The business-within-a-business (BWB) paradigm is foundational to NDMA's work. It provides guiding principles for the design of every aspect of an organization's operating model.

What It's Not

Before defining the business-within-a-business paradigm, let's set aside some common misconceptions:

• The BWB paradigm is not outsourcing or spinning off departments as independent service companies.

• It doesn't necessarily mean chargebacks, nor operating internal service functions as profit centers.

• It doesn't mean that staff have free reign, with no oversight, like free agents.

• It doesn't make you a passive order-taker. There are many things internal entrepreneurs can (and must) do proactively to keep their internal businesses viable.

  Things that internal entrepreneurs do proactively, without customers' permission, and which don't disempower customers or diminish customer focus....

  • Product/service innovation: Internal entrepreneurs must innovate to keep their competencies and their product lines up-to-date. They don't wait for customers to tell them to innovate.

    For off-the-shelf products and services, they proactively put new products "on the store shelf" (making them available to customers), but only take them off the shelf (actually deploying them) when customers agree to buy them.

    For custom products, they proactively develop their skills and methods so that they're prepared to offer innovative approaches to customers' unique requirements.

  • Infrastructure: Internal entrepreneurs proactively maintain and evolve their infrastructure (the assets they own for the purpose of providing services to customers). They decide what assets to buy, justifying those investment decisions based on consumption trends, technology strategies, and market needs (input from the customer community as a whole, not any one customer).

  • Marketing: Internal entrepreneurs market their products and services. This is not meant to be self-serving; the goal is to lift customers' awareness of the possibilities so as to engender more creative use of their products and services.

    With marketing, customers can choose whether to spend time consuming (reading/viewing) the materials. It's not using customers' time to push your agenda in a sales call, which would not be customer focused.

  • Sales: Account Representatives (sometimes called "Business Relationship Managers") proactively talk to customers about their business challenges. The goal is not to push products, but to help customers solve their problems and achieve their goals. They discover high-payoff opportunities to use the organization's products and services by listening well, and by bringing new insights to customers.

    Beyond that, every entrepreneur "sells" when invited by customers to explain their products and services and their value.

  • Offer proposals: In response to expressed needs (the What, i.e., requirements), engineers offer to develop proposals (solution alternatives studies). With the customer's permission, they define alternative solutions (the How) at different price-points, like "good/better/best," to inform customers of their options.

  • Help customers be smart buyers: Entrepreneurs help customers analyze those alternatives in the context of their values (not the supplier's). This isn't making a recommendation (as if "we know what's best for you"). Rather, it's a consultative process that explores the customer's values; for example: "If speed is most important to you, pick alternative A; but if life-cycle costs are more important, select B."

  • Coordinate enterprise decisions: For decisions which are to be made by the community of relevant stakeholders (such as policies and standards), Coordinators proactively put forward questions and coordinate the appropriate stakeholders as they decide.

  "I've long believed CIOs should run IT as a business. [Meyer] explains exactly how to do that -- the foundational principles, the details of how it will work, and the implementation process to get there."

  Paul Edmisten, CIO

• The BWB paradigm doesn't mean managers have a free reign, with no oversight.

• And it certainly doesn't imply an arm's-length relationship where support staff don't care about the well-being of the enterprise.

Definition of the Business-within-a-business Paradigm

What, then, is it?

The business-within-a-business paradigm goes deeper than viewing departments as internal businesses. In a BWB organization, every small group is considered a business, and everyone thinks and acts like an entrepreneur.

Internal entrepreneurs at every level know their job is not just to manage the resources they've been given, or execute processes and do tasks within their responsibilities. It's to produce products and services for customers who have a right to choose what they buy.

Customers may be peers within their departments, other departments, or external customers. No matter, everyone is in business to serve their customers.

"It is a post-entrepreneurial model that marries the best of the creative, entrepreneurial approach with the discipline, focus, and teamwork of an agile, innovative corporation."

Rosabeth Moss Kanter

The Market Organization has a hierarchical organization chart, but it operates as a network of entrepreneurs.

Benefits

Internal entrepreneurs continually strive to earn customers' business through great relationships and performance.

This brings out the best in people. Consider the traits of successful entrepreneurs:

"IT is a business within a business (within a government, in our case). That's clear. Beyond that, I want every one of my managers at every level to think and act like an entrepreneur -- customer focused, results oriented, competitive, frugal, and innovative. Dean Meyer (one of the original proponents of the business-within-a-business concept) really helped me understand the depths of that vision and how to do it."

Steve Monaghan CIO and Chief of Staff, County of Nevada, CA

• Customer focus
  
• Initiative
  
• Results orientation
  
• Quality
  
• Efficiency and cost control
  
• Customization
  
• Innovation
  
• Teamwork
  
• Use of vendors
  
• Safety
  
• Judicious risk
  
• Alignment
  
• Empowerment
  
• Purpose

Click here to see why the BWB paradigm induces these behaviors....

In summary, the BWB way of thinking brings out the best in people. The empowerment, sense of value, and creative opportunities are good for staff. It's a great place to work -- an "employer of choice" in its labor markets. And it earns the position of "supplier of choice" to its internal customers.

Arm's Length Relationships?

"In the past, I worked at a large company that had engaged Dean to implement the business-within-a-business paradigm, and it was the healthiest organization I've ever been in."

Mark R. Schultze, COO, PerformanceG2, Inc.

Contrary to critics' accusations, the BWB paradigm does not distance an organization from its internal customers. Respectful customer-supplier relationships, with distinct and synergistic accountabilities, lead to far better relationships.

More broadly, a BWB organization continually strives to earn its customers' business. Staff always behave as if customers have a right to go elsewhere (even if internal customers have no choice but to work with them)."

What About the Profit Motive?

"...the democratic operation of the market [does] not stop at the doors of a big business concern.... [It] permeate[s] all its departments and branches.... It joins together utmost centralization of the whole concern with almost complete autonomy of the parts."

Ludwig von Mises

Internal entrepreneurs don't have to put their life-savings at risk. And they bring home a regular salary, not just a share of the profits (if any). The concept of business-within-a-business doesn't depend on equity.

As in most companies, staff are motivated by other things, like knowing they're doing something meaningful for others. And ultimately, bonuses, raises, and promotions depend on their customers' satisfaction.

The Alternative: "Partners in the Business"

Some people are concerned that the BWB paradigm might distance staff from their peers. They may say that support functions like IT should be partners in the business, not suppliers to it.

In practice, that doesn't work well for two reasons:

First, it creates confusion about accountabilities.

Some teams feel that, as partners, they should decide everything together. For example, on an IT project, IT staff meddle in their customers' business decisions. And business staff meddle in IT's decisions. That slows things down, produces bad decisions, and disempowers both parties.

In other cases, IT staff say, "We're the technology experts in this partnership. So, we'll make all the technology decisions." They don't respect that their customers have businesses to run, and need to be in control of their factors of production (IT included).

Either way, a vague notion of "partners" confuses authorities and accountabilities. And that actually leads to strained, not closer, relationships.

Second, when support staff see themselves as business partners, they don't think about running their own businesses.

They may not know that they're responsible for competitive prices, so they don't manage costs well. They focus on tasks and processes rather than results, since they don't know their job is to deliver products and services. They resist outsourcing, since they think it threatens their empires rather than augmenting their delivery capabilities. They're less innovative, since they don't feel responsible for the future of their businesses.

Internal entrepreneurs behave quite differently from partners in the business. They continually strive to earn internal customers' business through great relationships and performance.

For exactly that reason, the business-within-a-business paradigm does not distance internal support functions from the business. Just the opposite. It's a force that brings people together. And it helps everybody understand their distinct and synergistic accountabilities and authorities.

In practice, the business-within-a-business paradigm, with its mutually respectful internal customer-supplier relationships, builds the best partnerships.

External- Versus Internal-facing Functions

"In my model, every internal "department" would be transformed into a full-fledged PSF (personal service firm)/business!"

Tom Peters

Can every function be entrepreneurial?

It's easy to think of externally facing functions differently from internal support groups.

But in a Market Organization, there are no second-class citizens. Everybody is entrepreneurial, no matter who their customers are.

The BWB paradigm applies to every function.

Internal Monopolies

Internal support functions may have monopolies. That is, for some things, everyone in the company may be forced to work through certain support functions for the purpose of enforcing policy compliance. Common examples are general counsel, procurement, and financial transactions.

Nonetheless, in the BWB paradigm, support staff realize that the surest way to lose a monopoly is to behave as a monopolist. Thus, they behave as if customers have a right to go elsewhere. They continually strive to earn the business.

Entrepreneurial metrics help reinforce these behaviors.

Can Everybody Really Be an Entrepreneur?

Is everybody really capable of being an entrepreneur?

The 400 million small-scale businesses across Africa, Asia, and Latin America make up about 60% of jobs and 40% of the GDP.

The World Bank

Many employees in fairly low-level jobs go home to run their own little businesses on the side. It's true, not everybody is cut out to start their own company. But at least at some level, everybody is capable of thinking like a business owner.

Of course, some are better than others at managing businesses. Some just aren't good at thinking out of the box, and struggle to anticipate customers' needs. Not everyone is ready to lead an internal line of business. Some may never want to. But everyone can learn that they have a purpose: to deliver valued products and services to their customers.

Over time, this perspective seeps in. More and more of the staff "get it." And as they learn to think and work in this very different way, their enthusiasm generally grows.

To speed the process, leaders can (and should) invest in education and coaching to grow staff's business-management skills.

Everybody is a Product Manager

"...the chief reason for our failure in world-class competition is our failure to tap our work force's potential."

Tom Peters

Traditionally, "product managers" are viewed as a marketing function. (This is especially common where organizations define jobs by the tasks they do rather than the products and services they produce.)

When you think of every function as a business within a business, the business of product managers is selling the company's products and services externally. They are accountable for the P&L (profit and loss) of a line of business -- a set of products and services. That's not a marketing function. It's running a business.

In a Market Organization, the concept of product management applies more broadly. All leaders at every level are product managers for their respective businesses. Everybody is accountable for running a business, whether they're selling to external customers (with a profit objective) or internal customers (where they're supposed to break even).

So, if everybody is a product manager, what do product managers do?

They conceive and invent new products and services, and deliver them to customers. They're responsible for building market share, customer satisfaction, and long-term value.

To do all that, they subcontract for help from the rest of the organization. At a high level, examples of things product managers buy internally include:

• Market research to assess market opportunities, and then to determine specific market requirements (from Marketing)

• Solution design (from Engineering)

• Procurement (if vendor products and services are required, from the Business Office)

• Manufacturing, or infrastructure operations (from Operations)

• Inventory warehousing and logistics (if physical goods are involved, from Operations)

• Marketing strategy and communications (from Marketing)

• Selling (from Sales, like a third-party sales force)

• Support (from Customer Service)

Note: In a Market Organization, you'll hear people talking about buying and selling products and services. That doesn't mean that money changes hands. Charegebacks aren't necessary. The words "buy" and "sell" just clarify respective accountabilities and authorities.

The value of this kind of teamwork is evident no matter who one's customers are, external or internal.

Strategic Thinking at Every Level

Some say that executives do all the strategic thinking; managers translate those strategies into tactics; and the rest of the staff just do as their told.

"In an increasingly dynamic, interdependent, and unpredictable world, it is simply no longer possible for anyone to 'figure it all out at the top.' The old model, 'the top thinks and the local acts,' must now give way to integrating thinking and acting at all levels."

Peter M. Senge

That makes executives a bottleneck that constrains the whole organization's ability to plan and innovate. These days, that old top-down approach to strategy just isn't agile enough to survive.

The business-within-a-business paradigm is the opposite of that. There's strategic thinking in every corner of a Market Organization, at every level.

Top executives define strategic challenges, and key enterprise initiatives to achieve those goals.

Then, those responsible for those strategic initiatives buy what they need from the rest of the organization. As groups throughout the enterprise deliver their products and services to those initiatives, resources are aligned with enterprise strategies through the internal value chain.

Beyond that, every business within a business needs a strategy of its own. It needs to plan its future products and services, the competencies and capabilities it will need, and its assets (infrastructure).

Of course, the enterprise coordinates the planning process so that individual groups' strategies mesh into enterprise strategies.

Nonetheless, everyone runs their own small business. Everyone develops micro-strategies for their business. And everyone converts their strategies into tactics, and drives those key initiatives for their own little business within a business.

Note that in addition to inducing engagement and performance, this cultivates the next generation of leaders.

Using the Business-Within-a-Business Paradigm

The business-within-a-business paradigm, at a minimum, can help you sift good ideas from the plethora of methods, "best" practices, frameworks, and fads.

For example, the IT industry has been rife with seemingly good ideas gone awry.... "Process owners" who disempower others by dictating processes without accountability for the end results of those processes.... "Product owners" within IT who claim to own the solutions they build for the business, and make customers' decisions for them....

Consider the way some people use the word "owner" when they really mean the person accountable for delivering a product or service to the real owner. These folks would call car dealers "car owners"! This perversion of language is dangerous because it can confuse accountabilities and authorities.

The business-within-a-business paradigm can be your North Star. It can tell you which new concepts are useful, and which may sound plausible but are heading in the wrong direction.

More significantly, the business-within-a-business paradigm is the foundation of the organizational operating model in a Market Organization.

"The best organizations are a collection of cohesive, agile small teams that are effectively aligned and coordinated. But what is simple in concept is challenging in execution. Dean Meyer provides an... eminently practical roadmap for leaders to get it done."

Gen. Stanley McChrystal, author, Team of Teams and Risk: A User's Guide

Implementing the BWB Paradigm

It takes more than talk to implement this vision. Organizational structure, culture, resource-governance processes, and metrics all must be designed to induce and support internal entrepreneurship.

The business-within-a-business paradigm is not just a driver of vision. It guides every step of your transformation road-map.

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