When you’re running a company and attempting to develop new business models in order to innovate and ensure your organization takes off, you’ll find that defining mental models could play a key role in the success of your company. So what are mental models and how do they impact your bottom line?
Mental models are frameworks we use to understand societal rules, values, our education and experiences, and beliefs that impact how we organize data, according to an article from the publication Gotham Culture. Essentially, these models can help us better understand the world around us. Below are details about the importance of these models and how they relate to the business model.
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Why Mental Models are Important
Mental models are important to managers and executives because they impact how we understand information and how we will react to the information around us. Essentially, business leaders need to understand why they think a certain way and why they behave or react in a particular way in certain situations.
Along with impacting the outcome of leadership behavior and reasoning, mental models affect the outcomes and results of a company. This means the success of your business could be affected by a leader’s mental model. In addition, the wrong mental model could be an obstacle with regard to change in your organization.
Below we outline ways that incorporating the right mental models could impact your business model and improve how your company is run in order to enhance the results and success of your organization.
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How a Mental Model Affects Your Business
Business practices are based on common mental models related to competing and continually working to improve processes and capabilities in order to succeed as a company, according to author Greg Satell’s article in Inc.com. Making smart investments and developing strategies based on business intelligence is likely related to a leader’s mental model.
For example, many business leaders are focused on efficiency, which leads them to work on improving the efficiency of various processes at their organization. The mental model based on boosting efficiency often revolves around cutting costs at an organization as well as strengthening various operations especially in terms of manufacturing or product development. However, this can also relate to marketing and communications, sales, or accounting departments.
You can improve competitiveness by providing a better quality product or raise margins to lower prices over time. However, greater focus on efficiency could negatively impact adaptability, which will make your organization less productive, according to Inc.com. For example, in the world of retail, there are many companies that invest little in paying labor costs or providing training while increasing heavier workloads or schedules.
However, MIT’s Zeynep Ton found that investing more money in well-trained employees could actually boost sales at your company and reduce overall costs. Essentially, by developing a more dedicated and skillful workforce will lead to better efficiency, excellent customer service, and a decline in turnover.
If you are looking to cut costs, instead of reducing the workforce or wages, it is usually more useful to work with your staff and employees to seek out ways to reduce inefficiencies and wasteful spending.
This can help your business long-term and will ensure that your customers never find themselves lacking in customer service or other needs. This will keep your brand stronger without the negative effects of downsizing your staff.
If profits have dropped at your company or your cost efficiency has declined, it is vital to define the reason and diagnose the problem appropriately. It is vital to determine the right solution for such an issue. Your mental model needs to get to the root causes and determine why your profits may have declined. Find out whether cutting labor costs is really the best solution to the problem and create a list of all the potential solutions.
Instead of making decisions quickly, take time to pause and consider all of your options. Begin to test your assumptions or your mental models. Try to see things differently and also speak to others who have different opinions from yourself.
There are many ways that mental models will affect your business and how you run your company. There are also important methods you can follow to innovate when using mental models, which are detailed below.
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Using Mental Models to Innovate in the Workforce
According to an article in Forbes, having a more level playing field between managers, executives, and employees could lead to greater success at a company. Employees should be encouraged to provide more input and suggestions in order to boost the profits of a company.
Seek input from all in terms of ways to improve efficiency. In addition, workers should be responsible for creating a business plan when spending any money such as return-on-investment calculations.
Another interesting mental model to include is one involving the 80-20 percent time rule. Using this model, workers are expected to follow conventional management methods and traditional leadership criteria 80 percent of the time. In addition, 20 percent of the company’s activities will be exempt from more traditional methods and employees will be able to innovate, become more inventive, and essentially experiment with management processes.
By allowing employees to be more innovative and pursue their passions, a company can see more success and potentially greater profit down the line. This type of process has been useful for major corporations like Google.
In addition, the 80-20 percent time rule may generate some more innovation, but a company like Google, which follows this principle, has still been unable to show any significant ability to disrupt itself, which is “the most important test of innovative capacity,” according to Forbes.
Another smart mental model that may help a company grow is to align themselves continuously with boosting innovation and finding ways to keep customers coming back. For example, Apple and its iPhone products continuously seeks ways to create a more advanced version of the smartphone such as better camera phones and larger screens.
By continually improving innovation, a company will gain greater success and keep customers coming back for new and improved products year after year. This will keep their profits high and their shareholders satisfied.
Instead of spending 20 percent of time innovating, companies like Amazon and Apple are spending their entire time – 100 percent – focusing on innovation. Experimentation and consistent innovation becomes a key aspect of this type of company’s culture. In addition, this type of company culture can bring the business more money. While making money may not be the end goal, it is necessary to keep a company afloat over the years.
“We owe our existence to innovation,” Gary Hamel wrote in the book What Matters Now. “We owe our prosperity to innovation… We owe our happiness to innovation… We owe our future to innovation… Innovation isn’t a fad—it’s the real deal, the only deal. Our future no less than our past depends on innovation.”
The biggest thing that a company can do to fail is to follow a “business as usual” mentality. This essentially includes using predictable management processes developed centuries ago following basic forms of discipline. The bigger failures among companies have occurred when managers were following the typical traditional management principles and using a “business as usual” mentality.
Essentially, this means that it is vital for a company to avoid the mental models of following solely traditional management methodology and instead implement more innovative models that aim to disrupt typical business processes and boost experimentation. This could lead to greater success and potentially higher profit for your company.
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How the Right Technology Could Help Your Company Follow Business Models
When you’re seeking to follow specific mental models such as the 80-20 percent time rule, you will find that having the right technology could be very helpful. Project management software such as the Runrun.it system can assist your time tracking in order to ensure your staff is experimenting in about 20 percent of their activities.
Your team members will more easily meet deadlines and benefit from the automated timesheet production from Runrun.it software. Additionally, new software technology can help you better manage your team when you’re attempting to innovate and continually improve your work processes.
When planning and working on new projects, Runrun.it provides the dashboards and workflow management system to help your company improve efficiency. You’ll be able to more quickly and easily communicate with your team members by utilizing this type of project management program. This software management system can become a necessary part of running your company. sign up and start your free trial here.
