The SET Model helps to identify much more than just strategic ressoruce allocation. We show what it means and why you should look at these numbers closely.
When it comes to strategic planning, we see a lot of different tools being used. We have the core strategy elements in place, we brainstorm about new ideas, we talk to customers and we try our best to predict the future as well as possible. There are many ways how companies analyze their current status quo and also plan for the future.
But what if I tell you that there are 3 important numbers, that tell a lot about the future-readiness of your company? What if I told you that you have probably never even thought of these numbers?
The SET-Model can help to identify if the resource allocation for the strategy is working out. This is a combination of 3 different numbers that tell how much you are investing into operations, expansion, and transformation of your business.
The SET-Model explained
When we are talking about the analytics of companies but also planning strategic resources, we have to differentiate between 3 different kinds of strategic investments – Survive, Expand and Transform.
BUT: No magically fixed number works for every company. Depending on industry, company size, stage of the company, and also region it can vary a lot.
Survive is simplified just everything you do to keep your business running. It involves everything from operations, services, production, administration, etc. and the goal of it is to keep the company alive and pay for all recurring costs.
The strategic objective should be to improve operational success, reduce costs of running the business but also improve the quality of offerings, services, and customer satisfaction.
Goals of “Survive”
- Reduce costs
- Improve quality
- Improve customer satisfaction
- Increase efficiency & price-performance ratios
Expand is about the incremental innovation of existing products, processes, services, and more. This involves the preparation of the company to be more flexible, to innovate, and also to be able to perform new offerings like customization, personal offerings to better meet customers’ expectations. Typical areas also involve expanding existing products with new features, apps, software offerings, and much more.
The second area is the expansion of the market. This can involve selling to new customer groups, marketing it more but also expanding geographically to sell in new markets.
Incremental Innovation &
Scaling geographically and in volume
Goals of “Expand”
- (Incremental) Innovation of existing products, services, processes, etc.
- Expanding current service offerings or features
- Expanding to new customers
- Expanding to new markets
- Improve flexibility
Transform is the most important but mostly overlooked factor for a company. This is the investment the company makes to create radical innovations to their products, services, processes, business models but also to customers and market outreach.
One could also think of an “outside-the-box thinking” budget where it is solely about trying out and being creative. For example, Google encourages every employee with their “20-Percent Rule” to take 20% of the time to work on any project they think to benefit Google the most, no matter what kind of topic or idea they have.
For this to happen decision-makers must embrace the uncertainty and complexity involved in this. Without the necessary positive error culture, this can quickly lead to problems within the company.
Radical Innovation &
Efficient commercialization of new ideas
Goals of “Transform”
- Radical innovation of products, services, business models, processes
- Radical new strategies for new markets or customers
- Fast and efficient commercialization of new ideas
What is “the Resources” in the SET Model?
We are looking at the Survive/Expand/Transform model from a variety of resource allocations. But in general, it involves every resource within a company which would also include the following.
- Workhours from Employees
- Budget allocations
- Management Attention
- Sales & Marketing
Of course, the list is not representing all possible resources that can be put into projects. The most important part is the resource allocation for “Transform” as this is the part with the highest uncertainty, no predictability, and high potential. Don’t put unnecessary KPIs on this field, otherwise, the KPI-focus will distract from the real goals as you can not measure when you don’t know what will come in the future.
The best SET-Resource allocation
What is the right strategic resource allocation? – In short: There is no golden rule!
Google’s goal is to allocate 60% towards keeping the business running, 20% towards improving and expanding, and 20% for radically new ideas. This 60/20/20 rule might not be true for every company. For other industries, it might be that a 92/5/3 allocation is looking good as well.
Typically, with a different analysis, you usually see that very mature and old industries have a very low proportion of their strategic resources aligned towards radical innovation. For some industries like finance, banking, insurance, automotive, etc. the percentages allocated towards “Transform” are sometimes even less than 1%.
When analyzing a company this simple measurement of splitting the strategic resources into these 3 factors “Survive, Expand and Transform” can help to identify the future readiness of a company. Because it gives a good estimate on how much of the resources are being used to become more flexible and agile but also a driving force within the industry.
Companies with low Expand and Transform values are more prone to be laggards in the market and need to follow the leaders. This puts them at a strategic disadvantage which can ultimately lead to failure in the market.
Embracing uncertainty & Corporate Culture
Complex projects, uncertain costs, uncertain outcomes, and also lots of variables and unknowns. That is typically the reality when projects in the “Transform” area are put forward. Most of the time the outcomes are not predictable and within the process, the organization or the team involves the need to first learn how to tackle upcoming problems.
This is why there is a need for the right corporate culture that helps to react to uncertainty. Within “Survive” and “Expand” the uncertainty and complexity are low to medium. That means that companies don’t have to react to changing environments often and the results are reproducible.
Looking from a different perspective, we can even make assumptions about the status of the corporate culture when the strategic investment is mainly in “Survive” and “Expand” but almost nothing within “Transform”. This means that the company might be stuck in its current status quo and that changes in the market may affect them more than others.
Conclusion on the SET-model
While it is common to use many different financial measures to ensure strategic planning. This is a simple model that can quickly help to identify big problems within the company. It is best to have a regular checkup on where the strategic investment is being allocated and if enough is being invested into making the company future-proof.
While there is no golden rule for the “right” allocation of resources between Survive/Expand/Transform, it is important to understand the power of these 3 numbers. It is important to get a feeling for the industry and also to be clear about one question “Do we want to be leaders in our industry or followers”.
Depending on how your strategy looks the resource allocation might change, but analyzing these 3 numbers can help you big times.