Designing for Industrial Scale
Why Business Systems Matter
“Everybody talks about change. In recent years, a small industry of change-meisters has preached revolution, reinvention, quantum change, breakthrough thinking, audacious goals, learning organizations, and the like. We’re not necessarily debunking this stuff. But unless you translate big thoughts into concrete steps for action, they’re pointless. Without execution, breakthrough thinking breaks down, learning adds no value, people don’t meet their stretch goals, and the revolution stops dead in its tracks. What you get is change for the worse, because failure drains the energy from your organization. Repeated failure destroys it.”
“People think of execution as the tactical side of business, something leaders delegate while they focus on the perceived “bigger” issues. This idea is completely wrong. Execution is not just tactics—it is a discipline and a system. It has to be built into a company’s strategy, its goals, and its culture. And the leader of the organization must be deeply engaged in it.”
- Larry Bossidy, Former CEO of AlliedSignal (Honeywell)
The established venture capital rubric on scaling and selling technology companies – designed and perfected in Silicon Valley – works well for software businesses shaping entirely new markets.
Transforming legacy industries with physical technology is an execution problem distinct in its difficulty. The skill sets, capital strategies, organizational structures, feedback loops, and cultural orientation required to develop and deploy complex industrial-grade systems represent a fundamental departure from the “shared playbooks” used to build enterprise software and consumer internet companies over the past 20 years.
The world of infrastructure has its own playbook, which it has executed to great success over the last decade. In this world, hardware reigns supreme. The challenge of putting steel in the ground is respected. Project development and execution capacity are valued far higher than novelty, IP, and ambitious vision. Operational excellence creates a competitive edge, not technology.
On the surface, these statements may seem obvious, but the imperative to recognize and solve for the gap between these two worlds is coming into clear view. As software tailwinds vanish, incumbents look poised to dominate the AI boom, and the geopolitical landscape continues to harden, early-stage risk capital is shifting away from the Big Tech kill zones and towards physical world opportunities – decarbonization, reindustrialization, and resilience.
At the same time, macro headwinds and massive competition – spurred by the same megatrends that are driving shifts in VC attention – are motivating infrastructure funds to move down the capital stack in search of emerging categories they hope will one day scale to the heights of wind and solar.
Bridging the gap between these two worlds – the venture market dreamers and the infrastructure realists – through capital, information, and on-the-ground commercialization expertise represents one of the most substantial investment opportunities of the next several decades.
This memo, the first of several focused on exploring how to bring these worlds closer together, addresses industrial business systems and the importance of designing for scale (from the early days) as an emerging industrial technology company.
Speed, Scale, and Systems
Transforming the global industrial economy hinges on the speed and efficiency with which each emerging company achieves scale. This time pressure is particularly salient in Europe where every additional day of productivity stagnation, energy dependence, and resource scarcity forces increasingly unpleasant societal trade-offs.
Without sustainable, large-scale commercial processes to access essential materials, Europe remains reliant on fragile supply chains that exploit human and environmental resources.
Without advanced domestic production capacity and technological capabilities, Europe is forced into the diminished geopolitical role of “regulatory superpower”.
Without radical reinvention of the pathways for capital formation, talent deployment, and value creation the scientific and technological progress being made in labs and by startups will fail to reach full potential, contributing to economic decline and a lower standard of living.
Heightened ambition and bigger visions, from founders and financiers, are necessary but insufficient for companies to bridge the gap from promise to productivity.
For emerging industrial technology companies to move from technology development to deployment, a new playbook is required – a framework for driving alignment inside young but complex organizations and developing mechanisms to drive continuous improvement.
Durable industrial success requires an actionable, adaptable system for execution, baked into the culture, that focuses an organization and strikes the right balance between innovation and execution.
Playing the Right Game: The Role of Business Systems
“In our strategic planning, we come back to two questions. “What game are we trying to play? How are we going to win within that space?” Everyone is expected to be able to answer those two questions in relatively simple terms.”
- Steve Simms, Former Executive VP, Danaher
Several years ago, I wrote about the concept of a Business Equation – a simplified set of factors used to guide day-to-day decision-making inside a company. An effective Business Equation meets three criteria:
It focuses on isolating controllable high-leverage inputs
It is deeply tied to value delivery to the customer
It maps directly to a company's accumulating advantage
The best founders and executives walk around with their company’s Business Equation and relationships between all of the key variables in their heads.
A Business System extends this concept to the broader organization, disseminating it throughout all levels of the company. It ensures that every function and every team member has their own map for how action ties to value. It provides a clear direction and a set of guiding principles that help the organization maintain coherence and alignment amidst the chaos of growth and change.
Business Systems are at the heart of nearly every industrial success story, new and old. From Alfred Sloan's General Motors in the 1920s ("coordinated in policy and decentralized in administration") to the Kaizen-inspired Danaher Business System (an evolution of the Toyota Production System) to the scaling formula employed by Sweden’s H2 Green Steel, companies use Business Systems as a mechanism to focus on what matters most – namely, the actions (inputs) that uniquely enable them to deliver differentiated value to customers and create a compounding advantage:
Speed is an important part of our strategy and our success. We must be able to keep up this momentum and reuse our knowledge. It’s like building a factory as a product, while mastering the running of big projects in parallel—with maybe 5,000 people involved in each project at multiple sites around the world. We need to listen to our customers. They might say, ”It’s great that you’ve given us a supply chain in Europe, but we happen to be a global car manufacturer with factories all over the world; we need you to follow us.”
Our Boden project is an example of how scaling works in reality—it took us four months to complete with roughly 40 people working full-time. When we did the same work for our next site in Portugal, it took us four weeks with five people. That shows the kind of scalability that is possible. Incumbent companies doing big industrial transformations achieve a product like this maybe every 15 to 20 years; we aim to do one every year. This level of scaling is a core competence that will enable us to roll this out.
- Henrik Henriksson, CEO H2 Green Steel
In the transition from early-stage technology company to infrastructure-grade platform, focus drift away from this core equation can be a catastrophic trap, with consequences that reverberate throughout the company lifecycle. This makes the design and implementation of an effective Business System just as relevant to emerging industrial technology companies as it is to incumbents.
For technical founders transitioning their companies from development to deployment, there often remains a tendency to focus on cultivating the innovation engine (what they know) at the expense of building the industrialization muscle (which falls outside their comfort zone). This results in delayed investments in developing the capital network, talent pipelines, operational structures, and commercial models needed to achieve infrastructure readiness and industrial scale.
What the market has chalked up to a capital gap is, more accurately, an execution and maturity gap exacerbated by a cultural gap.
Business Systems can play a pivotal role in helping companies close this gap.
Recognizing this sets the context for the next phase of our discussion: designing effective Business Systems. This entails not just the creation of a blueprint to operationalize a company’s Business Equation but also adapting and evolving this system to meet the dynamic challenges of scale and competition.
Designing for Industrial Scale
To reiterate, designing an authentic, sustainable Business System as an emerging industrial technology company is an exercise in focusing everyone in the organization on playing the right game, day in and day out. This serves as the foundation for understanding “what great looks like” on the path to winning and helps prioritize (and cultivate) the set of capabilities needed to unlock long-term, efficient growth from navigating regulatory complexity to hiring non-technical talent to building a project platform).
Organizational Alignment → What is the optimal commercialization model for scale and how can we align the entire organization around that approach?
Respect for the Challenge → How can we build and sustain a culture that effectively balances innovation with project and operational excellence?
Self-Awareness → Where are there gaps in our cultural and operational competencies concerning that model for scale? How can we systematically engage the resources needed to close those gaps and develop a “scale-ready” organization?
Borrowing from Danaher’s “common sense vigorously applied” mantra, this approach and set of principles are intended to be highly adaptable and dynamic, providing a high-level framework that can be shaped to the specific needs of each company and can evolve across a company's lifecycle.
1. Organizational Alignment
Emerging industrial businesses are not monoliths. Each company comes to the table with different technological and project-level competencies, operates in a different value chain, and possesses different ambitions for what the team aims to achieve over the long term.
Emulating another company’s system whole cloth – or taking a one-size-fits-all approach – is just as detrimental as not developing a system in the first place.
Boeing’s adoption and adherence to a Jack Welch GE-style system played a central role in shifting the company’s cultural center of gravity from engineering to finance and sales, unraveling one of the 20th century’s greatest techno-industrial success stories. Even the company’s slogan represented this shift in priorities – “working together," became "more for less."
Ingersoll Rand executive Mike Weatherred calls this copy/paste model a “movie set”, i.e. not the real thing.
A more dynamic, authentic approach creates a compass for navigating complexity. This starts with building alignment on what the path to scale looks like for each company (given the unique situation each comes to the table with) and working backward to align on an ideal commercialization model.
This alignment-finding exercise, aimed at understanding what game a company is playing, establishes a foundation for prioritizing strengths to build on and critical gaps in cultural and operational capabilities.
2. Respect for the Challenge
Navigating talent constraints, regulatory barriers, supply chain disruptions, and complex engineering demands is a heavy lift even for experienced operators. Late and over-budget capital projects are par for the course across essentially every infrastructure and industrial project segment.
Addressing the scope of this challenge requires a business within a business approach to commercialization. To paraphrase Elon Musk, the factory is the ultimate product.
“That collaboration pushes us from day one to design products that are not only high performance but are really easy to assemble. We have small and highly capable teams and to make a critical decision we can have the battery cell chemists, the mechanical engineers, the manufacturing engineers, the supply chain team, the automation designers and the software programmers, all in one room working together in real-time. And that allows us to make decisions that are best for the whole car and to make them really fast. That approach is unlike traditional automotive engineering which is really fractured. If you were to go buy like a premium German electric car, the engineers who designed the drive inverter in that car, they did not work for that car company. They worked for a contractor.”
While end-to-end integration in the mold of Tesla is not the only path (per our discussion in the previous section), deep coordination between technology development and industrial deployment is critical.
Respect for the challenge – which builds on our first principle of organizational alignment – means designing for scale from the outset, bringing the same level of rigor and intensity to the project development and production process as to the technology development that brought the company to this point.
3. Self-Awareness
When successfully applied, an effective system means that all employees show up to work every day understanding how their role contributes to the value creation engine of the firm, even if it’s only a high-level understanding. People gain this understanding only from consistent messaging and from clear, coherent incentives. But a company must also be capable of shaping and shifting the focus and the messaging over time, as the demands of the external environment are not static.
- Lessons from Titans, Scott Davis, Carter Copeland, Rob Wertheimer
Self-awareness is an under-discussed factor in the success or failure of companies. It is also a culmination of this set of principles, building on organizational alignment and respect for the challenge (each aimed at strategically positioning the company and understanding “what game we are playing”) to dictate how a company intends to access and allocate resources that enable continuous improvement (the tactics that contribute to “how we win”).
Organizational self-awareness hinges on a company’s ability to:
Understand how actions tie to value creation and whether the perceived value being created in the present contributes positively or negatively to a company’s long-term advantage (the Business Equation)
Design, to use ex-Danaher CEO Tom Joyce’s framing, “repeatable, sustainable, teachable, and simple” tools and metrics that engage every level of the organization in the development and execution of that core success equation.
Dynamically and proactively assess this equation and toolkit (which together comprise the Business System) in a changing operating environment where resources (time and capital) are scarce, competition is high, and speed is of the essence.
With a team of 5 people, or even 20, focused in the early days on a single priority, this sequence is straightforward (though not easy). When, the number of contractors, partners, customers, and regulators engaged in various projects expands to hundreds or thousands (as in the H2 Green Steel case above), information silos and mixed incentives creep in and become significant drags on a company’s ability to allocate resources effectively.
For Danaher, made up of geographically dispersed businesses in different markets, combatting operational debt starts with a process orientation aimed at addressing these silos and misalignments head-on.
In each business, we have a disciplined cadence of monthly operating reviews: eight-hour face-to-face meetings with a standing agenda and 20 monthly objectives for each business. The operating review is always held at the local business, not in Danaher’s headquarters in Washington. It’s very data-driven. We focus on things that are not going well and what we’re going to do to improve them.
A commitment to organizational self-awareness is a pivotal cornerstone, not as an end but as a cultural means to cultivate “industrial grade” process orientation inside emerging companies. It serves as a catalyst for designing and refining processes that are resilient, responsive, and aligned with the capabilities a company must develop to win amidst internal and external change.
Concluding Thoughts
“Some companies “adopt” [management systems] as some people go into severe diets and start running 10 miles, only to relax after losing a few kilograms. Running an effectively winning business requires a permanent commitment to overall improvement.”
- The Toyota Way to Lean Leadership, Jeffrey Liker & Gary Convins
The terrain between the world of the venture dreamers and the infrastructure and industrial realists is complex to traverse.
For emerging technology companies making this journey, designing and implementing adaptable systems that strike a fine balance between innovation and execution is not merely advantageous – it is foundational.
This approach, when rooted in a cultural commitment to continuous improvement, compounds over time. Like all compounding, the snowball starts small and moves slowly before picking up size and speed. Learnings are transferred from project to project, making each more efficient than the last. Evidence of progress accumulates, driving buy-in for a company’s novel approach. Over time, deep trust and reputation are built across the value chain, creating advantaged access to capital, talent, and resources.
At a societal level, the urgency with which we need to get these snowballs rolling – fostering companies capable of transforming physical industries by scaling next-generation technology fast and efficiently – cannot be overstated.
Our current moment is fraught with both significant challenges and transformative potential. Unlocking that potential – building a future where technology transcends promise and becomes integral to our industrial fabric – requires an evolved playbook; one that builds on the principles laid out in this paper and on the shoulders of companies who have previously bridged the gap to scale.
At this critical juncture, the message is clear: the fusion of dream and discipline, of vision and viability, isn't optional. It's the bedrock upon which the next era of industrial innovation will be built.