RoundMap® : Framework 2 Vectors

 

Foundations for Ethical Prosperity: Harmonizing Equitable Profit Distribution with Responsible Growth

Within the RoundMap framework, Equitable Profit Distribution and Responsible Growth are pivotal vectors guiding businesses toward ethical prosperity. While profit is necessary, equitable profit distribution is crucial for long-term success. Meanwhile, growth is envisioned as a process of purposeful distinction, where we actively amplify positive and mitigate negative impacts. 

This approach to growth, aligning purposeful distinction with market demands and prioritizing quality over quantity, underpins our commitment to ethical, equitable, and sustainable business practices

Fostering Equitable Profit Distribution

Equitable Distribution of Profit is a core principle that guides the fair and balanced allocation of financial gains, extending beyond shareholder returns to benefit a more comprehensive array of stakeholders, including employees, customers, and the community. This approach underscores a commitment to collaborative empowerment and sustainable growth. 

By sharing profits equitably, businesses aim to reinforce the interconnected success of their ecosystem, aligning financial practices with their values of innovation, systems thinking, and sustainability. This strategy is not just a financial choice but a reflection of their ethos, ensuring that as the business prospers, so does the broader community and environment.

Responsible Growth Rooted In Purposeful Distinction

Purposeful Distinction in Growth represents a commitment to creating profound, significant, and uniquely outstanding change. It’s about achieving results that stand apart in effectiveness, sustainability, and positive influence. This approach goes beyond conventional metrics of success, focusing instead on the depth, quality, and uniqueness of the impact we create. 

Purposeful Distinction is characterized by innovative solutions, transformative outcomes, and a legacy of positive change that resonates within the community and industry. It embodies our dedication to making a difference and doing so exceptionally and unmistakably aligned with our core values of systems thinking, collaborative empowerment, and holistic transformation. 

In pursuing Purposeful Distinction, we aim to set new standards in how we contribute to society, demonstrating that success is not just about what we achieve but how distinctively and meaningfully we achieve it.

Equitable Profit Distribution

As a critical component of the RoundMap framework, the Business Model Matrix provides a nuanced approach to understanding and developing effective business models. This matrix is crucial in mastering the Profit-vector, which focuses on how a business can profitably create, deliver, and capture value.

Let’s delve into the essentials of the Business Model Matrix to explain the concept of the Profit-vector:

• Four Value Orchestration Direction:
  
  • Product Centricity: Focuses on superior product development and innovation.
  • Customer Centricity: Centers around creating exceptional and personalized customer experiences.
  • Resource Centricity: Focuses on offering resources as a service while maximizing their utilization.
  • Platform Centricity: Builds on creating platforms that facilitate user interactions and transactions.
• Four Value Positions:
  
  • Operational Excellence: Emphasizes efficiency, streamlined operations, and cost leadership.
  • Product Leadership: Prioritizes product innovation and is a market leader in product development.
  • Customer Intimacy: Focuses on bonding intimately with customers and understanding their needs.
  • Network Orchestration: Building and enhancing value through interactive stakeholder networks.
• Interplay of Strategies and Disciplines:
  
  • The Business Model Matrix suggests that any of these four value disciplines can be effectively integrated into the four business strategies. This interplay offers diverse strategic combinations, allowing businesses to tailor their approach to their strengths, market position, and objectives.
• Strategic Alignment for the Profit-Vector:
  
  • By aligning these value disciplines with the chosen business strategy, organizations can effectively navigate the Profit-vector. This alignment is critical to creating, delivering, and capturing value to maximize profitability and competitive advantage.

By considering these aspects, businesses can develop a comprehensive approach that balances innovation, customer needs, resource utilization, and platform dynamics to create profitable and sustainable business models. This alignment is crucial for navigating today’s complex business environments and achieving long-term success.

Responsible Growth

Growth is more than just numbers; it’s about excellence, resilience, planetary boundaries, adaptability, and the foresight to meet future demands. This is where the Business Vitality Matrix comes into play. It challenges us to be ready for change, resilient in the face of adversity, and continuously evolve to fulfill today’s needs and tomorrow’s aspirations. This matrix is the blueprint of our readiness to adapt, survive, and flourish – no matter what the future holds.

It’s crucial to understand that growth is not just about expansion; it’s about making deliberate, strategic choices based on the current maturity and market dynamics of your business:

• Strategic Expansion: This choice is about scaling up. But it’s not just about growing bigger; it’s about growing smarter. It involves enhancing your operational excellence and product-market fit or tapping into new markets and opportunities.
• Strategic Recalibration: Sometimes, the key to growth is realignment. This involves revisiting and adjusting your business model to meet evolving market demands and customer needs. It’s about staying relevant and resilient in a changing landscape.
• Strategic Agility: In a fast-paced world, being agile is crucial. This choice focuses on your business’s ability to adapt to market changes and innovate quickly. It’s about being flexible and responsive, ready to pivot when necessary.
• Strategic Optimization: When growth seems to plateau, it’s time to optimize. This involves refining and improving your current operations and offerings, focusing on quality over quantity. It’s about doing better things, not just doing things better.

Aligning Strengths: The Path to Collective Success

The journey to success is a confluence of aligning our strengths across both matrices. By mastering our business model for profitability and nurturing our ability to grow and adapt, we set ourselves on a path that’s not just about surviving but thriving. In this alignment, business vitality keeps us on track, focused, and perpetually moving forward. 

Incorporating Positive Inquiry further enhances this path, enabling us to uncover and leverage our collective strengths, imagine new growth opportunities, and co-create a profitable but also vibrant and sustainable future.

Embrace the Journey

As we chart our course through these positive, equitable, and sustainable twin vectors of business, let’s commit to aligning our strengths, refining our models, and seizing growth opportunities. This path isn’t just about survival. It is about crafting a legacy of innovation, resilience, and collective success. Let’s uncover and harness our full potential, envisioning new horizons of prosperity and impact. Join us on this transformative journey to redefine success and thrive together in a rapidly evolving business landscape.

We are drowning in information while starving for wisdom. The world henceforth will be run by synthesizers, people able to put together the right information at the right time, think critically about it, and make important choices wisely.

Edward O. Wilson

https://tinyurl.com/2f5wppam

Strategic Realism

 

There are many small non-profits which have no staff, or only part-time office support. These associations, clubs, and charities are almost entirely dependent on their volunteer workforce, both for governance, and for program and service delivery. Often, the same people who already give hours each week to their involvement with the organisation, not only approve the strategy, but are expected to achieve the targeted outcomes.

In working with some of these smaller organisations, I have sometimes found that while board members recognise their strategy is something important to have, it is not something they pay much attention to outside of an annual or triennial planning exercise. Once that exercise was completed, the strategy stayed ‘on the shelf‘, and was rarely (if ever) addressed at board meetings or in committees and working groups.

Not surprisingly, boards which did not ‘operationalise’ their strategy, usually found that goals set in the previous plan had not been progressed or achieved.

Reviewing the factors underlying such strategy ‘failure‘ or ‘slippage‘, certain common elements can be identified (amongst others). Before adopting your strategy, considering these suggestions (the 5A’s of strategy execution) may help you to avoid these pitfalls:

Avoid

• too many goals
• overly ambitious goals

Assess

• your organisation’s capacity to achieve the goal
  – How many hours of work might be involved in achieving each goal in the strategy, and does the organisation have sufficient volunteers willing to contribute this time? (See chart below)
  – Are the volunteers equipped to do the work required to achieve the goal, or might they need training, guidance, or other resources?
  – What funding and technological support might be required to facilitate goal achievement?
  – Is external support required (e.g. advocacy, legal, technical), and is this available within your network or will it require third party engagements?
• the likelihood and severity of risks associated with the activities required to achieve the goal, then develop and apply risk controls (e.g. policies, procedures, authority limits, supervision, guidelines, etc.)
• progress towards goal achievement at intervals throughout the year (or plan period)
• the need for goal or execution plan adjustments in the light of further insights or changed circumstances

Assign

• responsibility for execution of the action (steps) required to achieve the goal
• a director with responsibility for acting as goal sponsor (mentor), liaising between the board and those executing action on behalf of the board
• milestones (progress goals) and timelines for the action plan

Allocate

• priority ranking to goals, so that where a new or emerging priority requires escalation, or resource scarcity becomes a problem, the strategy can be adjusted accordingly
• sufficient resources to support the volunteer/s expected to achieve the goal
• time on your board meeting agenda for goal progress reports from the responsible person or group (say once or twice during the year)

Advise

• escalation triggers requiring that a matter be brought back for Board advice or decision
• what outcomes and impact the achievement of the goal will provide, and who the intended beneficiaries are (consider a Theory of Change or logic model for major projects).

https://polgovpro.blog/

The Profit Zone

 

The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow's Profits by Adrian J. Slywotzky and David J. Morrison

This is a quick read and according to me a rather good book in the quick-read-business-genre. It is divided into three parts where the first part discusses business models and how profit happens. The second part is about successful business design reinventors such as Jack Welch (GE), Nicolas G Hayek (SMH) and Roberto Goizueta (Coca-Cola). In the third part the authors summarize its customer-centric and profit-centric thinking in what they call The Profit Zone Handbook. I will only present some of the ideas from the first part which I find most useful.

The Customer and Profitability in focus
The customer-centric view is dominant in the book and the main recommendation is to truly understand the customer behavior, decision-making process, price sensitivities and preferences, and design the business model accordingly. Businesses must be designed for profitability and as the arena in which high profit is possible keeps changing, so must the business model. The main questions repeated several times are:

• Where will I be allowed to make a profit in this industry?
• How should I design my business model so that it will be profitable?

The authors define the concept of business design (but also use the term business model) as composed of four elements or dimensions that are all linked to the others:

Customer selection

• Which customers do I want to serve?
• To which customers can I add real value?
• Which customers will allow me to profit?
• Which customers do I not want to serve?

Value Capture

• How do I make a profit?
• How do I capture, as profit, a portion of the value I created for customers?
• What is my profit model?

Strategic Control

• How do I protect my profit stream?
• Why do my chosen customers buy from me?
• What makes my value proposition unique/differentiated vs. Other competitors?
• What strategic control points can counterbalance customer or competitor power?

Scope

• What activities do I perform?
• What products, services, and solutions do I want to sell?
• Which activities or functions do I want to perform in-house?
• Which ones do I want to subcontract, out-source, or work with a business partner to provide?

This is somewhat similar to my approach to business models; starting at who the value is created for, how the value is created and captured, and how the value creation and capture is controlled. The traditional way, presented in most literature about business models and in Exhibit 2.2 in the book, is to start from assets/core competencies and go through inputs/raw material, product/service offering, channels and finally the customer. The authors define their customer-centric model by starting on the customers' needs and priorities and then move in the other direction of the chain ultimately to the assets/core competencies needed to satisfy the customers' needs.

Strategic Control Point Index
As I find very little literature about business models looking at control mechanisms, I am happy to see what the authors call Strategic Control Point that is similar to my reasoning about Control Mechanisms. "Every good business design has at least one strategic control point. The best business designs have two or more."

In Exhibit 3.4 the authors present 10 different Strategic Control Points:
Own the standard, (High profit-protecting power)
Examples: Microsoft, Oracle
Manage the value chain, (High)
Examples: Intel, Coke
String of superdominant positions, (High)
Example: Coke internationally
Own the customer relationship, (High)
Examples: GE, EDS
Brand, copyright, (Medium)
Examples: countless
Two-year product development lead, (Medium)
Example: Intel
One-year product development lead, (Low)
Examples: few
Commodity with 10 to 20 percent cost advantage, (Low)
Examples: Nucor, SW air
Commodity with cost parity, (None)
Examples: countless
Commodity with cost disadvantage, (None)
Examples: countless

Identified profit models
How and why profitability occurs varies significantly from one industry or company to another. Slywotzky and Morrison have identified 22 profit models and shortly explain how profit is made in each of the models. These are:

1. Customer Solutions Profit
2. Product Pyramid Profit
3. Multicomponent Profit
4. Switchboard Profit
5. Time Profit
6. Block Buster profits
7. Multiplier Profit
8. Entrepreneur Profit
9. Specialization Profit
10. Install Base Profit
11. De Facto Standard Profit
12. Brand Profit
13. Specialty Product Profit
14. Local Leadership Profit
15. Transaction Scale Profit
16. Value Chain Position Profit
17. Cycle Profit
18. After-Sale Profit
19. New Product Profit
20. Relative Market Share Profit
21. Experience Curve Profit
22. Low Cost Business Design Profit

https://cutt.ly/y8skaP1

Economic objectives of firms

 The main objectives of firms are:

1. Profit maximisation
2. Sales maximisation
3. Increased market share/market dominance
4. Social/environmental concerns
5. Profit satisficing
6. Co-operatives

Sometimes there is an overlap of objectives. For example, seeking to increase market share, may lead to lower profits in the short-term, but enable profit maximisation in the long run.

Profit maximisation

Usually, in economics, we assume firms are concerned with maximising profit. Higher profit means:

• Higher dividends for shareholders.
• More profit can be used to finance research and development.
• Higher profit makes the firm less vulnerable to takeover.
• Higher profit enables higher salaries for workers

Alternative aims of firms

However, in the real world, firms may pursue other objectives apart from profit maximisation.

1. Profit Satisficing

• In many firms, there is a separation of ownership and control. Those who own the company (shareholders) often do not get involved in the day to day running of the company.
• This is a problem because although the owners may want to maximise profits, the managers have much less incentive to maximise profits because they do not get the same rewards, (share dividends)
• Therefore managers may create a minimum level of profit to keep the shareholders happy, but then maximise other objectives, such as enjoying work, getting on with other workers. (e.g. not sacking them) This is the problem of separation between owners and managers.
• This ‘principal-agent‘ problem can be overcome, to some extent, by giving managers share options and performance related pay although in some industries it is difficult to measure performance.
• More on profit-satisficing.

2. Sales maximisation

Firms often seek to increase their market share – even if it means less profit. This could occur for various reasons:

• Increased market share increases monopoly power and may enable the firm to put up prices and make more profit in the long run.
• Managers prefer to work for bigger companies as it leads to greater prestige and higher salaries.
• Increasing market share may force rivals out of business. E.g. the growth of supermarkets have lead to the demise of many local shops. Some firms may actually engage in predatory pricing which involves making a loss to force a rival out of business.

3. Growth maximisation

This is similar to sales maximisation and may involve mergers and takeovers. With this objective, the firm may be willing to make lower levels of profit in order to increase in size and gain more market share. More market share increases its monopoly power and ability to be a price setter.

4. Long run profit maximisation

In some cases, firms may sacrifice profits in the short term to increase profits in the long run. For example, by investing heavily in new capacity, firms may make a loss in the short run but enable higher profits in the future.

5. Social/environmental concerns

A firm may incur extra expense to choose products which don’t harm the environment or products not tested on animals. Alternatively, firms may be concerned about local community / charitable concerns.

• Some firms may adopt social/environmental concerns as part of their branding. This can ultimately help profitability as the brand becomes more attractive to consumers.
• Some firms may adopt social/environmental concerns on principal alone – even if it does little to improve sales/brand image.

6. Co-operatives

Co-operatives may have completely different objectives to a typical PLC. A co-operative is run to maximise the welfare of all stakeholders – especially workers. Any profit the co-operative makes will be shared amongst all members.

Diagram showing different objectives of firms

• Q1 = Profit maximisation (MR=MC)
• Q2 = Revenue Maximisation (MR=0)
• Q3 = Marginal cost pricing (P=MC) – allocative efficiency
• Q4 = Sales maximisation – maximum sales while still making normal profit (AR=ATC)

https://cutt.ly/N2dfO0C

How to Sell More Profitably

 There are only three ways to increase profitability – sell more products, increase prices, reduce costs. Almost every company has in its DNA the desire to sell more products. Almost every company is diligent in keeping a control of its costs.

The big weakness for most companies is understanding how the manipulation of its prices can be used to improve profitability. This is a very powerful weapon in selling more profitably. A 1% increase in price for most companies goes straight on the bottom line and adds around 8% to operating profits. Find out more in the handy infographic below.

https://bit.ly/3NhCJa9

KPI Dashboards (Part 1)

 

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