stream in the absence of the investment, which is assumed to be unchanging. In most situations, however, competitors’ sustaining and disruptive investments over time result in price and margin pressure, technology changes, market share losses, sales volume decreases, and a declining stock price.
- As Eileen Rudden at Boston Consulting Group pointed out, the most likely stream of cash for the company in the do-nothing scenario is not a continuation of the status quo. It is a nonlinear decline in performance.
- Source and additional readings for misapplied financials: Innovation Killers: How financial tools destroy your capacity to do new things
- The theory of strategy development states that “the long-term success of an organization and the existence of an effective strategic development process are inextricably linked”.
- Strategy formulation and implementation are inseparable activities. It is an on ongoing process of “strategy development”.
- “Strategy formation is judgemental designing, intuitive visioning, and emergent learning; it is about transformation as well as perpetuation; it must involve individual cognition and social interaction, cooperation as well as conﬂict; it has to include analyzing before and programming after as well as negotiating during; and all of this must be in response to what can be a demanding environment. Just try to leave any of this out and watch what happens.”
- Source and additional readings for strategy development: The Process of Strategy Development & Implementation and Making Strategy
Aggregate Portfolio Planning
- The theory of aggregate project or portfolio planning encourages managers to think holistically about the how innovation and resources can be combined. This is summarized in the “Aggregate Project Planning Framework” below;
- For example, if you want to create a new market in your portfolio of products (that your company sells), you will need more resources to investigate and take the opportunity to the market.
- Source and additional readings on Aggregate Portfolio Planning: Using Aggregate Project Planning to Link Strategy, Innovation, and the Resource Allocation Process
- Bounded rationality occurs when companies lack perfect information, that is, they do not have context information about the results of their actions, for example; they have bounded resources, and are restricted to the ability to process information.
- Source and additional readings for Bounded Rationality: Competing Against Luck – Chapter 8 and Bounded Rationality
Schools of Experience
- Theory of Schools of experience claims that “finding managers who have been appropriately schooled is a critical first step in assembling the capabilities required to succeed [in innovation]”
- For example, if a person is hired from a large company with established markets to run a startup or develop a disruptive product, they will not have the necessary experience to succeed.
- Source and additional readings for schools of experience — Innovation Killers: How Financial Tools Destroy Your Capacity to Do New Things and How to Pick Managers for Disruptive Growth.
- The theory of motivating employees by Frederick Herzberg finds that there are two sets of factors that determine job satisfaction — motivational factors and hygiene factors. Hygiene factors don’t create job satisfaction (although you need a base-line), afterwards, it is motivational factors that create job satisfaction.
- Hygiene factors are extrinsic — compensation, title, status and company policies.
- Motivational factors are intrinsic — achievement, recognition, fulfilling work, responsibility, and learning.
- Source and additional readings for motivating employees: One More Time: How do you motivate employees?
Role of the CEO
- The role of the CEO is to “define reality and give hope” and to have extreme personal self-confidence.
- For startup and disruptive ventures, this personal confidence and vision is what guides creates something out of nothing — from zero to one.
- Source and additional readings for Role of the CEO: Innovators Solution and The Life and role of CEO
Is there an important theory or concept I missed from the BSSE course? If so, please leave your notes in the comments. I will add it to the blog post and credit you (alongside Harvard).