Silos, seams and business model reengineering

Business Model Reengineering and New Mental Models

Successful business models eventually outlive their usefulness, so some form of business model reengineering is necessary.  The problem is, rigid mental models and silo’d thinking are powerful and not always obvious obstacles to  change. But they are. It’s just one obstacle FSG scenario-planning consultants find ourselves up against in strategy engagements.

“Silos” are an inevitable part of any organization; indeed, of any human activity. Even if you confine yourself to individual action, your own mind is thinking within certain categories, usually operating off a mental model that tells you what to expect – “If I do X, then Y will happen” – and what NOT to expect – Z or W or something completely different.

Organizations build structures that they believe will maximize their chances of success, balancing them off, of course, with the demands of physical reality, the limitations of space, time, and communication, and the whims of powerful individuals, both within and outside of the organization.

IBM and Microsoft Business Models in the 1970s

Beyond the organization chart of any particular firm or agency or department, much of what determines success or failure for the organization is the strength and usefulness of the mental models that its key people share.  Microsoft had a huge advantage over IBM in the 1970s because their handful of top people sat together and had something close to an identical idea of the future of the computing industry. IBM had hundreds of thousands of people, huge billion dollar departments and silos, and mental cubbyholes they had grown quite used to. In a way it was a very unfair fight.

Organizational structures are a bet on how the future is going to evolve. Sometimes they work out fine even when the designers of them are either unconscious of the high-stakes wager they are making, or else are hyper-obsessed by turf battles between powerful individuals who have very different ideas of how the future will (or, more accurately, “should”) evolve.

More commonly, even the best organizational structure begins to diverge from the optimal on the day it is created, because even the best point prediction of the future is going to be wrong in important respects. The silos start to impinge upon the prospects of the organization, and reality starts to diverge from the mental models associated with the organizational construct. (And we have not even discussed the fact that gradual change is often upended or massively accelerated by short-term sudden catastrophic events — the “punctuated equilibrium” theory of management.)

Business models also intersect with both organizational constructs and the mental models the humans in the organization use to navigate their business decisions.  They too start off as imperfect matches for reality, and usually start to migrate away from it on Day One.

All of which brings me to my Thought for the Day: When you decide to get serious about thinking about the future, do NOT start by limiting your thinking by using your current mental, organizational, or business models to structure your analysis. Do not assume that those mental constructs are going to be useful or relevant for the future.  Chances are, they are not going to be nearly as useful in one, three or five years as they seem to be today.  We’ve previously written that often the biggest obstacle to an organization future is inertia caused by the success of its current business model.

Your mental models of reality divide reality up and put artificial borders — seams — between things that in reality are integrally interrelated in ways you probably can only dimly understand.  When you choose a mental model, you implicitly choose to think within the silos or categories into which you have divided reality. So in a sense, you have chosen how you are likely to get fooled or surprised: by things that do not conform to the borders you have set up in your mental model. Categories leak — it’s what they do. Real life is incontinent.

H.L. Mencken defined “humor” as “a capacity to discover hidden and surprising relations between apparently disparate things, to penetrate the hollowness of common assumptions.” People who are serious about the future would do well to develop their senses of humor. Because strategic surprise is a joke we most often play on ourselves, and it’s often not funny at all.  And innovation depends upon seeing those disparate relations and the hollowness of common assumptions.

Business model reengineering and scenario planning

That’s why looking at alternative scenarios is so important: our unconscious assumptions about silos, categories, and the logic that keeps them separate has to be challenged from outside your current set of assumptions. It cannot be altered within the same mentality you’re in right now. You need to look not only at the scenario  “If I do X, then maybe Z happens this time,” but also perhaps “If I do X, then maybe an anvil falls on me.”

Which would be unexpected and surprising, and therefore possibly humorous, to a bystander; but probably not so much to you.