COMMON DESCRIPTION
The common description of an Entrepreneurial Operating System (EOS) is that it is a “framework designed to help entrepreneurs accomplish their goals; it utilizes tools and tactics to keep a company and everyone in it on the right path.” I embellish that description by saying that EOS is a tool that can be used for two purposes: (1) to create a framework for business success, and (2) to assess the efficacy of business execution. It is not just a tool for entrepreneurs.
EOS is more than a conceptual model; it is action-oriented. It can be applied to start-up, early-stage, and mature companies, regardless of size. It taps the theories of a variety of classic business optimization books like Traction,Good to Great,Scaling Up, andThe Five Dysfunctions of a Team. EOS enables leaders to map out a sound business approach, execute that approach, assess the efficacy of the approach, and make improvements along the way.
Oftentimes, EOS is described with six (6) elements: Vision, People, Data, Issues, Process, and Traction, in that order. I prefer to repackage those elements as I will explain later in this article. Here are the common descriptions of the EOS elements:
·Vision: Set a direction for the business and get everyone aligned with that direction.
·People: Determine the structure of the business, select the right talent, and ensure that the talent is in the right seats on the bus.
·Data: Select the right metrics for the business, document those metrics on a scorecard, and ensure that everyone is aligned with those metrics.
·Issues: Have effective problem-solving and conflict resolution, stressing the concepts of identify, discuss, and resolve.
·Process: Put in-place processes necessary for effective business decision-making and operations execution.
·Traction: Conduct regular team meetings to assess the progress of the other five EOS elements and ensure that everyone is focused on what is important.
MY TAILORED DESCRIPTION
I prefer to place the EOS elements into two categories: Business Design and Execution + Business Assessment. I consolidate the elements into five instead of six:
·Business Design and Execution
oVision
oPeople
oProcess/Issues
oData
·Business Assessment
oTraction
I define each of the EOS elements as follows:
EOS Element #1: Vision
Set a clear direction or vision for the business (i.e., Where are we going?). But I go further.
Clearly define the nature of the business, including product(s)/service(s) and the value proposition(s) (i.e., What do we do?).
Clearly define the mission or purpose of the business (i.e., Why do we exists?).
Identify the governing principles or core values to drive the organizational culture (i.e., Who are we?). And tie this element to EOS Element #3, addressing Process/Issues.
Ensure that vision, business description, mission, and core values are broadly and consistently communicated using all company communication vehicles (i.e., website, townhall meetings, newsletters, staff meetings, etc.). Do not assume that everyone understands. Communicate, check for understanding, and communicate again.
EOS Element #2: People
Determine the structure of the business, select the right talent, and ensure that the talent is in the right seats on the bus. This includes continually updating the organization charts.
Ensure that the right roles and responsibilities are decided and documented on updated job descriptions.
Select appropriate competencies (i.e., knowledge, skills, abilities, and characteristics), and do so either for every level and every functional area in the organization, or, at minimum, for leaders and non-leaders. This will undergird job performance management, allowing a clean assessment of the “what” (i.e., projects/tasks) and “how” (i.e., competencies) of job performance. Conduct job performance reviews (JPRs) at least bi-annually, which is also a critical component of EOS Element #3, addressing Process/Issues.
Design and implement the right compensation and benefit programs to effectively attract, motivate, and retain the right employees.
Ensure that there is a properly staffed, structured, and supported HR function to help business operators leverage human capital to drive organizational productivity, revenue, profitability, and growth.
Maintain a balance between people and fiscal and operational interests. Unless the organization is driven primarily by A.I., people are core assets. Taking care of people and doing what’s right for the business are complementary imperatives. Leverage the knowledge and skill of HR professionals to be business partners for every stage of the employment life cycle – from recruiting and onboarding to organizational structuring to M&As to termination. And enable HR to have solid employment and labor law partners, both in-house and outside legal counsel.
Finally, ensure that, beyond employees, there is the right talent selected as business partners and vendors, and that there is proper alignment between those stakeholders and the business. Ensure proper alignment with customers, board of directors, and other company stakeholders as well.
EOS Element #3: Process/Issues
Under this EOS element, people strategy meets business strategy (i.e., EOS Element #2 meets EOS Element #3).
Implement processes necessary for effective business decision-making and execution. This includes having effective problem-solving and conflict resolution, stressing the concepts of identify, discuss, and resolve – buttressed by identifying the issue(s), pertinent facts, and solution options, along with selecting what appears to be the best solution option, ensuring alignment amongst the relevant parties, selecting the right milestones to assess progress, making necessary course corrections, and ensuring accountability for results.
This EOS element also includes:
·Establish clear business strategy (i.e., goals and objectives)
·Establish business plans and foster operational execution aligned with the business strategy across all functional areas (i.e., R&D, production, supply chain, sales, marketing, IT, HR, accounting, finance, legal, procurement, government relations, community affairs, DEI/CSR/ESG, investor relations, etc.).
·Thoroughly identify the business risks and mitigate those risks as much as possible.
·Regularly communicate the business strategy, including the goals andobjectives, and ensure that appropriate implementation plans are executed across the organization to achieve the goals and objectives. Share business results not only with external stakeholders but employees as well. Ensure employee alignment.
·Ensure that business functions and business units continue to evolve and not hinder cross-functional and enterprises-wide synergy. Apply appropriate change management tactics to drive organizational evolution. Restructure, as appropriate, to optimize information sharing and decision-making. Leverage technology to support processes, productivity, and data analytics and reporting.
·Sustain leadership visibility, accessibility, integrity, and trust. Ensure that people managers receive appropriate education and training on how to lead, manage, and team. Hire employees at every level with high IQ and EQ. Require #civiltreatment across the organization and throughout the entire employment life cycle – from recruiting to termination. Leverage the value of diversity with equity and inclusion, not just for matters related to the workforce and workplace, but for customers, communities, and suppliers as well. Leverage the full toolbox of employee engagement drivers – from onboarding to professional development and career growth to retention.
·Establish appropriate metrics/KPIs. See additional thoughts for this under EOS Element #4.
·Ensure that a credible job performance review (JPR) process exists and is directly correlated with compensation, benefits, and career advancement. Foster accountability for results. Create a pay-for-performance, not a pay-for-participation, organizational culture.
EOS Element #4: Data
I once read, “One of the best ways to gauge the health of a business is by looking at data. A business has to choose the right metrics to measure, as well as ensure they can’t be open to interpretation from individual team members. Maintaining objective measurement keeps everyone’s attention on what can be changed or improved.” I agree. And as stated above under EOS Element #3, it is important to establish appropriate metrics/KPIs – both qualitative and qualitative – at every level and in every segment of the organization. Bubble-up the most important company-wide metrics/KPIs to be regularly documented and tracked on a Company Scorecard.
Look beyond the top-line financials. Remember COGS, OpEx, and CapEx to the finest details. Show strong retention of existing customers (beyond attracting new customers); positive total net assets; assets that provide value now; healthy receivables (i.e., A/Rs as well as A/Ps); low debt-to-equity ratio; positive working capital ratio (i.e., current ratio = current assets/current liabilities); strong short-term investments; optimized cash flow; and a strong cash reserve. And ensure that every level of the organization understands the company financials so employees maintain realistic expectations about what are and are not sustainable organizational expenses.
EOS Element #5: Traction
I am fond of saying what gets led, measured, and rewarded or penalized in business gets done. This EOS element brings that statement to life.
Oftentimes, business leaders conduct SWOT analyses to assess the health of the company. When an EOS model is in-place, an assessment of the design and execution the EOS model can precede a SWOT analyses, if the SWOT analyses is even necessary at all. Yes, this EOS Element #5 includes conducting regular team meetings to assess the progress of the other four EOS elements and ensure that everyone is focused on what is important.
CONCLUSION
Successfully developing and operating a business is hard. An EOS model is a tool that can help by (1) creating a framework for business success and (2) assessing the efficacy of business execution.
As you can see, EOS is a valuable business tool not just for entrepreneurs. And it helps to integrate people strategy and business strategy – which is critical for me as an HR-geek. (smile)
Several of us are aware of friends and colleagues who are writing investor pitch decks. The EOS model can be used to guide that task as well, just supplemented with market data and the investment ask.
What are your thoughts?
Respectfully, Darryl
