4Ps Business and Marketing Sept., 2009
As a child, I used to be a pretty good student of mathematics. I guess grilling on sums and tables, which is the norm of Indian school curriculum, contributed tremendously to it. Practice sessions, mental maths as they also used to be called, expected one to rattle off answers to a barrage of questions like 2X2= ?, with lightning speed. 4 !! Yes !! You would be ridiculed in class if your answer happened to 3 or 5 …..
And then, after I finished my engineering education, where the ‘exactness’ of these practice sessions really helped, during my management education I was to exposed to something ‘illogical’. A ‘Holistic’ approach could actually make ‘Whole greater than the Sum of Parts’ according to Gestalt, I was told. Now what was this new mathematics ?? We were to unlearn some of the ‘exactness’ of mathematics and were told that when systems operate synergistically, a ‘resonance’ effect actually can lead to such a phenomena. Business, I realised, is not mathematics. It is philosophy, an approach, a mindset.
It was quite obvious all over. Practical observations confirmed the validity of such a phenomena. Management Gurus & literature continued to reinforce the effects of synergistic operations. Related expansion and diversification made sense. Unrelated diversification would naturally tend to be less efficient as there would be consumption of effort, resources, time (energy ??) towards keeping the unrelated parts of an enterprise together ….. different particles (?) to be held together by the application of external energy. Unless each particle or business in this case, of its own volition, gives up some of its own energy and contributes to The Bonding Energy !! But this ‘contributory’ Bonding Energy or Force never really happens without the so called ‘Common Thread, Knitting, Synergy or Interest, that can lead to A Clear Differential Advantage’ and gain for all units. If The Kinetic Energy of each unit is higher than The Bonding Energy, they would tend to move apart releasing this energy into the environment, somewhat like in a nuclear ‘fission’ reaction. However, if The contributory Bonding Energy is higher, due to a ‘common interest or desire to stay’ together, you get a unified organisation where ‘Whole is greater than the Sum of Parts’ !!
Primarily, organisations exist only for two reaons 1) To create Value for The Customers & 2) To create Return on Investment for the Owners ….. and in that order. In social organisations also these remain valid, but maybe expressed as 1) ) To create Value for the Beneficiaries & 2) To create a ‘Surplus’ through efficiencies.
The world is one continuum of energy, represented by different frequencies manifesting as particles. The higher the frequency of a ‘wave particle’, higher is its mass as manifested in the ‘particle’. Business units also replicate such energy continuums and particle duality in a similar way. When they resonate with the same frequency they are one particle of existence. Different frequencies will have them vibrating as separate particles, obviously connected by a weak energy flow, which exits in the cosmos in any case, between diverse entities as well. What then is the purpose of ‘applying autocratic force’ to have them together ?? Doesn’t everyone love to be a free body !!?? Well the only two reasons to be together are 1) We build greater Value for The Customer together and/or 2) We operate in a manner that our operations gain from each other. Under these conditions, particles (business units) contribute the very essential Bonding Energy and ‘Whole is greater than the Sum of Parts’, as that is the only reason that makes sense for these particles to stay in ‘dance’ together !! In the absence of these conditions the system will become less efficient as there would obviously be an energy loss rather than a gain, by forcing togetherness.
That brings me to another version of this 1+1 mystery. Over the last few years, just before the recession hit, ‘valuation’ was in vogue !! Every new start up or even existing organisations started talking ‘valuation’. Rather than Creating Value for The Customer, Valuation became the buzzword. A simple mind like mine got quite confused frankly. How do valuations shoot up like this ? I felt quite miserable at not being able to comprehend all this. And then, one day, it hit me like a thunderbolt ….. I really DID NOT understand this new game. This was, when someone mentioned ‘Sum of parts is greater than the Whole’. Now what does this mean ?? All this while I was living happily having understood the ‘Whole is greater than the Sum of Parts’ logic (which also had taken me quite a while to grasp) …..
What is this ? At this stage in life, do I have to learn my maths again ? Sure that was not a very great and encouraging thought. Do I live in ignorance for the balance of my life ? It was a very depressing feeling. And then, after a long phase of close to depression, I saw the picture …..
‘The Bonding Energy’ should be contributed willingly by constituent particles only, towards efficiently aggregating together in the collective sefishness of “1) We build greater Value for The Customer together and/or 2) We operate in a manner that our operations gain from each other 1) To create Value for The Customers & 2) To create Return on Investment for the Owners ….. in that order”. That is the key towards ‘Whole is greater than the Sum of Parts’ !! In cases where ‘Sum of Parts is greater than the Whole’, it is not that ‘Whole’ is less. It is just that the full impact of ‘Whole’ was never realised and nurtured to ‘flower and blossom’. Eureka !!
No wonder when businesses get reduced to being seen as distinct particles, with no ‘Bonding Energy’, when they have no reason for being together in the first place, ‘Sum of parts will be higher than the Whole’. It is this irony, driven by ‘Valuation’ rather than ‘Value Creation’, compounded by greed and short term results that lead to businesses being managed as MF portfolios rather than with an approach of ‘organisation building’ and ‘Value Creation for The Customer’. Value for the Owner is a natural outcome.
That is one flaw that the famous BCG matrix can lead to. Businesses are seen as delinked, independent entities in this approach, without looking at the ‘synergistic’ or ‘complimentary’ roles they may actually be playing in the ‘dance’. This race for ‘Valuation’ rather than ‘Value Creation for Customer’ in some cases gets particularly pronounced in the ‘portfolio’ treatment and approach followed by some PEs. However, it is an area of caution only. Airtel and Max are cases where PE support, without losing track of Customer Value Creation led to extremely positive results. Quick valuations and selling off of parts of organisations like cattle or treating multiple organisations as merely elements of a portfolio, can be obstacles in organisation building or in creating value for the customer or even for the owners ….. examples of this also are many. This can be dangerous at any stage in an organisation’s development, but sometimes quick valuations expected in early growth stage can ring a premature death knell for your business ….. delivering a ‘still born’.
I realised that :
- 1+1=2 is maths; can also be used by business accountants
- ‘Whole is greater than the Sum of Parts’ is sound business approach, philosophy, mindset
- ‘Sum of Parts is greater than the Whole’ is Value Destruction in the search for Valuation
QED
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