In today's fast-paced business world, entrepreneurs and managers are constantly grappling with questions about how to make their companies more successful. Whether you're launching a startup or trying to improve an established business, it can be challenging to know what strategies will work best. While there's no shortage of business advice out there, much of it tends to be highly specific to certain industries or situations.
But what if there was a universal framework that could be applied to analyze and improve any business? That's exactly what Matt Watkinson offers in his book "The Grid: The Decision-making Tool for Every Business." Drawing on his experience as a business consultant, Watkinson presents a holistic approach to understanding how different elements of a business fit together and impact each other.
At its core, The Grid is based on the idea that businesses are complex systems, much like the human body. Just as our physical health depends on the interconnected functioning of various organs and systems, the success of a business relies on multiple factors working in harmony. By taking a big-picture view and examining how different aspects of a company influence each other, leaders can make more informed decisions and create strategies for sustainable growth.
In this summary, we'll explore the key concepts of The Grid and how it can be applied to analyze and improve any business. We'll look at the three fundamental goals all companies share, the major factors that influence business performance, and the nine key elements that make up The Grid framework. Along the way, we'll see how this holistic approach can reveal insights and opportunities that might be missed when looking at individual aspects of a business in isolation.
Whether you're an entrepreneur, manager, or business student, The Grid offers a powerful tool for understanding the complex dynamics at play in any company. By the end, you'll have a new lens through which to view business challenges and a practical framework for making better strategic decisions. Let's dive in and explore how The Grid can transform your approach to business.
The Holistic Approach to Business
Watkinson opens the book with a personal anecdote that illustrates the power of taking a holistic view. For years, he struggled with chronic knee pain and saw numerous specialists who focused solely on treating his knees. It wasn't until he met a sports rehabilitation expert who examined his entire body that the true cause was revealed - a muscle imbalance affecting his whole kinetic chain from shoulders to toes.
This experience taught Watkinson an important lesson that he applied to business: complex systems like the human body or a company can't be fully understood or improved by looking at individual parts in isolation. Instead, we need to step back and examine how different elements interact and influence each other.
The author argues that for too long, business advice has taken a siloed approach, with experts offering specialized insights into areas like marketing, finance, or operations. While this targeted knowledge can be valuable, it often fails to account for the ripple effects that changes in one area can have across an entire organization.
The Grid aims to fill this gap by providing a framework for holistic business analysis. It sets out three fundamental goals, three key factors, and nine essential elements that apply to all companies, regardless of size or industry. By considering how these various aspects fit together and impact each other, leaders can develop more effective strategies and avoid unintended consequences.
The Three Fundamental Goals
At the foundation of The Grid are three core goals that Watkinson argues all businesses must pursue:
Desirability - A company's products or services need to be attractive and appealing to potential customers. Without desirability, there is no market for what a business is offering.
Profitability - It's not enough for people to simply want what a company is selling; they must be willing to pay a price that allows the business to generate sustainable profits.
Longevity - Businesses need to be built to last, both to maximize long-term profits and to build the trust and reputation that comes with an established track record.
These three goals are deeply interconnected. A product might be highly desirable, but if it can't be produced profitably, the business won't survive. Similarly, a company might be profitable in the short term, but if it fails to maintain its desirability or adapt to changing market conditions, it won't achieve longevity.
Watkinson emphasizes that successful businesses must keep all three of these goals in mind when making strategic decisions. Focusing too heavily on any one goal at the expense of the others can lead to problems down the line.
He illustrates this point with the example of an upmarket wheelchair company he once worked with. The company became obsessed with creating the most desirable, sleekly designed wheelchair possible. In pursuit of this goal, they chose to use expensive carbon fiber materials, driving up costs to the point where the final product was as expensive as a small car. While they succeeded in creating a desirable product, the lack of profitability and limited market meant the company ultimately failed.
This example underscores the importance of balancing all three fundamental goals. A truly successful business finds ways to create desirable products or services that can be delivered profitably over the long term.
The Three Key Factors
In addition to the three fundamental goals, Watkinson identifies three key factors that businesses must constantly navigate:
Customers - The needs, desires, and behaviors of customers are constantly evolving. Companies must stay attuned to these changes to remain relevant.
Organization - The internal structure, capabilities, and culture of a business are also dynamic. As companies grow and change, they face new challenges and opportunities.
Market - The competitive landscape, regulations, and broader economic conditions are always in flux. Businesses must be prepared to adapt to shifts in their market environment.
Watkinson likens running a business to captaining a ship at sea. Just as a ship must account for changing winds and currents to stay on course, companies need to constantly adjust their strategies in response to shifts in these three key factors.
The author argues that many business failures can be traced back to a failure to properly navigate these factors. He uses the example of Volkswagen's emissions scandal to illustrate this point. The company's decision to cheat on emissions tests was driven by a failure to anticipate changing regulations and customer preferences around clean energy. By focusing solely on creating a desirable product without considering broader market trends, Volkswagen set itself up for a catastrophic fall.
This example highlights the interconnected nature of the three factors. Changes in market regulations (a market factor) led to shifts in customer preferences (a customer factor), which Volkswagen's organizational structure and culture were not prepared to address (an organizational factor).
By keeping these three factors in mind, businesses can better anticipate and respond to changes in their environment. This adaptability is crucial for achieving the three fundamental goals of desirability, profitability, and longevity.
The Nine Elements of The Grid
With the three goals and three factors established, Watkinson introduces the nine elements that make up The Grid. These elements represent specific areas that businesses need to consider and manage effectively. They are:
- Wants and Needs - Understanding and shaping customer desires
- Rivalry - Navigating competition in the marketplace
- Offerings - Developing products and services that meet customer needs
- Price - Setting optimal pricing strategies
- Bargaining Power - Managing relationships with suppliers and partners
- Costs - Controlling expenses and improving efficiency
- Customer Base - Building and maintaining a loyal customer following
- Imitability - Protecting competitive advantages
- Adaptability - Staying flexible and responsive to change
Let's explore each of these elements in more detail:
1. Wants and Needs
This element focuses on understanding what drives customer behavior and how companies can influence those drivers. Watkinson emphasizes that customer wants and needs are not fixed; they can be shaped by marketing, cultural trends, and other factors.
He uses the example of the diamond industry to illustrate this point. In the 1930s, diamond sales were struggling. The De Beers company launched a marketing campaign that linked diamonds with eternal love and suggested that a man's love was reflected in the size of the diamond he gave his partner. This campaign dramatically shifted cultural perceptions of diamonds, creating a new "need" that hadn't existed before.
The key lesson here is that businesses should not only respond to existing customer wants and needs but also look for opportunities to shape them. By understanding the values and beliefs that drive customer behavior, companies can create more desirable offerings and even open up entirely new markets.
2. Rivalry
This element deals with how businesses compete with others in their market. Watkinson points out that the competitive landscape is constantly changing, often due to shifts in entry barriers - the obstacles that prevent new companies from entering a market.
The author uses Airbnb as an example of how lowering entry barriers can disrupt an entire industry. Traditional hotels face high costs for property, staff, and regulatory compliance. Airbnb's platform model allowed it to enter the accommodation market without these barriers, offering a more affordable alternative that quickly gained market share.
Understanding rivalry involves not just knowing who your current competitors are, but anticipating how changes in technology, regulations, or customer preferences might create new forms of competition.
3. Offerings
This element focuses on creating products or services that provide a positive customer experience. Watkinson argues that successful offerings go beyond just meeting functional needs; they should align with how customers see themselves.
He cites Coca-Cola's "Share a Coke" campaign as a brilliant example of this principle in action. By replacing their logo with common first names on bottles, Coca-Cola created a personalized experience that resonated with customers on an emotional level. The campaign led to significant sales increases and social media engagement.
The key takeaway is that businesses should strive to create offerings that not only solve problems or fulfill needs but also connect with customers on a deeper, more personal level.
4. Price
Pricing strategy is crucial for profitability, and Watkinson argues that many businesses underestimate its impact. He cites a McKinsey study showing that a 1% price increase can lead to an 11% profit increase if demand remains constant.
The author uses a hypothetical candle business to illustrate this point. If the company sells candles for $10 that cost $8 to produce, a 1% price increase to $10.10 would increase profits by $100,000 on sales of one million candles. In contrast, increasing production volume by 1% would only increase profits by $20,000.
This example underscores the power of strategic pricing. While many businesses focus on cutting costs or increasing volume to boost profits, thoughtful price adjustments can often have a much more significant impact.
5. Bargaining Power
This element deals with a company's ability to negotiate favorable terms with suppliers, partners, and other stakeholders. Watkinson emphasizes that bargaining power is often about more than just size or market share; reputation and relationships play a crucial role.
He uses the example of Apple's interaction with Taylor Swift to illustrate this point. When Apple announced that it wouldn't pay royalties during the free trial period of Apple Music, Swift wrote an open letter criticizing the policy. Within 24 hours, Apple reversed its decision. By maintaining good relationships with key partners like Swift, Apple preserved its bargaining power in the music industry.
The lesson here is that companies should think broadly about what gives them leverage in negotiations and work to strengthen those factors.
6. Costs
While Watkinson cautions against focusing too heavily on cost-cutting at the expense of other elements, he acknowledges that managing costs effectively is crucial for profitability. He advocates for setting ambitious cost targets and scrutinizing expenses closely.
The author uses the example of SpaceX to illustrate effective cost management. Founder Elon Musk created detailed spreadsheets to estimate the lowest possible costs for rocket components and implemented a policy requiring his personal approval for any payment over $10,000. This approach allowed SpaceX to dramatically undercut competitors' prices.
The key takeaway is that relentless attention to costs, combined with innovative thinking about how to reduce them, can create significant competitive advantages.
7. Customer Base
This element focuses on building and maintaining a loyal customer following. Watkinson argues that awareness is crucial for longevity - a business cannot survive if consumers don't know it exists.
He contrasts the fates of two action camera companies, Contour and GoPro, to illustrate this point. While Contour focused on building the best product, GoPro invested heavily in marketing. Despite having a comparable product, Contour went bankrupt while GoPro became a billion-dollar company.
The lesson here is that quality alone is not enough; businesses need to actively work on building awareness and loyalty among their customer base.
8. Imitability
This element deals with how easily competitors can copy a company's products or business model. Watkinson argues that while patents can provide some protection, trade secrets are often more effective at preventing imitation.
He uses the example of Ferrari to illustrate the power of trade secrets. When a Ferrari engineer shared confidential information with rival McLaren, Ferrari successfully sued for over $100 million in damages. Unlike patents, which expire after a set period, trade secrets can provide indefinite protection if properly managed.
The key takeaway is that businesses should think carefully about how to protect their unique advantages, whether through legal means or by creating processes and knowledge that are difficult for competitors to replicate.
9. Adaptability
The final element of The Grid focuses on a company's ability to evolve and stay ahead of changes in the market. Watkinson argues that in today's fast-changing business environment, adaptability is crucial for long-term success.
He uses the example of Framestore, a visual effects company, to illustrate the importance of adaptability. Since its founding in 1986, Framestore has continuously evolved its capabilities, moving from traditional visual effects to advertising, motion capture, and virtual reality. By staying attuned to technological developments and market trends, the company has remained relevant and successful for decades.
The lesson here is that businesses need to cultivate a culture of innovation and flexibility to thrive in the long term. This might involve investing in research and development, encouraging experimentation, or creating systems for quickly responding to market changes.
Applying The Grid
Watkinson emphasizes that the real power of The Grid comes from considering how all nine elements interact and influence each other. Changes in one area can have ripple effects across the entire business, sometimes in unexpected ways.
For example, a company might decide to outsource production to cut costs (addressing the Costs element). However, this decision could weaken their Bargaining Power with suppliers, make their products more easily Imitable by competitors, and potentially impact the quality of their Offerings. By considering these interconnections, businesses can make more informed decisions and avoid unintended consequences.
The author provides several case studies to illustrate how The Grid can be applied to analyze and improve businesses:
A service sector company was struggling financially despite high customer satisfaction. By applying The Grid, Watkinson identified that the company wasn't offering ongoing services, leading to low repeat purchases. Implementing a biannual check-up service dramatically improved their Customer Base and Profitability.
The same company was having trouble converting potential customers. Rather than assuming they needed to increase awareness (Customer Base), analysis using The Grid revealed that their proposals were too technical and didn't clearly communicate benefits (Offerings). Improving their proposals led to higher conversion rates at a lower cost than a marketing campaign.
Dell's decision to outsource production to Asus initially boosted Profitability by reducing Costs. However, it also made Dell's products more Imitable and reduced their Bargaining Power. Asus eventually used the knowledge gained from producing for Dell to launch its own competing product line.
These examples demonstrate how The Grid can reveal insights and opportunities that might be missed when looking at individual aspects of a business in isolation.
Practical Application of The Grid
Watkinson provides several tips for putting The Grid into practice:
Use The Grid as a diagnostic tool: Regularly assess your business across all nine elements to identify areas of strength and weakness.
Consider interconnections: When making decisions, think about how changes in one element might affect others.
Seek outside perspectives: Sometimes it takes a fresh pair of eyes to spot issues or opportunities. Consider bringing in consultants or advisors to apply The Grid to your business.
Challenge assumptions: Use The Grid to question your instincts and explore alternative explanations for business challenges.
Balance short-term and long-term thinking: Ensure that decisions aimed at immediate profitability don't undermine long-term desirability or longevity.
Encourage holistic thinking across your organization: Train team members to consider all elements of The Grid when making decisions in their areas of responsibility.
Use The Grid for strategic planning: When developing new initiatives or entering new markets, use The Grid to ensure you've considered all crucial factors.
Revisit regularly: Business environments are constantly changing, so make analyzing your company with The Grid an ongoing process.
Conclusion
"The Grid" offers a powerful framework for understanding and improving businesses of all types. By considering the three fundamental goals (Desirability, Profitability, and Longevity), the three key factors (Customers, Organization, and Market), and the nine elements that make up The Grid, leaders can develop more comprehensive and effective business strategies.
The key takeaway from Watkinson's book is the importance of holistic thinking in business. Just as a doctor needs to consider the entire body to effectively treat a patient, business leaders need to look at the big picture to make truly informed decisions. The Grid provides a structured way to do this, helping to reveal connections and consequences that might otherwise be overlooked.
Whether you're an entrepreneur starting a new venture, a manager trying to improve an existing business, or a student learning about business strategy, The Grid offers valuable insights. It encourages a more nuanced and interconnected view of business challenges and opportunities, moving beyond simplistic solutions to consider the complex dynamics at play in any organization.
By applying The Grid, businesses can:
- Identify hidden strengths and weaknesses
- Anticipate potential consequences of strategic decisions
- Develop more robust and adaptable business models
- Improve decision-making across all levels of the organization
- Create strategies that balance short-term gains with long-term sustainability
In today's fast-paced and interconnected business world, this kind of holistic thinking is more important than ever. The Grid provides a practical tool for navigating complexity and making better-informed decisions.
As you move forward in your business journey, consider how you can apply the principles of The Grid to your own challenges and opportunities. By taking a step back and considering the bigger picture, you may discover new insights that can drive your business to greater success.
Remember, just as the health of the human body depends on the harmonious functioning of all its systems, the success of a business relies on the balanced interplay of multiple factors. The Grid gives you the framework to understand and manage these interactions, setting your business up for sustainable growth and long-term success.