What does Physics tell us about Business Modeling. Abandon Static and Embrace Dynamic!
Everyone involved in business today recognize that the territory is filled with Uncertainty. But what does this really mean?
Well on one hand we know that predictions and forecasts both on short term as well as long term are of high risk. We can not use historical data as a basis for predictions. Yet we need to plan ahead. We need to set goals and translate them into specific and measurable in a time period objectives, KPIs and forecasts or as known budgets.
On the other hand, looking at business models operated in Companies, there is a fundamental flaw in relation to the Uncertainty factor mentioned above. They are still extremely static despite the effort and investment in automation, digitalization, analytics and data management.
As an engineer, let me explain this.
First, in Physics we have since 1927 a principle that explains uncertainty scientifically as established by the Nobel prize physicist, Werner Heisenberg know as the Uncertainty Principle. In plain words this principle states that we cannot know both the position and speed of an object ( particle) with perfect accuracy as the act of observing the object generates energy that moves that object. In other words if I light an object to observe it and establish its position, the energy produced by photons of the light will move the object from its original position. So the act of observing and measuring itself , moves the object from its original position.
Today, more than ever, Heisenberg’s principle applies to the economy and the society. Things we try to find and establish today, this hour, through our actions do not apply tomorrow because our today’s actions have changed the yesterday’s known. And uncertainty is here to stay for the years to come.
In physics we use the the term Entropy. Entropy is the measure of a system’s thermal energy per unit temperature that is unavailable for doing useful work. It’s a measure of a system’s disorder. The higher the entropy, the higher the system disorder and therefore chaos is created. In today’s environment business entropy is at its highest level. There is too much energy put into a business without value to customers and other stakeholders by people working in a business.
Finally, let me refer to the well know Newton’s law of physics which states that the force equals the mass times the acceleration. Or if you like, the bigger the mass the bigger the force required to move an object like a business. So, the bigger in any terms a business is the bigger the effort required to change it and move it forward.
All the above physics laws lead to a common denominator. To cope with today’s uncertain, volatile and chaotic global territory, we need to follow the natural laws of physics. We need to create a dynamic business model. Most business models I come across with our clients are more static than dynamic, despite the efforts to change that. Whenever changes need to be made and this need is much more frequent than in the past, companies have difficulties to cope with the changes. They are limited by inertia, limiting perceptions, lack of skill, fear all of which lead to misalignment, low speeds, lack of focus, frustration and poor results among other things. This is due to there yet to a large degree static business models.
We need to fundamentally change this business modeling to a much more dynamic one. It’s not enough to digitalize things, analyze data, or just merely train your people. It entails a new culture in doing business that includes the organization itself, the business planning models , the people and other resources. This dynamic model to cope with today’s conditions should be designed to allow a business absorb and analyze data and information in real time , understand real customer needs through observation and not surveys, plan strategically and operationally using a versatile, user friendly, highly adaptable toolset that allows transparency, involvement, data and information access, feedback and accountability in real time.
A business model that allows companies to apply dynamic pricing, dynamic human resource management, dynamic procurement and supply chain , dynamic manufacturing , dynamic product/service development , dynamic risk management , dynamic not static.
Such a dynamic business model using the tools and methodology to crate agility, focus , engagement and speed all required by a highly dynamic model is described in the free ebook below.
Yiannakis Mouzouris
Strategy and Performance Management
Expert / Business Consultant / Trainer
B.Sc. Mechanical Engineering
M.Sc.Engineering Management, US
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