Structuring the Business to the Project Opportunity
The world constantly provides us with a myriad of challenging and exciting business opportunities. Whether you are an entrepreneur developing the opportunity or it is being developed by the business development department of a major corporation, the focus is normally on the capital asset development portion of the project. Many a time developing the business to fit the project opportunity is neglected or left too late.
While most organisations follow some form of stage-gate process for the asset development portion, very few organisations do the same for preparing the organisation for the new business.
Both the entrepreneur creating a new organisation and the large corporation need to follow the same steps to optimise structuring the business to the opportunity. These steps form the basis of this insight article.
The Structuring Process
The normal process for structuring a new business is summarised below:
- Industry and systems analysis: Execute an industry strategic analysis using models such as PESTLE or STEEPCOIL. PESTLE is a framework used by marketers to analyse and monitor the external marketing environment factors that have an impact on an organisation. STEEPCOIL is an acronym used by Steyn (2018) to identify risks associated with a new venture. Then conduct a business systems analysis using models such as Porter’s 5 Forces, Industry Trends Analysis, Industry Driving Forces or Industry Key Success Factors;
- Business strategy definition: Develop a compelling Vision that will align and direct all the stakeholders. The vision should take into consideration the corporation’s value statement towards government, the environment and society. The corporation’s view towards employees, suppliers and its investment should also be considered. Define the Mission of the company to enable it to achieve the vision. Decide on the Product line that the company will produce to satisfy a specific need in the identified market segment. Finally, do a SWOT analysis to understand the company’s unique position or Competitive Advantage (Kim & Mauborgne, 2009);
- Business support strategies: Develop marketing, operations, organisational development and financial strategies in support of the business strategy; and
- Create the correct delivery system: The creation of the correct delivery system means structuring the business for best fit with the project opportunity. See also the article by Bennett et al (2000) entitled: The organisation vs. the strategy – Solving the alignment paradox.
For the purposes of this article, it is assumed that the first three steps have already been completed and that the traditional buy, make and sell business process as depicted in Figure 1 has been developed.
Figure 1: Traditional business process model
The question now is how to create the correct foundation for development? This question has many subsections and includes the design of the company, how to structure the governance and control processes, how to manage suppliers, customer and partner agreements, and lastly, how to design the work processes and organisation structure.
To answer these questions, we will take a closer look at how the operations and organisational development strategies will be executed. To ensure an integrated flow, the following process considerations are proposed:
- Strategic alliances;
- The Board;
- Business processes to be governed;
- Management structure;
- Commercial & Legal;
- Human resources processes;
- Customer relations; and
- Business Operations.
Each of the nine process considerations listed above is discussed in more detail in the following section.
Discussion of the Process
Decide the current and future distribution of ownership, how the founding partners should be rewarded and develop the shareholding policy for initial employees, future employees, advisors, board members, 1st and 2ndround investors.
Decide on whether the new business will be wholly owned by the mother company, or whether a joint venture or other strategic alliance is more appropriate.
Consider strategic alliances with major feedstock and technology suppliers as well as one or two major customers. Other strategic alliances that can be considered are: business associations, resource sharing communities, purchasing associations, market collaboration and industry cluster associations.
Select the appropriate members of the board and/or advisory board for your specific case such as an economist, banker, entrepreneur, industry expert, client, technical expert, employee organisation representative, politician, IT, marketing or HR and communications expert.
Ensure that the selection of board members, and specifically appointment of the chairman of the board is in accordance with the King IV requirements.
Defining the main business processes to be governed is a crucial step in structuring the business. According to Bizmanualz (2018), there are ten core business processes, namely four business drivers, five business operations processes and management responsibility to be defined and mapped, as depicted in Figure 2.
Figure 2: The main business processes (Bizmanualz, 2018)
From an analysis of the main business processes above, an estimate of the number of personnel and the required span of control of an organisation structure needs to be addressed. Figure 3 depicts the typical organisation structure for the buy-make-sell business process and can be utilised in this regard.
Figure 3: A typical organisation structure
It must also be taken into consideration that the capital project organisation will be structured for execution of the project. Many of the personnel that will operate the plant in the end will, during the project execution phase, be employed as part of the project owner team. According to van Heerden, Steyn & van der Walt (2015), a typical project owner team consists of the following members, as depicted in Figure 4. Depending on the project complexity and size, the owner team can consist of anywhere from 10 to 200 people.
Figure 4: A typical owner project team (van Heerden et al, 2015)
Commercial & Legal
The next step is to address the legal and contractual issues. There are various contracts to be drawn up and signed depending on the type of business being developed. It is important to consider the major decisions about the company prior to engaging with a lawyer to ensure that this resource can be directed correctly.
In this regard, we consider the following agreements:
- Client agreements: General sales agreements, order confirmation notes, service agreements, license and or royalty agreements;
- Supplier agreements: General purchasing terms, procurement contracts, rental and or lease agreements, insurance agreements;
- Product or services agreements: This includes disclaimers, knowhow, trademark and copywrite protection;
- Shareholder agreement: The shareholder agreement defines the rights, shareholding, conduct, conditions for entry and exit, and compensation of shareholders;
- Confidentiality agreements: Confidentiality or non-disclosure agreements with partners, suppliers and contractors;
- Partnership agreements: Distribution contracts, agency agreements, collaboration agreements, co-branding agreements and joint venture agreement; and
- Employee agreements: Employment contracts, bonus agreements, incentive schemes, share options or warrant programs.
After completing the commercial and legal landscape, the interface between the company and its customers is developed. To do this, a stakeholder influence diagram is prepared to determine the best influencing lines (Morphy, undated). From this the company network diagram can be developed which forms the basis for the marketing strategy. The next step is to develop the sales network and outbound logistics process, followed by the public relations and communications strategy and lastly, the branding strategy.
Human Resources processes
From the organisation structure developed under Management structure, above, a job description needs to be developed for each position. The roles and responsibilities of each position should be uniquely defined, with reporting requirements and decision authority allocated to the position.
The performance management and recruitment processes also need to be developed. Lastly, the succession planning process is addressed.
After completing all the stakeholder management processes, that is the client, supplier, shareholder and employee, the internal business processes can be developed to support all the stakeholder management processes.
The financial analysis, reporting and capital asset management processes, as well as the IT, business systems and knowledge management processes need to be developed to support all the stakeholder management processes.
In a competitive market, where time, money and resources are of the essence, one is constantly striving to optimise processes and procedures. In this endeavor, it is often the case that business owners and or project managers may overlook the essentials of comprehensive planning and structures. It is therefore imperative to ensure that a proven stage-gate model is followed in developing the organisation that must accept, own and operate the new facility. In fact, it is just as imperative to use a stage-gate model to develop the organisation as it is to develop the capital asset.
It is also crucial to make sure that the business is sufficiently developed to support the correct decision-making processes during project development and to prevent rework due to new stakeholders joining the business. On-boarding new stakeholders invariably brings new requirements to the business or project. If the business is sufficiently developed the requirements will be fixed and aligned and the project can simply execute these requirements.
Bennett, J.W., Pernsteiner, T.E., Kocuorek, P.F. & Hedlund, S.B., 2000, The organization vs. the strategy: Solving the alignment paradox in strategy and competition. Available from https://www.strategy-business.com/article/14114?gko=9918e. Accessed on 31 August 2018.
Bizmanuals, 2018, Critical business process, policies and procedures. Available from https://www.bizmanualz.com/improve-business-processes/critical-business-processes-policies-and-procedures.html. Accessed on 27 August 2018.
Kim, W.C., & Mauborgne, R., 2009, How Strategy Shapes Structure. Available from https://hbr.org/2009/09/how-strategy-shapes-structure. Accessed on 31 August 2018.
Morphy, T., Undated, Stakeholder analysis, project management, templates and advice. Available from https://www.stakeholdermap.com/stakeholder-analysis.html. Accessed on 31 August 2018.
Steyn, J.W. 2018, Insight article 045: Introduction to project risk management: Part 1 – Planning. Available from https://www.ownerteamconsult.com/introduction-to-project-risk-management-part-1-planning/. Accessed on 30 August 2018.
van Heerden, F.J., Steyn, J.W. & van der Walt, D., 2015, Programme Management for Owner Teams – a practical guide to what you need to know. Available on Apple Books and Amazon. OTC Publications, Vaalpark, RSA.
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