Stronger strategy implementation with a digital twin (09)

A digital twin model plays out how the whole business system works and will likely perform into the future - just what strategy implementation needs

This is a big one!

I have used the case of Beyond Meat Inc (making non-meat foods that are as meat-like as possible since 2016) as an example of a strategy that could have been successful. But its early promise has nose-dived, with recent sales and profits falling badly.

Get our Strategy For Leaders course.
Free preview lessons + 20% off with coupon blog20.

We see many failures, short-comings and mis-steps among other well known companies too. Much formal research also finds that strategic plans and initiatives mostly fail to deliver their promised outcomes. Why?

Well, maybe the strategies themselves are wrong – OR – the strategies could be OK, but the implementation fails.

Typical implementation guidance

We might hope that business school MBA programs and executive courses would by now have equipped generations of executives with the skills needed to implement strategies well, but the outlines of typical courses suggest some short-comings. (Scan the contents of books on the topic and guidance from consulting firms and you will find much the same):

Too narrow scope: "Strategy" concerns more than the overarching plan for the organization. It includes significant initiatives such as entering new markets, making acquisitions, or managing process improvement programs. Then, functions also need strategies, and we need strategies to tackle smaller short-term issues too.
Poor help on how to build action plans: Successful implementation needs detailed, quantitative, and timed action plans (TAPs) – what to do, when, and how much, across all relevant actions and decisions. Yes, action plans have to evolve, but if we don’t know how to do it in the first place, adapting it is going to be a challenge!
The wrong time-perspective: Strategy is presumed to happen in big chunk of time, e.g. with quarterly progress reviews. But real-world conditions unfold on a much faster time-clock, and we can – and do – respond much faster too. (I recall a huge competitive threat to a division of GSK that played out over just 10 weeks! Not much use for a 5-year quarterly plan there – they needed to know what to do about pricing, promotion, customer-offers and sales effort every day, in light of what their rival was doing and their progress in stealing customers!)
A focus on "process": Courses, books and consulting advice often imply that the TAP either exists, or is simple and quick to create – so the real challenge must lie in the process of getting people to comprehend, embrace, and execute the required actions. But if the TAP is no good, getting buy-in and action is always going to be tough, and won’t work even if people do engage. (Staff disrespect for leaders’ plans is one of the top reasons that initiatives stall).

These short-comings reflect a failure to recognize two key realities:

… that strategy gets implemented by the continuous stream of large and small decisions and actions across all parts of the business,

… that those decisions and actions are acting on a living, interacting system, whose behaviour and performance is not obvious or intuitive.

What can standard tools offer?

Common tools and methods offer little help. Most "business model" approaches and frameworks are qualitative and descriptive, offering no path to the quantified, timed action plans we need. Financial models fail to capture how those financial outcomes arise from the actual working parts of the business system, and the ubiquitous spreadsheet and spreadsheet-like tools we rely on simply cannot handle the interconnectedness of a real-world enterprise.

Data visualization tools may bring disparate business data together, but they remain just that – visualizations – rather than functioning models. Even the widely used Balanced Scorecard falls short, as it lacks a robust underlying theory and its descriptive nature leaves users to figure out concrete action plans and KPIs for themselves.

In other fields where we need to understand and manage complex systems, we simulate reality – how an aircraft flies, how a drug molecule works, how a factory system functions …

"Impossible!", people say of business cases – there’s too much randomness, too much detail, and too much uncertainty from human behaviour. Not true!

How to figure out the action plan?

IT IS possible to simulate how a business functions and performs – it’s not even especially complex or demanding. Just follow a rigorous process of tracking down the causal relationships in the system. At a high level this means:

how profit and cash-flow derive from revenue and costs
how revenue is generated through sales and pricing strategies
how customers are attracted and retained, by marketing, pricing, and service quality
how staffing levels impact product development, production, and service quality
how costs arise from materials purchase, from staff and operating facilities

… and all these elements and relationships can be quantified on any desired timescale.

The result is a working "digital twin" of the real world business or issue. The model shows a visual map of all the business elements – financials, yes, but customers, staff, sales, service quality, marketing, price and so on too. The model shows all the dependencies between the items linked on that map. And quantified time-charts on all items show how they have changed in the past and will likely change in future, under alternative scenarios and strategies. (There is much more on this in the article below, and in my workshop referenced in that article).

Sure, a model covering only the items above is a very summarised view of the real world. But it is still useful (very!) in just the same way that the high-level view of a map or satnav is useful for finding our way around.

Want more detail? Zoom that map a little. And we can zoom our digital twin model too – to see what is going on inside marketing, staffing or product development, for example.

The model IS the timed action plan! Among the elements that emerge from the model-building process must be all the decisions and actions we take. The model cannot be complete without prices, hiring, marketing promotion, product launches and so on.

And the model can operate on a time-clock that matches how fast things change in the real world, and how quickly we can respond. No quarterly reviews here – your digital twin shows how things are changing every month or week, or even every day if that’s what you need.

The digital twin becomes the active control panel that you and the team can consult as often as you want to check how things are going, and to see if the action plan needs modifying.

This is NOT "more work"

Just to be clear – the digital twin of a strategic plan, a major issue, or of a functional plan or issue is not yet-more work for someone. It replaces effort that would otherwise be spent to achieve far less.

The visual intuitiveness and self-checking features of dynamic business models mean they take less than half the time needed to build an equivalent spreadsheet (that’s if you could do it at all!)

And since the twin shows everything of interest in the real-world system, there’s no point having other scorecards or KPI systems.

Want to learn more?

Categories: : business modeling, business performance, implementation, related course, strategy