The core strategic management challenge for executives is centred on finding the optimal point when allocating resources between revenue and cost centres. When doing this, leaders and managers often have conflicts of interest due to the existence of disconnects between vision delivery versus profit maximisation; cost cutting versus resource scaling; product augmentation versus sticking to core activities. Collectively, these present the fundamental challenge (and paradoxically reveals the distinction) between a businessman and an entrepreneur. The manager in this context would be pushing for profit maximisation and using cost cutting as a lever to achieve this without understanding that this brings upon diminishing returns and decay in marginal revenues. The entrepreneur on the other hand yearns for product augmentation and resource scaling as this will lead to multivariate revenue streams, thereby naturally creating higher marginal revenues and working towards profit maximisation. The manager will want implement a piecework solution to drive immediate accounting benefit whilst the entrepreneur will focus on creating embodiments of future economic value (tangible and intangible) to drive breakthrough growth.
In the Harvard Business Review article “Three Rules For Making A Company Truly Great”, (Raynor and Ahmed, 2013) identify the many and diverse choices that made certain companies great were consistent with just three seemingly elementary rules:
1. Better before cheaper—in other words, compete on differentiators other than price.
2. Revenue before cost—that is, prioritize increasing revenue over reducing costs.
3. There are no other rules—so change anything you must to follow Rules 1 and 2.
When I reflect and elaborate on these foundational rules, I draw strong resonance to other articles written on this blog that collectively defines the modus operandi of the firm whilst reinforcing the fact that in todays networked, integrated and rapidly changing environment – leaders and companies need to adopt innovative mindsets on fundamental business solutions in order to achieve breakthrough growth, scale and ultimate profitability!
Looking at the first rule “Better Before Cheaper” – here, companies need to disregard cost cutting and start differentiating on product features, service models and augmented benefits to deliver a compelling customer value proposition. As explained in this article ; firms need to identify NON-CONSUMERS, defined as those whom are not consuming product or consuming only in inconvenient settings. By identifying this as a target market, you are going to automatically generate revenue – thereby satisfying rule number two “Revenue Before Cost” automatically. As Clayton Christensen (Harvard Business School professor) argues, these non-consumers are “People who lack the ability, wealth, or access to conveniently and easily accomplish an important job for themselves; they typically hire someone to do the job for them or cobble together a less- than-adequate solution” (Christensen, Anthony and Roth, 2010). Therefore, this presents an amazing market opportunity for the firm and creates a tendency for market competition which leads to economies of scale sand shields against the law of diminishing returns.
To foster market, product and service development of non-consumers; firms can employ strategic experiments wherein a NewCo is setup that borrows and forgets resources, values and capabilities of a CoreCo whilst iterating itself constantly to embrace the new market and subsequent diversification of revenue streams. These types of consumers are ubiquitous and Christensen identifies two patterns for aspiring new-market disruptors to deliver breakthrough product augmentation and growth. These are (but in my opinion not limited to) the following:
- [Firms] introduce a relatively simple, affordable product or service that increases access and ability by making it easier for customers who historically lacked the money or skills to get important jobs done.
- [Firms] help customers do more easily and effectively what they were already trying to get done instead of forcing them to change behavior or adopt new priorities.
By adopting this type of mindset and instilling dynamic, innovative frameworks within the enterprise; you will find balance between the competing interests of the businessman and entrepreneur (the project manager and executive in the corporate context) and not only identify an operational and tactical strategy to fulfill profit maximisation; but also create a compelling customer value proposition for your firm. There is no real limit to entrepreneurship as you can even convert the latent businessman and manager to an intrapreneur, extrapreneur or contrapreneur as I explain in this article (or perhaps you can just dismiss them to be part of your consumer testing group if they are really too much of a big bull and from the school of hard knocks)!
Raynor, M. and Ahmed, M. (2013). Three Rules for Making a Company Truly Great. [online] Harvard Business Review. Available at: https://hbr.org/2013/04/three-rules-for-making-a-company-truly-great [Accessed 1 Nov. 2019].
Christensen, C., Anthony, S. and Roth, E. (2010). Seeing what’s next: Using The Theories Of Innovation To Present Industry Change. 1st ed. Boston, Mass: Harvard Business School Press, pp.640-647.