By Damián Rubianes, Carlos Villacastín, Alejandro Rovira, Álvaro Setién, Jorge Diezhandino, Pablo Olivares and Francisco Carballo. MBAP. Instituto de Empresa
1 February 2005
The authors have developed a model analyzing eight ways a company can reach maximum potential.
The management of any firm has a characteristic way of trying to improve the use it makes of its resources and exploit their possibilities more fully, whether explicitly or implicitly. This may have been developed through a formalized planning process, or may have evolved through the activities of various departments. On the basis of professional criteria and resources, each manager or department looks for the best way to use its opportunities. On the whole, each of these criteria can usually be improved.
Consequently, our study analyzes both the possibilities for internal betterment and the need for reconsidering the firm’s current or future business models, so that it is useful for both short- and long-term management.
This examines viability of the current business model and its alignment with its context. Management needs to know if the company’s competitive advantage can be imitated, substituted and sustained over time. Achieving this requires in-depth study of the context and changes that have occurred, or which may occur in the mid- or long-term. This helps analyze features that represent changes to the firm’s position as a competitor. At the same time, managers must consider the possibility of incorporating new opportunities for what their company “knows how to do.”
Managers must likewise get to know their company’s current and potential customers, as well as those it has lost. The aim is to probe current market needs and the way the firm can meet them with its products, services and technologies. Thus the company must segment, identify and capture potential users before learning how it can turn them into loyal clients and prescribers.
This evaluates the potential for improving operations (increase in productivity), functional implementation, customer and supplier management, commercial or marketing activities, distribution and logistics, among others. In short, it is an individual and joint analysis of elements on the firm’s value chain. In particular, managers should consider productivity of all employees and optimization of material and financial resources. They must evaluate how well the quality policy fits with the firm’s current and future strategy. It is essential throughout this process to find an appropriate combination of technology and processes, business culture and organization, to optimize the company’s differential capacities.
This offers detailed analysis of the company’s current teamworking efforts and of the team it desires for the future. The team forms part of the structure of every organization and must be coherent with its strategy and objectives. Staff selection processes must attract profiles that fit the organization’s aims and values. Accordingly, “psychological contracts” signed with future employees must be realistic, sincere and lasting. Furthermore, support and control systems within each position are essential to enable maximum development of all employees, especially those in key posts. The aim is to generate high levels of commitment to the organization so that selected and promoted talent is used to attain the company’s long-term strategic goals.
This fifth variable looks at internal resources and capacities that let a company compete in the same context and obtain differentiated profitability factors. Using internal analysis, we first identify the firm’s resources, which represent the tangible and intangible assets it possesses and controls. Once defined, we then determine the organization’s capacities as the combination of resources that enable it to carry out a specific activity. The second stage rates the importance of each of these activities for value generation, with a view to restructuring, promotion and/or elimination, depending on the contribution each provides for the firm’s output. This analysis is of particular significance to companies in dynamic contexts, which need to base strategy on internal capacities and resources.
6. Maximization of value
This uses information about company valuation to take more intelligent business decisions. It is based on the premise that value is created only by generating a return on the capital invested that is greater than capital cost. All business decisions must be subjected to this precept. Most ways of maximizing a company’s value are set forth in this model. However, there are others with a more financial focus, such as minimization of costs per line of business, operating costs, management of circulating capital, optimization of purchases or financial re-engineering with the cover of possible contingencies, or optimization of the cost of capital. A manager’s only objective should be generation of greater cash flows in the long term, not profits in the short term. Becoming a manager focused on value creation requires taking a different perspective and possessing sufficient criteria for making decisions from the objective viewpoint of a third party. This means leaving aside traditions, political decisions, personal relations and inertia.
7. F&A alternatives
These constitute a strategic option that has always been considered on a regular basis. Accordingly, it becomes necessary to compare the value of the company with potential materialization of the following: purchases of other businesses which could reinforce the firm’s activities and profitability; mergers with similar firms which could create a stronger group with clearly defined synergies; integration with a strategic investor, providing cost savings or greater capacity for business generation (through development of products or marketing knowhow); sale of a shareholding to a financial investor, which would provide more discipline and control; disinvestment in a specific business area, or of the company itself, in favor of the management team (MBO); liquidation (in more companies than it might seem, the property owned has more value than funds generated by the business).
8. The X, or undetermined variable
There is a hidden variable for each company. Once identified, it can act as a catalyst for the firm’s rebirth, helping it to maximum potential. In many organizations, this is the so-called Founder’s Trap; i.e., maintaining a successful business model when circumstances are no longer what they were. In others, this variable is the Mid-life Crisis, or failure to adapt to the new stage of the industry’s life. In yet others it is loss of the company’s culture, emblematic figure or identity. In any case, identification of this unknown variable is imperative before any potential strategic reorientation can take place. To some extent, the X variable is related to Shepard’s Law of Economy: “Behind every company, there must be a force which differentiates it from any other corporate structure, and which gives it its own particular identity.”
The SuperMAX® model offers a medium for organizing and structuring managers’ ideas in the whirlpool of daily activity, as a complement to the rarer internal strategy models that exist in the literature on current corporate strategy. This includes McKinsey’s 7-S, Porter’s widespread value chain and the wheel of competitive advantage.
The proposed framework does not seek to identify how to organize a company globally and effectively (7-S), or separate the way firms work into primary or support activities (value chain) or combine the main objectives and activities of a corporation’s competitive strategy (wheel of competitive advantage). The model’s novelty is that it seeks to integrate the key features with the sole intention of maximizing company potential, identifying more general problems that limit its development and the key variables which need to work to help it stretch beyond its limits.