The Content in this website is backed by what we think is a unique aspect and asset that has proven very valuable to us over the last 30 years:
Our “Secret Sauce” allows our content to have academic validity and practical usefulness at the same time.
I know this is a little long, but hopefully worth your time to read and ponder.
Underpinning the Knowledge Taxonomy is a statistical analysis first done for my doctoral dissertation Environment, Strategy and Performance in Two Service Industries, in 1982 and updated continuously since then:
25 “Factors” form 8 themes that nest 267 strategy, operations, innovation, people and financial variables that explain increases in firm valuation in the established for-profit firm. These appear to be most of the factors and themes that drive increases in valuation for the Major New Venture Startup as well.
14 of the Factors and 4 of the Themes are the very usual technical, financial, risk management, acquisitions and control/governance in nature.
The other 11 Factors and the other 4 Themes are very soft in nature. And an unusual, at the time, insight I had in 1984 when I replicated my dissertation in the Texas banking industry was that these soft Factors and Themes formed the “foundation” for strategic management and sustainable wealth creation. Very Balanced Scorecard like.
All 25 Factors emerged through a statistical technique called Factor Analysis. This statistical technique groups similar variables that relate to each other into a unifying concept. Our Secret Sauce thus provides 25 factors and 8 Themes that reside in 267 strategy, operations, innovation, people and financial variables that explain increases or decreases in firm valuation. Each factor has from 8 to 12 separate variables nested within them*.
Now back to the 11 “soft” Factors and 4 Themes. Through my strategy consulting experience over 25 years, I aligned the 11 soft factors into 4 themes (Speed, People, Intangible Assets and Recognizing New Opportunities = SPIR) through repeated observations in many client engagements of what “seemed” to explain reality.
Over the last thirty years in four other large studies, the 25 Factors and 8 Themes have been remarkably stable, except for a critical change in one Theme. As little as ten years ago, Physical Assets were key for strategy and allowed making “irreversible commitments” as part of staking out a strategic position and helping to drive increases in firm valuation. Now with Dynamic Capabilities emerging as perhaps the most complete and authoritative strategic management framework, Intangible Assets are emerging as those assets that help drive increases in firm valuation.
Let’s discuss the soft factors and themes as I think this will be of interest for you.
The 11 “Soft” Factors and Four Themes are:
1. Absence of four “law-like” organizational barriers: subject matter, process, structure and culture
2. Penchant for no bureaucracy
3. Extreme process and process innovation discipline
These make up the Theme of SPEED
4. Ubiquitous understanding and application of what VALUE means – both financial value and customer value
5. Personal values that give rise to high performance teams
6. Processes and personal values that give rise to a passion for continuous learning
These make up the Theme of PEOPLE
7. Ubiquitous understanding that time is the only non-renewable resource
8. Personal values and track record that supports continuous inquisitiveness and unrest with the status quo
9. Personal values that give rise to pride in authentic work
These make up the Theme of INTANGIBLE ASSETS
10. Lack of clutter in organizational and personal life
11. Passion and track record for acquiring and using new explicit and tacit knowledge
These make up the Theme of RECOGNIZING NEW OPPORTUNITIES
Speed, People, Intangible Assets, Recognizing New Opportunities = SPIR
This list of 11 factors and 4 themes might surprise you. What would you have said is your list if I asked you?
What emerges here are candidates for rock bottom root cause Factors and Themes. That is, they lie behind what is more readily observable. They hopefully represent the truth of the matter over differing contexts and situations. For instance, under People someone might ask where is Requisite Skills for the Job. This is very important but in my experience and research, while there may be a shortage of skills at any one time, this is a fixable problem. Or someone could ask under Recognizing New Opportunities where is the role of raw intellectual horsepower. Having a lot of smart people is good on the face of it, but if they are hampered by organizational processes and have personal issues with procrastination let’s say, very little Recognizing New Opportunities happens.
So the 11 Factors then are those very deep and difficult to develop or replace attributes of those firms who are increasing their valuation. They have scarcity value and this scarcity value must be captured by the firm by virtue of making customer willingness to pay be as high as is warranted. And these attributes are very hard for a competitor to copy in the short to mid term, if at all.
Let’s peel the onion one more layer. As we imply above, there is almost nothing “hard” in the Factors. Factor #s 1 and 2 simply take courage to get done and they are a leadership opportunity. Factor #3 is acquiring process knowledge and then applying it with a vengeance and then constant process innovation. These drive SPEED. Factor #4 is part being educated on what value really is and then living by it. Factor #5 is a values set that has no room for the rank opportunist in the firm and other attributes of a real team player. Factor #6 is investment in a process and a set of values that has a thirst for new learning. These drive PEOPLE. Factor #7 is being educated on the interesting asset of time and then living by it. Factor #8 is a values set with a proven track record of being resilient to constant change. Factor #9 is a values set that abhors shoddy work and that views work as a higher calling. These drive INTANGIBLE ASSETS. Factor #10 is really a discipline in organizational and personal living that can prioritize effectively and work on the vital few and not trivial many. Clutter kills recognizing new opportunities. Finally Factor #11 is a values set and a track record of acquiring and using new knowledge. These drive RECOGNIZING NEW OPPORTUNITIES.
Consider the words I bolded: courage, leadership, knowledge and its application, living by, values set, educated, proven track record, discipline, prioritize.
Where do all of these values, propensity for courage and positive attributes come from? I am not a psychologist so I cannot really say. But I have some hypothesis and if these 11 Factors and 4 Themes resonate with your experience I bet you do too.
It is fascinating to me that such a “hard” and “objective” statistical technique unearthed such “soft” underpinnings of increasing firm valuation.
I know you might be saying this is all a sly trick of too high a level of generalization that can explain anything. How can you say the Boy Scout Oath is not good? But our Secret Sauce in turn infuses StrategyBest’s Knowledge Taxonomy and Offerings. You will see in the Business Performance Engine we put all of this to test by making predictions of the timing of events and eventual ripple effects on firm valuation. This is, and will be as we get better through time, the “proof in the pudding”.
We feel having the content of our website rest on this foundation gives our offerings a possible authority and “proof statement” that is worthy of your consideration and use of your valuable time.
Part of our value proposition is that the foundation aspect above at least gives us one viewpoint from which to understand each other, and have the bases for a productive agreement or dis-agreement and then have consensus learning together. We value the productive use of our time and I do not know of a strategy professional who disagrees with this statement.
* The strategy academic and strategy professional familiar with statistical methods and factor analysis in particular may suspect this model may be “over-specified”. That is for statistical significance a sample size must be at least ten times the number of variables measured. If done all at once, this would have necessitated a sample size of 2,670 firms. This indeed has not happened. What I did was to break parts of the model into smaller pieces to have the 10 to 1 ratio hold. Through repeated use though in the field providing face validity of usefulness in over 75 client assignments lasting a year or more, I combined the parts into this whole model depiction. Since it is unlikely that a sample of 2,670 firms will happen, this model will have to serve as a starting point for fundamental discussion and further research.