This is how every organization works. - The ‘Business Problem Handling Life-Cycle’ Model
Introduction
Every organization, regardless of its size or purpose, is fundamentally a problem-solving machine.
Working in an organization can sometimes feel confusing, especially when you are a new employee. What people are important? How is the daily work organized? I provide you with a simple model — the Business Problem Handling Life-Cycle model — that helps you to get answers quickly and improve the efficiency of your organization and yourself .
I will show you a new view on organizations, how they function, how decisions are made, and the reason we will always have work.
The model can be applied to any level within an organization, whether it is a team, a department with several teams, or an organization as a whole.
It is like a fractal in mathematics, or a snowflake, but at the process level. When you zoom from a macro-perspective to a micro-perspective, you see the same business problem handling life-cycle model.
Ok, let’s start!
The Business Problem Handling Life-Cycle
A company or organization can be abstracted as a kind of machine that does two things: (1) creating a product or providing a service, and (2) solving an endless stream of problems to make (3) work efficiently to save resources.
As an employee, and especially as a manager, you are the person who solves the endless stream of problems, often with others, both internally and externally.
To do this, there are only three kinds of talents — Knowledge, Skills, Abilities (KSA) — needed: (a) decision-making, (b) negotiating, and (c) action-taking.
There are, of course, other important abilities, like empathy, organizational learning, and taking care of employees, but they are for optimizing these three fundamental abilities.
We will dig deeper into these three abilities soon. But let’s stick to the main idea for now: the ‘Business Problem Handling Life-Cycle’.
This abstraction illustrates our model. It is a life-cycle because there are only a few problems in the world that can be completely solved; most solutions are partial or temporary. For example, if it is cold in the house (the problem), you will let a HVAC engineer install a heating system (temporary solution, and energy costs money), until — after some years — the heating system creates its own problems. The house will get cold again, and the heating needs to be repaired or replaced, or alternative solutions are considered.
Life-Cycle Iterations
There is no final solution to a problem; it is always an adaptation to new needs, changed conditions, or improvement based on new knowledge.
Insight 1: It is obvious that solutions must be smart, and the operation of the implemented solution should be cheap, like automation with nearly no human interaction.
Another important characteristic of the model is that each problem/solution pair will iterate through decision-making, negotiation, and action-taking (let’s call these the problem-handling stages) an undefined number of times during its life. This can happen—even partially—across different levels of the hierarchy within the organization.
Insight 2: The less often a problem / solution pair iterates through the problem handling stages, the less overhead it creates, and this frees working time for improving the core product or service of an organization
Insight 3: The lower the hierarchy level in an organization that can execute the problem handling stages, the lower the labor cost is.
In the following section, I will clarify the concept by providing examples and how it applies to an organization.
Three Ways: The Problem Handling Stages
On the left side of the chart, there is an endless stream of problems that enter an organization. A problem — new or old, with an already implemented solution — goes through the problem-solving stages, as described above. At the next step, the results of decision-making, negotiation, or action-taking must be evaluated to determine whether the desired goal was reached. After the evaluation, the new but managed problem/solution pair lives in the big basin of problems managed every day in the company. This reduces the problem to a level the organization can accept. As in risk management, a problem / solution pair that is acceptable for an organization is a problem with an impact sufficiently low to not disrupt critical business processes.
For example, the executive board decides to start an important project (1st round), then the project manager will negotiate the needed resources to make the project in time and quality (2nd round), and at the end, the engineers working on the project will take action and implement whatever is needed to fulfill the project requirements (3rd round).
Insight 4: Another opportunity to reduce overhead and labor costs is to avoid future decision-making by providing clear written guidelines for the organization. The negotiation step can be optimized by planning the annual budget for the cost center of the responsible department, rather than repeatedly engaging in lengthy negotiations.
This is how every organization works, and it's why people have jobs and earn money. Employees at all levels manage this cycle to maximize the outcome of the company — see the above-mentioned “insights”.
Let me further clarify the idea using typical examples:
- Compliance: The government of a country has recently required the publication of Key Performance Indicators (KPIs) for the Environmental, Social, and Governance (ESG) criteria for every company. Violating this new law incurs a penalty of 5% of the company’s annual revenue.
- This new law depicts a new problem for an organization and needs to be handled (problem stream).
- The executive board decides to meet the requirements because the fines are too high, and the investors demand these numbers as well. (decision-making).
- After negotiating the needed resources and additional tasks with the head of the investor relations department to report the essential KPIs, …
- The tasks — new business processes and responsible persons — are defined and implemented, to take action.
- Budget: To improve the quality of the NGO's primary service to refugees immigrating to the country, additional financial resources are needed.
- New annual budget to permanently provide the improved service for refugees (problem stream).
- The company's executive board decides that this improvement is much more important than other services. Other services need to be outsourced.
- After negotiations with all departments within the NGO and with other NGOs providing an equivalent service, a fixed-price agreement was reached.
- Action is taken, service XYZ was outsourced by department ABC, and the interfaces and process “swim lanes” for the process are defined, as well as the fixed annual fee.
- When the requirements or prices for the outsourced service xyz change, the NGO department abc decides how to adjust, negotiates on their own with budget approval from the NGO’s executive board, and adjusts the action taking part on their own. (This is an example of the different hierarchies involved in the ‘Business Problem Handling Life-Cycle’.)
Now you should have an understanding of the ‘Business Problem Handling Life-Cycle’ model. The next subsection will elaborate more about the ways of handling a problem. The following sections are optional; you have everything you need at this point.
Insight 5: Setting priorities. Knowing what matters most for the daily business work helps young and/or introverted managers to structure and control their learning and knowledge-gaining efforts. I am an introvert manager myself, and I know how easy I get lost in the rabbit hole of management books and techniques. Managers need to make decisions to operate their department; negotiate for resources upward, downward, and on the same hierarchy level; actions are normally executed by department employees.
Let’s dive deeper into the three ways of problem handling.
Decision-Making
Decision-making is a cognitive capacity (Psychology). For this article and model, I need to cover additional concepts within this term to keep this text simple. Decision-making in our context includes Situation Awareness (Endsley , 1988, 1995) but also knowledge from subject matter experts (SMEs), hierarchy levels, assigned responsibilities (individuals or groups), or external influence factors, i.e. laws or contracts, which require a certain behavior without leaving much space for alternative decisions.
Negotiating
As soon as two or more parties are involved in handling a problem, or a resource is insufficiently available to meet time or quality goals, people need to negotiate. Negotiating is a skill. It is a learned, practical proficiency that can be developed through training and practice. It involves a set of specific, observable behaviors such as active listening, strategic communication, and compromise.
Action-Taking
Action-taking is a behavioral outcome. By taking action, the problem-solving becomes reality. This can be the creation of concepts or a product analysis by the middle management, the development of code by developers, or the installation of new electrical circuits by an electrical engineer.
Distributed Problem Handling Life-Cycle
It was already outlined here and there, but I will summarize two important concepts.
The three ways of problem handling at different hierarchy levels of an organization
The diverse ways of handling a problem often do not happen on the same hierarchy level. After listening to the problem analysis of a subject matter expert, a senior manager makes a decision and makes a subordinate manager responsible for the task. The middle manager negotiates the needed resources, and the action is taken by the employees of the manager’s department.
The model at different hierarchy levels of an organization
The ‘Business Problem Handling Life-Cycle’ model can be found on each hierarchy level within an organization. This makes this simple model so valuable to understand organizations, no matter of size, type (NGO or commercial company), and no matter of its business model.
Demarcation from existing Models
The ‘Business Problem Handling Life-Cycle’ model is a reactive concept, that allows managing the unknown unknowns as soon as they hit an organization, by applying a few simple steps.
Other well-known concepts and models handle specific enterprise risks; risks, which are known upfront and often have a standardized way of assessment, management, and improvement.
Plan-Do-Check-Act (PDCA)
The PDCA cycle is used to steer management systems, like a compliance (ISO 37301) or an information security (ISO 27001) management system. Management systems are actively driven to reach a specific goal — like accepting a known risk by mitigating, transferring, or simply ignoring it.
The PDCA cycle is to some degree equal to the ‘Business Problem Handling Life-Cycle’. The major difference is the unplanned occurrence and nature of problems, the three ways to handle it, and the absence of a management system. There is no regular evaluation of the quality of an implemented problem / solution pair. This makes our model more realistic and better suited for the majority of problems managed within an organization.
Enterprise Risk Management (ERM)
Risk management standards, like ISO 31000, COSO ERM Framework, or the NIST Risk Management Framework (RMF), have a risk assessment step which actively looks for enterprise risks and defines ways and responsibilities to handle it iteratively by using the PDCA cycle (see the next subsection). Our model covers more than enterprise risks; it covers every professional activity.
Business Continuity Management (BCM)
Like risk management, a business continuity management system looks for risks affecting the continuity of critical business functions. It is structured like all other management systems, identifying and assessing the risk and manage them over time.
Conclusion: Call for Action!
Apply the model to your organization, identify groups and individuals, or roles which are involved in decision-making, negotiating, action-taking. Especially in bigger organizations you will not be able to see all three steps. If you see a new action or change within your company ask yourself, who, where, and how are decisions made, and which resources and responsibilities were negotiated. So, you can work backwards to better understand your environment.
Whenever you are involved in the process of implementing a solution within your company, remember this model, make sure decision-making is influenced by your experience, do not forget to use the chance to negotiate the needed budget, human resources, and time, and also make sure that the new tasks is handed down to your department members.
Additionally, implementing smart solutions, keeping the decision and negotiation overhead low makes future iteration less burdensome. Using automation whenever possible to reduce labor costs should now be part of every business decision — because you will see your old problems again in the future.
The simplified view on organizations can help young or/and introvert managers to use their learning time more efficiently. I recommend to only read the bestseller literature and then act! Learning by doing is still the best way to master a profession.
To make this model work efficiently a fourth talent is needed: Influence — But this is a completely different topic.
Limitations
This model is based on my experience and observations.
