Scalable business models - how to use them for business growth

Nowadays, companies are more than ever before forced to change their business models - for example, switching the entire business to a remote work model or redistributing resources or developing new digital services to adapt to the business situation or meet the changing demands of the market and customers. Changing the business model is very demanding and it is even more challenging to implement it as quickly as possible.

The key question is how to speed up the adaptation and overcome the obstacles that hinder it, such as organization, culture, technology, or lack of personnel in today's VUCA world.

Scalability and growth

In business, with scalability, an increase in income is achieved without creating significant additional costs. The concept of scalability is mostly associated with IT companies. For example, Google is one of the best examples of a company that has successfully scaled to increase customers and revenue with minimal cost increases.

In contrast to scaling, company growth refers to a situation where an increase in revenue also increases costs because additional resources are committed. For example, a company received a new project, but in order to implement it, it hires additional employees. The company generates significant income, but with an increase in costs. An example of a company that applies the principle of growth rather than scaling is Uber.

In short, growth means increasing revenue at the same rate you add resources, whereas scaling means increasing revenue at a much higher rate than the rate of cost growth.

Scalability allows a company to grow and generate revenue without being constrained by its organization, structure or lack of resources and is more adaptable to the changing needs or demands of its clients.

Organization and scalability

Successful companies are built on the foundations of excellent business culture, efficient organization, and quality technology. For a company to scale successfully, all these parts of the company must grow and scale with it – technology, organization and culture.

However, although it is a widely and often used term, not all companies have the same scalable potential, i.e., the ability to grow - whether in a system, product/service, or project.

According to 'Scale up' by V. Harnish, there are several barriers that inhibit scaling:

• Insufficient number of leaders who have adequate motivation and competence

• Lack of systems and structures (physical and organizational) to address communication and decision-making challenges that come with growth and change • Suboptimal inclusion of new key collaborators, such as new clients or new employees and experts

In order to overcome these obstacles, it is necessary to focus on four areas:

• Leadership – define the values ​​that are key for the company, make all decisions according to them, define processes and relationships and implement them consistently

• Strategy - when making a strategy, it is good to be guided by the words of Gary Hamel: "You don't have a real strategy if it doesn't pass two tests: First, what you plan to do is really important to enough customers; and secondly, it differentiates you from the competition.

• Execution - here it is important to set priorities, monitor execution by collecting quantitative and qualitative data, regularly review decisions

• Cash flow – monitor how each decision affects cash flows

Scalability and agility

A subset of scalability is agility - the ability to quickly adapt and be able to take advantage of new technologies and trends. Forbes called agility "the new currency of growth", equating it in importance with innovation.

Why is the agile way of working becoming the dominant way of doing business? The reason is not that it is necessarily the best way, but practice has shown that agility, with its emphasis on rapid learning and experimentation, is more suitable for today's unpredictable business environment. Agile means that you embrace the idea of ​​'not knowing what you don't know'.

The situation in IT is particularly challenging, especially having in mind the global shortage of IT personnel. On the one hand, 'No Code' and 'Low Code' technologies are starting to provide solutions that help developers be more productive and allow more people to be involved in software development. Another option is to hire external experts, according to the Team Extension model offered by Serengeti. At the beginning of the cooperation, it includes how the ambassador leads and he establishes communication, acquires the necessary knowledge about the company and the system that is being worked on. After this first phase comes the transition phase, in which additional resources are included, productivity and capacity are increased, and after that phase, it is completely ready to adapt to the client's needs in terms of size, flexibility, and reliability. In this way, the client can scale his team with very little risk.

In general, we can say that almost all activities that are recommended for successful team scaling are based on open communication. The teams themselves are organized so that they grow and learn organically, and ultimately contribute to a productive scaling process from within, within the same company. The key idea is to change the organization focused on individual functions (function-based) towards an organization that is structured so that teams are multidisciplinary and can independently support a specific user process from beginning to end.

Scalable development practices

Almost every successful business needs scalable software. It doesn't matter if you run a small business or a global company, your software must keep up with market demands. A scalable IT system is a system that runs smoothly regardless of whether it handles a large or small amount of traffic, users, and data. Likewise, a scalable system enables easy introduction of new functionalities and changes in user requirements.

According to the definition: Scalability is a desirable property of a system, network, or process, which shows its ability to react and adapt without loss of quality, or to manage continuous growth of work fluidly, to be ready for greater growth without loss of quality in the services offered.
(https://hr.admininfo.info/arquitectura-web-escalable)

Scalability is usually broken down into three areas:

• Availability: The system should be available for use as much as possible (ideally, always). Uptime percentage has the most immediate effect on user experience. After all, it doesn't matter how useful an app is if no one can access it.

• Performance: The system must maintain a high level of performance even under heavy loads. Speed ​​is key to providing a good user experience.

• Reliability: The system must accurately store, retrieve and edit data even under load. Unlike availability and performance, reliability affects a good user experience in the long run.

What we can see from the examples of successful companies is that the key to developing scalable software is to set up the architecture of scalable, high-quality, resilient software systems.
However, it is almost equally important:

• to organize engineering teams focused on innovation and speed

• to maintain a culture of learning and risk-taking

• to attract and retain excellent engineering talent

• to apply, but also develop and maintain effective engineering processes and methodologies

As for the very principles of the development of scalable systems, they should have a modular architecture, and support communication based on events (event-driven). In addition to the above, quality and reliability, as well as the principle of continuous delivery, are extremely important.

The system architecture should be adapted to the problem being solved. For example, the transition from monoliths to microservices will be implemented only when necessary. Microservices are not a solution for all situations. And last but not least, managers should focus on solving the obstacles that the team encounters, and enable them to be as productive as possible.

Scalability: culture, decision-making, knowledge

All of the above is possible only if the company encourages employees to continuously increase their knowledge, competencies, and innovations. This principle includes concepts such as learning organization, a culture of innovation, and continuous improvement. When everyone in the organization is continuously improving, it fosters the company's ability to dynamically transform as needed to anticipate and seize opportunities that create a competitive advantage. In this way, the intrinsic motivation of people is also encouraged. In such a situation, it is important to empower associates so that they are confident that they can take the initiative without fear of negative consequences.

Therefore, adaptation requires resources and a different organization - both for planning and implementing changes, and the key is open communication in all steps, a focus on value for the client, and organization into smaller multifunctional teams that have responsibility for the part of the system they are building. There are no silos and vertical divisions according to technologies, but teams are formed multifunctionally, closely cooperating, and focused on common goals. The development process itself is organized in this way so that functionalities are delivered to clients as soon as possible and are upgraded incrementally until the entire system is built. Then these teams are scaled using one of the framework methodologies such as SAFe or other.

Leaders are most responsible for creating an environment that strives for continuous improvement and that enables scaling. The most important thing is that they serve as examples ('Leading by Example'), whereby they should encourage and help colleagues to assume increasing levels of responsibility and make decisions themselves to achieve one of the key characteristics of scalable organizations, which is the decentralization of decision-making.

The principle that should be followed is that managers make decisions that are not made often and are not urgent, then decisions that have a long-term impact, and decisions that have a significant economic impact. All other decisions, such as daily routines, or urgent ones whose delay would cause large costs, are delegated to those who are closest to the place where the decision needs to be made.

In addition, agile managers are directly involved in projects regardless of their hierarchy in the company and thus encourage behaviors that discourage closure in 'silos'. They also create an environment that supports creative thinking and curiosity, and challenges the status quo in employees.

Scalability - disadvantages

Because a scalable business model offers many advantages, its disadvantages, which also exist, are often overlooked. For example, as a company grows rapidly, its customers often feel a decrease in the quality of their user experience. Industries that use scalable business models are prone to increased market competition, which often leads to lower prices and ultimately reduced profitability.

Although scalability is positive, it is not good when the entire business is focused only on it. Scalability should be the result of a successful business model, not an end in itself.

Conclusion

Building a scalable organization is not easy and it never really ends. The core elements of this way of working are continuous anticipation of competitive threats, a focus on whole-system optimization, fostering a culture of problem-solving, and improvement based on facts, not assumptions.

It is certainly necessary to regularly monitor the results of changes, evaluate the success, and adjust the next steps accordingly, which will ensure the best possible business results.

Practice shows that a scalable business model provides companies with many advantages - it can be said that this business model enables the stability and competitiveness of the company at the same time.