« sE = MC² » Part 5: Application Scenarios
To demonstrate the application of the “sE=MC²” methodology, three principal business scenarios are considered in this article:
- Cost optimisation
- Revenue growth
- Innovation
Each business scenario within an enterprise is a “hierarchy of zones” of activity (discussed in the previous article). The different zones that may be affected in each scenario during the implementation of the methodology, are shown in the hierarchy diagrams.
Cost optimisation scenario
In this scenario we consider the following enterprise hierarchy and the relevant zones:
|
Fig 1: Cost optimisation scenario – enterprise hierarchy & relevant zones |
Fig. 1 depicts the cost zones, many of which are generally reflected in the P&L statement of the enterprise or its business division. Any kind of cost reduction in the short term or optimisation in the longer term aligning with the organisational strategy must finally contribute towards improving the CapEx or OpEx. Different zones may be supported by underlying IT assets to run their operations. The cost of asset utilisation is a function of multiple variables e.g. number of users, intensity of usage, pattern of usage, volume of business, etc.
A social enterprise has the challenge of ensuring that the cost of running the operation is proportional to their asset utilisation i.e. converting majority of its costs to OpEx. When considering long-term timeframes, CapEx in IT and resources should be viewed and justified in terms of Total Cost of Ownership within a finite period of time (which in turn must be shorter than the time horizon of Return on Investment (RoI). Nevertheless, certain zones such as “marketing intensity” may actually go up during an economic downturn; more prospects or potential customers may need to be targeted to achieve conversions. In such a scenario, the objective during this downturn period will be to optimise the overall cost of operations.
Revenue growth scenario
In this scenario we consider the following enterprise hierarchy and key zones:
|
Fig 2 Revenue growth scenario – enterprise hierarchy & relevant zones |
Fig. 2 shows the various zones involved in an enterprise hierarchy for the revenue growth business scenario. Revenue growth can be achieved my organic and inorganic ways. Organic growth in turn is possible in multiple ways. It can be achieved by increasing the sales or volume of product or by increasing unit price. Volume can be increased by increasing or extending product lines or expanding into an altogether new market. Similarly, inorganic revenue growth can come from acquisitions (M&A) and Joint Ventures.
While pursuing a revenue maximisation strategy an enterprise needs to scale up its operation by increasing production, adding new products, changing pricing, expanding to newer geographies, adding more skills etc.
In addition, the enterprise must manage the risk from failure i.e. it must ensure a fallback strategy in case of any failure without causing much damage to its original brand. Cloud based IT deployment and expansion can provide an excellent support to follow revenue growth strategy. Cloud-based deployments help in scaling up to the desired level with an OpEx-based model. At the same time it allows the enterprise to retract and thus mitigate risk in case of failure by quickly getting rid of ‘tenanted’ hard assets.
Innovation scenario
In this scenario we consider the following enterprise hierarchy and the relevant zones:
-
Innovation scenario – Enterprise hierarchy & relevant zones.
|
Fig 3: Innovation scenario – enterprise hierarchy & relevant zones |
Innovation is in the agenda of all enterprises right from the top of the hierarchy to all levels and zones. It does not have any limit imposed by business units, functions, products, services, marketing, HR or even legal departments. As a consequence it is diffuse across the entire enterprise and even outside its boundaries. Innovation happens at all lifecycle stages of the enterprise; it is a critical differentiator.
Enterprises pursuing differentiation as a prime agenda operate in the spirit of entrepreneurship. Some enterprises are entrepreneurial as a whole and some create entrepreneurial islands encircling the central organisation. Naturally, there is sufficient investment by means of time, money, knowledge and skills, for incubate ideas. Consequently, successful ideas may be commercialised or grown to a larger scale by spinning-off independent ventures or by integrating the incubated project as a business division or subsidiary inside the current portfolio of an enterprise.
To inject an entrepreneurial spirit, enterprises enhance technology infrastructure as well as collect, analyse and churn large volumes of data, depending on their goals. Data-intensive and technology-enabled optimisation needs computing power besides safety, security, flexibility of access, usage, storage and interoperability. Cloud-based IT infrastructure provide these advantages at acceptable economic prices that do not require long-term contractual obligations or investments in “hard” assets. In addition, a cloud-based deployment helps to free up the enterprise or its innovating business division from the tentacles of lengthy corporate processes – this latter provides the necessary escape velocity that is key to the success of the innovation.
Previous page: « sE = MC² » – Part 4 [Timeframes]
Back to page: « sE = MC² » – Introduction