Outside In design

I spend time in several Business Process groups on LinkedIn and one of the terms I keep seeing is “Outside In”.  I keep seeing people using that phrase as if they just had an epiphany or that they just came over the ridge and have seen the promised land.  What I don’t understand, or what surprises me, is that it seems to be a new thing to experienced people.  “top down, outside in” is how everything should be designed.  How do you go about designing something where you have not established its purpose?  How do you design something if you don’t create specifications (performance requirements)?  Outside In is common sense and I don’t see why it is getting so much play.

So I responded to a discussion and wrote the following: 

‘Outside In’ is about Context.  Understanding Context is critical in every line of thought – not just BP design.

In order to understand the purpose of an activity you have to understand it in the context of the process in which it exists.  Processes are a collection of activities.  Evaluating an activity on its own has some merit but to fully understand the activity one must understand it within the context of the process in which it exists.

Seeing an activity on its own will not provide you with an understanding of how it fits into the whole.  Every activity has a cost associated with it and should also have a value associated with it (non-value added activity?).  The activity receives its performance requirements from the next level up – the process.

In order to understand the purpose of a process you have to understand it in the context of the system in which it exists.  Systems are a collection of processes (Senge – Fifth Discipline).  Every process has a cost associated with it and its corresponding value.  The process receives its performance requirements from the next level up – the system. 

 Every business has a number of systems which support it and to understand the performance requirements of those systems you have to view them in the context of the overall business.  The system receives its performance requirements from the next level up – the business. 

 And there is where some companies have stopped their thinking.  They view their systems, processes and activities only in the context of the business itself.  They are operating in a vacuum and use performance indicators focused within their four walls.

 However those businesses need to go the next level up – the competitive environment.  They need to add another layer of context.  The business operates within the context of the competitive environment.  If a business does not factor the competitive environment into their performance requirements it will be flying in the dark.  And the likelihood it is going to hit the mark (from the competitive environment’s perspective) is slim to none. 

Hence the need for Outside In design.  While one can look at performance from the ground up (activity to process to system to business) the requirements come in the opposite direction.  One needs to understand the competitive environment first.  One has to know what the outside (competitive environment) is requiring to know the minimum performance requirements for the business and then it cascades all the way down to activities and individual employees.

And the competitive environment is not defined solely by the expectations of the customer.

What happens if your company slightly exceeds customer expectations but there are competitors offering even more?  In that situation you will most likely lose market share.  Remember, your investors are not the only ones looking for a Return on Investment.  So are the customers.  Customers want to get the most for their money (the greatest return on their investment) and if your competitors are offering more than you then you need to adjust your performance requirements.  You need to be offering a compelling Value Proposition to the market and if you don’t understand what the customers want and what your competitors are offering then you will most likely fail.

Companies don’t get to decide what the performance requirements are for products and services.  Customers do.

That is one perspective on Outside In design.  Where does your understanding differ from mine?