Octalysis for Business Strategy

Note: this is a side-post that utilizes the Octalysis framework to analyze a business. Click here to check out how it is applied to Gamification

Thinking through all the necessary elements of a business can be a complex and intimidating feat. Most people have no clue where to start, what questions to ask, how to structure things, and how to tackle the problems. Even when you have studied those frameworks, the 3C, 5C, 7S, Porter’s Five Forces, you still don’t really know what to do once you lay out the structure.

I found out that doing a small adoption of my Gamification Framework Octalysis, I created this business analysis system for high-growth companies, and I have found that it can be adapted to implement better analysis. The tool is called Octalysis for Business Strategy. It is an analysis system that divides a business into eight sectors: Finance, Customer/Client, Human Capital, Market, Competition, Resources, Technology and Operations.

1. Finance is pretty straight forward: profits, cash flow, pricing and the bunch.
2. Customer/Client is everything that deals with the customer, ranging from Marketing, Lead Generation, Lead Conversion, and Client Fulfillment.
3. Operations is everything behind the scenes, including logistics, manufacturing, and distribution.
4. Human Capital is everything dealing with the people, including the usual hiring and firing, compensation, management team, but also things like management strategy and culture.
5. Technology is divided into two fields: the technology of the product, and the IT systems of the company.
6. Market deals with issues like the economy, supply and demand, political stability etc.
7. Resources are the intangibles of the business: partnerships, intellectual properties, reputation and such.
8. Competition is what the competitors are doing and how to respond.

The key to Octalysis for Business Strategy is to analyze the branches separately, derive the strength and weaknesses onto the octagon, and visually see which part of the company should we work on. For instance, take VShirts, a fictional t-shirt company. After analyzing all the separate sectors, one can plot out the level of each sector on the octagon with a dot extending out from each sector. The 90-degree corners where two legs meet (trace the dotted lines) would be considered normal performance. If it is plotted under the dotted-line intersections, then the company is performing poorly on that sector; if it is plotted over the dotted-line intersections, then the company is performing strongly.

After we have plotted out all eight sectors, we connect the dots and see the company “shape” based on how strong they are at each sector. If the shape cuts into the original octagon, that means there are very weak points side-by-side, and it raises a red flag for improvement. For presentation sake, we can then add the strong and weak points onto each sector. Here is an Octalysis example of the company (click to see text clearly).

Note that the top sectors are the Active Sectors, as in you are able to change these things within a business. You can change your pricing, your marketing strategy, your operations, etc. The sectors on the bottom are the Passive Sectors, since the company cannot really change them. A company cannot change much of the market, their competitors, and can only change its intangible resources very slowly.

The sectors on the right are External Sectors: things dealing with the customer, the employees, the market, whereas the sectors on the left are Internal Sectors: things that deal with the operations, the technology, and the resources of a company. Understanding the nature of the sectors yields a great amount of information regarding a company. If a company is strong in the Passive Sectors – things they cannot change – but weak in the Active Sectors, this means that the industry and market is good, but the company is operating well and needs to improve. However, if the Passive Sectors are extremely weak, this means that factors that the company cannot change are doing poorly, and the company probably should not even be in that industry!

Similarly, if a company is strong in the External Sectors but weak on the Internal Sectors, that means the company is great with the people side of things -the customers, the employees, and the market- but weak on the operations, technology and systems aspect of the business. This is when they should consider upgrading their infrastructure, systems, or invite outside consultants to improve their operations. On the other hand, if a company is strong in the Internal Sectors but weak on the External ones, the company is probably filled with bright engineers, lots of money on infrastructure, great business systems, but lack the human touch of selling to customers with great service, creating a empowering culture where everyone wants to do the work, and too product-focused instead of market-focused.

Keep in mind that in case interviews for consulting firms, do NOT use the whole Octalysis structure as your framework. There are too many sectors to be covered in a 30 min interview, and the interviewer will be looking for very specific things. Rather, use Octalysis for Business Strategy as a guideline to derive your own framework. Use it to ask the right questions, jot down notes, and organize your thoughts. When you have finally laid down the framework and structure, it should just be the 3-5 essential factors of the case.

Now that you know the basic structure of Octalysis for Business Strategy, you are already ready to tackle some free thinking business cases. In later guides, I will go over the second and some third layers of Octalysis for Business Strategy, primarily digging into the eight sectors, benchmarking the strength and weaknesses, and utilizing a numeric rating system to help hone in on the sectors that a company should focus on. I hope you tremendous luck and ability in leveling up and growing in the path of the businessperson!

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4 thoughts on “Octalysis for Business Strategy”

  1. Haha, no I didn’t use it at a Bain engagement. I was just showing it to the Bain Manager who was getting his MBA at Anderson for some validation on my framework, since I was just a student, and it could be something that’s good in theory but worthless in the real business world. He like it a lot and said that a professor from Harvard developed a similar framework, so that’s pretty cool. Either way, it was not a formal engagement with Bain. Maybe some other day? 🙂

  2. That is awesome how you were able to use it at a top consulting firm like Bain. Have they started to apply the Octalysis approach with their clients or were you the only one? I would love to learn more later on!

  3. Hey Joseph,

    Thanks for the comment! I created the first level in a few hours while I was in my friend’s lecture. The second layer, in which you have yet to see, was fully developed a week after. I showed it to a Manager at Bain (top consulting firm) and he thought it was a really good system.

    As for applications, I used it on a whole lot of levels. I usually use Octalysis to structure my thoughts in terms of what to cover and do in the business, and I also ran a lot of meetings with this structure. I applied Octalysis to some clients when I was a consultant with The Veridical Group, and saved a dying webhosting company. However, I never had a chance to apply all three layers of Octalysis on a company because it is too intensive and would only be appropriate for huge corporations that have a lot of structure. As an entrepreneur, a lot of it is doing, doing, doing, instead of observing, analyzing, planning. 🙂

    Later on, I can teach you the entire set.

  4. Great post. I really appreciate your sharing Octaylsis. How long did it take you to create it? and have you applied this to the companies you have started recently as well such as FD?

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