Mastering The 3 Machines of Business

Happy Saturday Operators!

Good Morning and surprise Saturday issue!

Since I bombed last week I figured I would send you rewrite of last weeks on Saturday along with the usual issue tomorrow on Sunday.

I hope you enjoy the double feature.

ps. Send me questions or things you’d like me to cover and I’ll do a writeup in an upcoming issue!

AMA
How do you view a business when you first look at it from an improvement mindset?

My answer here is a video encapsulating the main article below!

MAIN ISSUE
Mastering The 3 Machines of Business: Frameworking your Business

The Essential Framework for Business Systems Analysis

In the complex world of business, having a clear framework is indispensable for thorough analysis and improvement. For me this means having a framework on which to “hang” my perspective and analyze from.

I approach business as a network of systems dedicated to generating and reinvesting cash flow.

The foundation of my methodology is what I call the "3 Business Machines."

The 3 Business Machines

At the heart of every business are three principal machines, each built upon principles, strategy, people, and cadence.

This structure offers a systematic way to analyze, refine, and implement strategies while also identifying weaknesses and crafting new tactical plans.

Let's explore these machines:

Machine 1: Operations

Operations, the first machine, is where customer value is delivered.

It's an umbrella term encompassing everything from manufacturing to service provision. It can be seen as including essential processes:

• design

• procurement

• assembly

• delivery

Example: If you are running a legal practice, you are assembling information, templates, and contracts and then delivering via email or a case. These key systems are present in all businesses.

Operations also involves managing flows, namely, the flow of

• people

• money

• information

• materials

Viewing operations as a machine allows us to dissect and improve aspects like speed, brand development, and quality turnaround. For example, once you use the systematic approach within a “machine”, you can

1. Identify Breakdowns: Pinpoint areas where we're falling short of our objectives.

2. Analyze Procedures and Systems: Examine the existing processes and systems that influence our current performance in terms of speed, quality, and brand perception.

3. Address Issues and Seize Opportunities: Break down these elements to identify specific issues and opportunities, then systematically address each one.

This process significantly contributes to the improvement of the overall operational machine.

It's important to note that this framework is not a fix-all solution. Rather, it provides a structured method to approach your business, enabling you to systematically achieve various objectives.

Machine 2: Sales

The Sales machine is all about communicating value.

This includes customers, the industry, the community, and the public.

It extends beyond traditional customer outreach, playing a pivotal role in establishing a company’s reputation and presence.

Machine 3: Finance

Often misunderstood, the Finance machine is about more than just money; it's the epicenter of company data.

The primary role of Finance is to provide essential information to Sales and Operations, facilitating more informed decision-making.

This encompasses a broad spectrum of data, extending beyond just financial figures to include insights on company-wide metrics such as quality, sales, and operational efficiency. It's not solely about tracking revenue; it's about understanding and leveraging a diverse range of data and analytics.

Finance serves as a crucial cog in the business machinery, tasked with more than just recording and relaying numbers. It plays a pivotal role in

• interpreting the data

• finding and sharing implications

• proposing strategies based on these insights to enhance value creation and communication across other sectors of the business.

Finance must maintain a comprehensive grasp of the company's strategic direction, resource allocation, and utilization. It requires a deep understanding of both current challenges and potential future obstacles, positioning itself as an essential contributor to decision-making and problem-solving processes for other departments.

In essence, a well-functioning Finance machine doesn't merely report on past events; it provides context and interpretation for these figures, offering guidance for future endeavors, aligning operations with strategic goals, and suggesting potential avenues for future development and improvement.

Why View Business as Machines?

The metaphor of machines for business brings a host of advantages.

1. They have outputs or objectives

2. We can tell if they are working or not

3. We can build more

4. We can put in more of an input and get more of an output

5. We can fix them and increase performance

6. We can measure them 

7. We can hire various experts on part fo them to improve or fix

By using the machine metaphor, it frames our mind on how we approach those areas, adds structure, and helps us approach it in a systematic way.

Implementing the Machine Framework: A Sales Example

The Machine Framework offers a practical approach to problem solving and business analysis. Let’s take Sales as an example.

This segment of our business is responsible for conveying our value proposition to external parties. Let's concentrate on our interactions with other businesses for this example.

In this scenario, we categorize our audience into two main groups:

1. Current Customers

2. Prospective Customers

Traditionally, Sales operations tend to focus more on acquiring new customers. Yet, consistently engaging with our current customers is critical for:

• Reducing customer turnover

• Strengthening client relationships

• Enhancing profit margins

• Fostering goodwill

Neglecting this aspect can lead to increased risks and missed opportunities.

To delve deeper, let's consider the roles of various departments in customer communication:

1. Customer Service

2. Quoting / Pricing

3. Quality Assurance

4. Shipping (in some cases)

5. Executive Team

These departments are integral in conveying our value to customers. These are where current customers will interact with our communication on value, vs, the value delivery itself. For instance:

• Customer Service: This department can consistently communicate value through positive and negative customer interactions. Giving good service is the beginning, but then also building the machine to use strategies like anchoring and emphasizing positive outcomes further enforces in the customer's mind the value you bring as a supplier, vendor, or service partner. Every interaction, from emails to direct contacts, is an opportunity to positively influence the customer's perception.

• Proactive Customer Engagement: Beyond addressing issues, proactive check-ins with customers can solidify relationships. In a manufacturing context, this could take the form of semi-annual reviews where you highlight your accomplishments and investments, subtly reinforcing your value proposition.

• Service Providers: For businesses like dental practices, engaging with clients might involve educational initiatives, sharing updates on interesting developments, or creating reasons for clients to engage with your practice outside of problem scenarios.

We can even move to measure the effectiveness of these strategies, we can look at key metrics like:

1. Net Promoter Scores (NPS)

2. Total customer spend year over year

3. Churn

4. Customers obtained via word of mouth

We've established a target state to aim for, and by applying this framework to our existing organizational structure, we can delineate a plan for developing and standardizing processes. This plan will specifically enhance how we communicate with our current customers through our Sales Machine.

Our practical approach would be as follows:

1. Start with the Sales Machine as a whole.

2. Apply a MECE (Mutually Exclusive, Collectively Exhaustive) Analysis to categorize different aspects of the Sales Machine.

3. Concentrate on Current Customers, identifying every team and individual who interacts with this group.

4. Define the most effective Communication Strategies, including the best touchpoints, mediums, cadences, systems, and procedures for engaging current customers. This structured method is consistently applied across all functions, with a focus on continuous design improvement and iteration.

Moving forward, our strategy expands to encompass:

• Engagement with New Customers: Creating approaches to attract and engage prospective clients.

• Outreach to Community and Industry: Strengthening relationships with local banks, community groups, industry associations, and other relevant organizations.

• Building and Sustaining Reputation: Focusing on enhancing our standing both locally and within our industry.

• Boosting Consumer Awareness: Increasing visibility in various consumer-focused areas.

By systematically addressing each of these areas, we ensure that every component of our Sales Machine is effectively conveying our value, thereby fostering growth and deepening customer relationships..

The Machine Framework offers a structured, analytical approach to dissecting and improving a business. It's a tool for systematic examination, allowing for holistic and strategic planning across all business aspects.