Business in a Triangle
“The secret of business is to know something that nobody else knows,”
- Aristotle Onassis
An engineer, a physicist, a mathematician, and a mystic were asked to name the greatest invention of all time. The engineer chose fire, which gave humanity power over matter. The physicist chose the wheel, which gave humanity the power over space. The mathematician chose the alphabet, which gave humanity the power over symbols.
And the mystic chose the thermos bottle!
“Why a thermos bottle?” the others asked.
The mystic explained reverently: “Because the thermos bottle keeps hot liquids hot in winter and cold liquids cold in summer.”
“Yes. So what?” nobody could understand.
The modern mystic, stroking his long white beard, said wryly: “Think about it. That little bottle — how does it *know*?”
Fortunately, we do not need a mystic to enlighten us anything about business. We have tools. Measure how much time, resource, and energy a business invests in the following four areas: financial management, learning & growth, internal business processes, and customer relations. And quantify the progress made in these areas, you have the Balanced Scorecard way of knowing the core performance of business.
Sure these are not the only areas to measure. In fact, as the role of a business expands (beyond profit making, for instance), it has to take a holistic approach when it comes to measuring its performance.
Drs Kaplan and Norton of Harvard Business School, the designers of the Balanced Scorecard, saw that managers were preoccupied only with cash flow and the value of physical assets. But in the new economy, what mattered most were not just cash, machines and buildings. It was intangible, non-financial areas like human resources and customer relations that emerged the biggest creators of value. Hence, the professors brought non-financial areas into the equation and introduced a new framework in 1992.
However, today (about 25 years later), we are having a different context that demands a new scale to measure the performance of a business. A business now needs to develop few new capabilities and strengthen certain fundamental capabilities.
What could be those areas? For years, I dabbled with a holistic framework that I have come to call the “Pyramid of Capabilities” (Look at the illustration below. If you don’t find any, you may have to adjust your browser settings).
The Pyramid lists five areas of capabilities that need to be measured or quantified. They are related to:
As the illustration shows, these areas (“Chambers”, to extend the logic of the Pyramid analogy) contain “vaults” of sub-capabilities or functions.
The apex chamber of vision refers to the sole function of goal setting; the brand chamber comes with two functions: 1. making, and 2. keeping promises. Likewise, the third chamber has three (1. pre-development, 2. development, and 3. post-development functions of products/services); the fourth chamber of relations four (1. customer relations, 2. team (employees and vendors) relations, 3. investor relations, and 4. public relations), and the fifth and the last chamber, standing for the capability of conservation, five (1. conserving energy (fuel, power), 2. preventing air pollution, 3. water management, 4. solid waste & soil management, and 5. protecting ecosystem services).
Put together the Pyramid of Capabilities is built with five chambers (and they collectively have 15 broad functions). Measuring and quantifying the performance of a business from this Pyramid’s perspective is certainly holistic — and I guess is the need of the hour as well.