Criteria for business longevity: Does a pure darwinian approach work?

CRITERIA FOR BUSINESS LONGEVITY: Does a pure Darwinian approach

work?

© North Delta College 2015

Mathema'cs applied to Business Theory 1

INTRODUCTION

Long-‐Term business survival is the final aim of any new venture. This is why Business people and Business Theorists were among the first to apply Darwin Theory outside its original framework to try to understand Economic superiority. We will show in this short presentaTon why this approach is not enough as it misses a key fact: Money, originally, doesn't come from the Outside Environment.


SUMMARY IntroducTon PART 1: A Business Formula: E= MC2 A) the formula B) understanding where it comes from C) the 3 dimensions for Business Survival PART 2 : System theory A) the inner part B) the outside environment C) the Darwinian statement PART 3 : The Financial Flows A) model for a Business Ecosystem B) what Darwin misses C) funding: neither inside nor outside D) the financial tap E) what opens the tap PART 4 : The Final statement


PART 1: A BUSINESS FORMULA: E = MC2

Our key criteria for understanding proper business performance for the long term as well as shorter business cycles is the following formula:

E = MC2

Where E stands for Excellence M stands for MoTvaTon of Employee C stands for Customer SaTsfacTon C stands for Consolidated Profit

The 3 barometer indicators to weather the economic storm and lead your ship to the

right port.


THE FORMULA

Comments on the Formula

These are the 3 final KPI while leading a business. The minimal leadership kit.

Business management in one single stance.

Nothing can prove such a formula however it has been empirically tested managing real businesses and is therefore far more than a model. It will be our starTng point, our iniTal strategic insight onto

what triggers superior economic performance and understand business survival on short economic cycles as well as longer ones.

This will lead us naturally to criteria for business longevity.



There are therefore 3 components on the right hand side of the equaTon. The 3 dimensions we want to explore.

1. MoTvaTon of employees indicates a crystallisaTon of the inner workings of the company

2. Customer SaTsfacTon indicates the most important KPI In the External environment

3. Consolidated Profit is the most powerful financial indicator


Understanding where the formula comes from


E = MC2

Inner Workings External Environment

Financial Flow

These are therefore the 3 dimensions we will consider for studying Business Survival and Business Longevity.

1. The inner working of the Business OrganisaTon seen as an holisTc EnTty

2. The outside Environment 3. The Financial requirements

In the remainder of this presentaTon we will describe these 3 dimensions using

more structural maths and in parTcular concepts from System Theory and this will naturally lead us to the Business Longevity Criteria we are looking for.


The 3 dimensions for Business Survival


IntroducTon

In some sense, businesses can be seen as Systems, where the business organisaTon is seen as the system, that is the inside part.

This system lives in an environment ("the outside part") where it has to struggle

for its survival.

This is in fact nothing more than a glorified Darwin Theory.


PART 2: SYSTEM THEORY

THE ENVIRONMENT

SYSTEM =

THE BUSINESS

The Inner part

The inner part is the business organisaTon itself. In a former presentaTon, we have depicted it as the set of all the

processes that makes the business run. This model remains valid in our Systems approach to business survival

and longevity.



THE BUSINESS ORGANISATION

The outside environment

The outer part is made up of the Environment in which the Business (or the system) has to survive.

The environment generates opportuniTes, like customers; threats, like

compeTtors and constraints, like regulaTons, taxes etc...



THE ENVIRONMENT

2. Threats 1. Opportunities 3. Constraints

The Darwinian statement

This system model is basically the Darwinian approach.

Darwin Theory tells us the different systems compete among themselves to survive in the same environment. The systems that survive are those who can

adapt themselves the best to the given environment and its changes.

In one statement: survival of the fieest.

That is: business longevity comes from adaptability and responsiveness to the environment.

We will precisely see that this approach misses something major:

The existence of Money or Cash in the Universe



Model for a Business Ecosystem

What does Business Management Theory tell us?

The main objecTve of any business organisaTon is increased returns to the shareholders of the company.

i.e. The existence of the financial flow.

The key result we want to achieve in our model of the business ecosystem is the fact that Money iniTally is neither inside the organisaTon, nor in the environment and requires another dimension missed by System Theory or

Darwin.


PART 3: THE FINANCIAL FLOWS

Our model

This is how our model looks like:

We sTll have the system and its environment, but in addiTon, to the boeom of the system (i.e. The business organisaTon) we integrate a transverse flow going backwards. This flow is the life injecTng flow inside the organisaTon. It

is a form of Energy, and in Economic terms it is called The Funding flow.



Our model

It is very important to understand the structure of the financial flow inside the organisaTon.

Fundamentally, there are 2 financial flows inside any living business organisaTon:

A) the entering flow, coming from Sales & Revenues B) the out-‐ward flow , to pay the expenses related to the business

The non-‐trivial statement is that this second outward flow comes iniTally from a separate

in-‐going flow that we could call funding which has a different source from the other ingoing flow, namely sales.



What Darwin misses

The source of this funding flow is not in the environment. No maeer how responsive you are to the outside realm, the iniTal cash or energy injecTon will be provided for another

reason.

Therefore , contrarily to Darwin, we state that in the business jungle, it is not just about the survival of the fieest.



Funding: neither inside nor outside

This funding flow is therefore de-‐coupled from the flow coming from the customers in the environment.

Furthermore it doesn't come either from the internal energy or internal cash of

the system.

It is therefore neither inside, nor outside. This is precisely what tradiTonal System Theory misses.



The financial tap

Where does this funding flow originate from?

Let us zoom in our picture.



We see that at the entrance inside the organisaTon, the funding flow has a door or a tap, which has 3 posiTons:

-‐ closed: funding not allowed -‐ open: funding allowed

-‐ volume: if allowed, how many units of Energy goes in

We can also see that this is slightly more complicated than the concept of gate in computer science which has only 2 posiTons (on/off)

What opens the tap

Now the real quesTon: what opens the tap and controls the volume?

Anglo-‐Saxon business management theory says that this tap opens when shareholders sense they will make superior return when invesTng in the

organisaTon.

We challenge this very simple and straight-‐forward asserTon which is oken the first strategic principle students learn in a MBA Course.




PART 3: THE FINANCIAL FLOWS What opens the tap

Superior returns as an economic principle yes. But what about reputaTon, brand image and belief system of the funder. Will an Islamic bank invest in an non-‐sharia compliant venture even if it begets superior profit? Will a reputed bank invest in a Hard-‐rock band even if they churn millions of profit?

Therefore the purpose and mission of the venture maeers too. What is important with money is what

you do out of it, not just the fact money has no smell, no colour.

Once the tap is open, the business is alive, and we can move on back to system theory and Darwin and see the future of the organisaTon as a survival game between the business as an holisTc enTty

and its external environment, unTl the next round of funding.

The Final statement

It is therefore the objecTve missions of the organisaTon and the roadmap to achieve them which ulTmately opens the funding tap and not just an economic

principle such as superior returns for shareholders.

Business longevity is therefore funcTon of the organisaTon's purposes rather than peripheral aeributes such as adaptability to changing environment.

Obviously, responsiveness to the environment, can make the difference

between being dead or alive in the short run. But, in the Long Term, sole the core mission of the organisaTon maeers.


PART 4: THE FINAL STATEMENT

Date post:	15-Jul-2015
Category:	Business
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