Loudthink® defines a transaction as the combining of customer requirements with resources to create a tangible product or service. In this equation, resources are fundamentally labor (i.e. time) but they also include raw materials, machinery and information. The output of one transaction is, of course, input for another. Both the customers and suppliers (of resources) may be internal or external to the company executing the transaction.
A transaction is the fundamental unit within a company. A company is defined by which transactions it executes and how it executes them. A company's knowledge is embodied in the systems of how it executes. Capability and therefore competitive advantage reside in those systems.
We want to think of each transaction as its own business for three reasons:
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By definition, a business requires entrepreneurial spirit. Entrepreneurial spirit is the creative force driving improvement and consequently success. | |
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Treated as their own businesses, transactions are more independent — and more directly part of the open market. This more immediate feedback compels efficiency. | |
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Stand-alone transactions mean greater modularity. This affords the overall organization more flexibility and more responsiveness in the face of market change. |
Having recast a transaction into a loud transaction ensures we treat the transaction as its own business. A transaction becomes a loud transaction when it includes the feedback mechanisms that foster entrepreneurial spirit. Loud transactions build in the impetus for continuous system improvement by including employee incentives, performance metrics and improvement procedures in the core definition of each.
Properly defined, a loud transaction:
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Links employee incentives to performance metrics | |
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Couples authority and responsibility at every level of management | |
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Forms a hot-swappable profit or cost center |
A loud transaction must uphold all these functions because in combination, they manifest entrepreneurialism and modularity. Entrepreneurialism spurs improvements. Modularity maintains the organizational flexibility required for lightning-quick adaptation to market changes.
Forming profit/cost centers around each transaction not only maintains organizational flexibility but also connects day-to-day tasks to the bottom line. Understanding this connection helps define how each task contributes to the bottom line, which in turn suggests performance metrics for the transaction. Understanding how each transaction contributes to the bottom line also facilitates higher-level decision-making — e.g. whether to spin off a unit as a subsidiary, whether to outsource a departmental service, etc.
Linking employee incentives to performance metrics ties everyone to the same agenda and aligns reward systems with the marketplace. Department personnel must carry the responsibility and have the authority to make improvements — as if department personnel were proprietors of their own company. Coupling authority with responsibility gives the department the self-determination sufficient to adapt and rapidly evolve — on its own — to meet market demands.
Transforming transactions into loud transactions rebuilds the company as entrepreneurial and modular. The transformation can take place incrementally because we are focusing on transactions, the fundamental unit of any company. In fact, the Loudthink® methodology is specifically designed for an incremental strategy. Thus the company becomes increasingly entrepreneurial and modularized — it becomes a network economy.
With such a structure and feedback mechanism in place, your company is properly positioned to:
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Maximize growth potential | |
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Minimize operating costs | |
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Sustain competitive advantage |