Everything You Need to Know about Business Management Systems
In the last couple of decades, developments in business management science and research have led to the creation of business management systems or ‘operating systems’. These are complete frameworks or ‘ways of operating’ for owners and leadership teams to run their businesses that have been proven to help build scalable, successful businesses in the long-run. The purpose of this article is to explain what operating systems are, the various types, the key benefits and rationale for having one, and how to find the right operating system for your business and implement it well.
What is a business ‘operating system’ anyway?
Every business has an operating system or “way of operating”, whether it is deliberate or known. It may vary in strength, consistency of application and in completeness. Early-stage entrepreneurial companies often have weak systems as the company based on the personality and work experience of the founder. Many companies even have multiple operating or management systems in place in different functions, created by the Heads of the various functions. Multiple systems often leads to confusion and conflict between functions who do not understand whether the other teams are coming from.
There is often some confusion about what is and is not an operating system. A comparison with software operating systems is often discussed but while helpful in some respects, this is far from a perfect analogy. Yes, in order for different software programmes to work together, a system like iOS, Windows or Android is needed, just like the employees of a company need to do for a business. And yes, these tools help achieve a consistent platform on which to operate the hardware. But this is a narrow definition of an operating system as we are talking about it. Firstly, it confuses a business operating system with a technology system but also excludes the benefits of culture, goal-setting and execution elements of a business system, to name but a few.
A better analogy perhaps is with systems used by sport teams or my military organisations. Jurgen Klopp’s Liverpool football team and Michael Jordan’s famous Chicago Red Bulls team for example both had strong and complete systems embedded in their respective organisations. This included vision, culture, tactical ways of organising depending on the circumstances, training methods, culture. Even ethical principles about what was and wasn’t acceptable behaviour on and off the pitch. Few would argue that without these systems either team would have been so successful.
Similarly, military organisations have very strong operating systems. They have specific ways of operating from everything from how to write a mission statement to which pouch a water bottle is to be stored in. They also tend to have strong ethical principles, such as those of the US Marine Corps. Systems are even more important in the military because of the fact that in war, there may be no leader either close by or even alive when actions need to be taken. The organisation needs to be able to operate in all circumstances under great pressure.
My own definition therefore a business operating system is:
"a shared, guiding set of principles, processes, and tools that enable an organisation to work together to achieve a common goal."
A few things here are of note: A system needs both “principles and processes”. One without the other is not a complete system. A company with a great set of guiding principles is a good start and may provide the ‘why’ but without a set of processes to accompany them, there is no way of these principles achieving ‘traction’ in the company’s operations.
Similarly, a company with just a great set of standardised processes is likely to be efficient but lacking culture or soul. These are not touchy-feely terms: culture is why employees join and stay at companies in the long term and often why customers buy from them. Principles or values provide the Simon Sinek ‘why’ that is so important. In a recent survey, employees who are engaged in work they consider ‘worthwhile’ are 3.2 times more likely to have high job satisfaction.
Lastly, “to achieve a common goal” is important here as without it, the operating system provides the business with the spaceship but no destination. These businesses naturally tend to orbit eternally. A complete system enables the business to identify and unify around a common goal, as well as providing the means to get there.
What does an operating system include?
Business systems come in many shapes and sizes. Many are partial - deliberately so - to solve specific problems or gaps in a business’ overall system. A complete system however includes the following:
- Goals, Vision or Strategy element. A way in which the company sets and tracks progress against goals. This may include its vision statement, mission, and a way of setting and reporting against goals.
- Principles element. The guiding principles beyond employee behaviour in all aspects of its operations. This is often known as the company’s ‘Values’.
- Process element. This is a set of documented descriptions for all the key operations of the business, from leadership meeting agendas to sales calls to invoicing. Often known as standard operating procedures.
- Tools element. This is the common set of conceptual tools used by the business to Examples include scorecards used by a leadership team to manage the business ro a tool to appraise employees with. Without a single set of defined tools, the business’ system can fragment at the lowest level, causing confusion, a sense of not being ‘joined-up’ and often rivalry between teams using different tools.
Now we know what an operating system is, here are the twelve reasons why every owner, entrepreneur and investor would benefit from having a complete operating system in their business.
The 12 reasons why every business needs an operating system
- Maintain Control. Business owners without an operating system often feel like their business is running them. A complete operating system allows the wishes of the founder or owner to be consistently followed without them needing to direct every operation personally. It prevents employees from going off course and the business moving in a direction that is unintended.
- Create Scalability. Businesses without operating systems tend to depend on a handful of key people to ensure the business runs correctly and grows. This is the mode that Jim Collins refers to as the “genius without a thousand helpers” model in his book Good to Great. However when these individuals eventually leave the company, there is no longer anything to sustain the organisation. Just like the American company Teledyne after its ‘genius’ CEO Henry Singleton left the business, these types of companies tend to underperform. To achieve true, long-lasting scalability, a business needs a system to ensure that its foundations are based on processes and principles shared by many employees, rather than a small subset of leaders.
- Achieve a high valuation. While not every owner is worried about the worth of their business today, at some point in time key investors or the owner themselves will want to move on to achieve other things in their lives and need to exit the business. But a business that is based on an individual, or a few key individuals is inherently riskier to acquire than one based on a system. As such, valuations of owner-dependent businesses are typically significantly lower than those that have a system.
- Move into a position of ‘True Leadership’. At the start of any business, the founder is fully involved in all aspects of the company’s operations. However over time, most owners do not have either or both the will or the capability to continue to run a business day-in, day-out. Owners of businesses without a system however tend to feel ‘stuck’ or ‘trapped’ in their businesses. Too many activities depend either on them personally or require supervision that they are never able to find time to even hire for their replacement, let alone train and delegate. They end up fire-fighting day-to-day issues and are never able to put their head above the water to get any ‘air’. However, businesses with an operating system have the right processes and principles in place that allow owners to elevate themselves to a position of true leadership in their business. They are then able to plan for the future, manage people and work ‘on’ their business instead of ‘in’ it. This is the very reason many entrepreneurs start businesses in the first place but it is not achievable without a system in place.
- Creating a Self-Sustaining ‘Organism’. A business without a system needs its momentum to be sustained through a constant injection of energy and direction by its owners. The moment the injections stop, the business slows down. With a complete system, the organisation is pushed into a self-sustaining cycle of goal-setting, accountability, productivity and innovation that is strong enough to drive its own cycle of activity ad infinitum. A system ensures leaders are constantly setting new goals and making sure a culture of execution exists, along with enough innovation to understand where to go next. With a perfectly working system, the owner’s workload is lessened the more the organisation drives itself.
- Less ‘Operational Friction’. Employees in companies without a system tend to experience a lot of ‘operational friction’, meaning that more effort is needed to make or operationalise decisions because of the organisation’s ways of working. This is often because of poor meeting disciplines, untimely decision-making or too many layers of approval needed to get things done. When a system is in place, not only are better decisions made but they are also made faster and more efficiently because everyone knows the process and what is required, rather than guessing the requirements of the owner or leadership team. Different functions also start working more effectively together because they follow the same process, speak the same language and have the same shared aims. In short, the right hand starts to instinctively know what the left hand is doing.
- Less need for communication, coordination and alignment. Once a system is in place, owners tend to find that those ad hoc meetings to get people or teams aligned tend to disappear. Fewer, more efficient meetings, shared principles, processes and goals means that the organisation is already aligned and guide-rails are in place for new projects or decisions that are not explicitly documented already. For the owner and leadership team, this leads to a huge amount of time saved which can then be spent working ‘on’ the business in a position of true leadership.
- Happier employees. As discussed above, a system is not just a set of documented processes. A complete system will have tools that enable the leadership team and ownership to set and communicate a clear vision for the organisation. Once the whole team is rowing in the same direction, this makes for less wasted time for employees and fewer alignment meetings which today are two of the greatest sources of employee dissatisfaction. On the other hand, businesses running on systems tend to report lower employee churn, higher satisfaction and are able to recruit more easily.
- Display a strong, distinctive culture. The ‘Principles’ component of a complete system will identify a set of values that define the culture of any organisation. Having a strong, distinctive culture ensures that your staff are able to work with one another, your future employees know whether or not they are a good fit (making recruitment easier, and often cheaper) and your customers recognise your distinctive style and ethos, thereby differentiating you from your competition.
- Deliver a consistent customer experience. Without a system, or with multiple or weak systems, businesses will deliver highly varying, inconsistent experiences to customers, regardless of the industry in which they operate. This can cause confusion both internally and externally: prospects are not clear what they are going to get, existing customers will consider leaving. Internally, leadership will see strange data, with fluctuating customer satisfaction ratings, both 5 and 1 star reviews, as well as wildly fluctuating sales numbers that leave the finance team scratching their heads. This is not all about the process element either: principles and language are also important here in shaping a structured, consistent, and therefore scaleable, customer experience.
- Absence of ego and politics. Everyone knows that high-performing leaders don’t always play well together. Without a system, it is easier for rogue leaders to impose themselves through back-channels and force of character, rather than through official meetings using objective data. A lack of a system is a temptation for leaders to ‘go solo’ and further their own aims instead of a common goal. In the absence of a common goal, this is almost guaranteed as executives will fill the vacuum with their own. A system ensures a level-playing field where decisions are made collectively with the purpose of achieving a shared goal, in alignment with the principles of the company.
- Equality of Treatment. A complete system will include principles and processes that guide behaviour for all employees, including the CEO and leadership team. This means they are subject to the same standards and expectations as employees, and this is both known and understood. While this is theoretically possible without a system, it is in practice a lot easier for leaders to act without scrutiny, creating animosity and resentment within the company and eroding trust and respect. Having a recognised equality of treatment at all levels of a company creates a trusting, harmonious atmosphere where staff of all levels feels they are working together for a common purpose.
What are the main operating systems?
There are really only two complete business management systems on the market. They tend to vary in degree of completeness. The main ones are:
The other system worth mentioning is Objectives and Key Results (or OKRs) because of how popular they have become. However, OKRs are really just one aspect of a business management system focusing on how to create accountability and track measurables.
How to go about implementing a system in your business
If you are convinced that your organisation needs an operating system, there are various steps to take. Firstly, you can create your own, or use an off-the-shelf system. The latter is strongly recommended unless you have the time and the passion to create your own.
Once you have chosen an operating system, expect the implementation to take time - six to eighteen months depending on the size of your organisation. The success of any implementation depends largely on the commitment by the owners and leadership team. You can do it yourself or use a facilitator to help you implement it across your organisation. This is recommended if you can afford it as it ensures you will do it correctly, without it taking too much of your time.
Every organisation has an operating system, whether they are aware of it or not. All successful businesses run on a complete, strongly implemented system across their organisation. There are four main elements to a complete operating system, leading to twelve main benefits to owners, founders, investors, teams and employees. While the range of systems is nearly infinite, a proven, off-the-shelf system is highly recommended for the busy entrepreneur. Implementation of any system does take time and commitment and using an external implementer can significantly ease the burden as well as providing support and accountability to the owner and leadership team.
Michael Harley is an experienced EOS implementer and the Chief Implementor at his company, Breakthrough, as well as a startup advisor and mentor to a number of entrepreneurial companies.