{"id":2703,"date":"2017-04-14T14:32:28","date_gmt":"2017-04-14T14:32:28","guid":{"rendered":"http:\/\/chief-exec.com\/?p=2703"},"modified":"2021-03-08T11:18:52","modified_gmt":"2021-03-08T11:18:52","slug":"on-sustainability-and-profit","status":"publish","type":"post","link":"https:\/\/chief-exec.com\/?p=2703","title":{"rendered":"On sustainability and profit"},"content":{"rendered":"

What determines the sustainability of your commercial enterprise? What makes it profitable? An answer is in the balance of investment into innovation and production, writes John Egan<\/em>.
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You are a product manager or director of a start-up company. You are a business unit manager or are running a small or medium enterprise. You are leading a large company with integrated multinational subsidiaries. Whichever applies, you could have in mind a representative product that is emblematic of your enterprise and which embodies your commercial endeavour.<\/span><\/p>\n

In doing your job you have your hands on two levers. One is an investment plan which, over time, should deliver an expected business performance. With the other you can control the costs and set the price of your representative product.<\/p>\n

What determines the sustainability of your commercial enterprise? What makes it profitable?<\/p>\n

Answers to these questions are likely to be very varied for different organisations and will depend on your particular circumstances. Here we seek to uncover something more fundamental about your enterprise by treating it as an energy dissipative system<\/a>.<\/p>\n

With this in mind you could try to imagine your business plan as the raising of a value surface<\/a> which maps the varying perceptions of value of your representative product across a population of consumers. Your investments fund the exertions to elevate this value surface to a point where some consumers value your product sufficiently to purchase it. Treating the enterprise as an energy dissipative system also means that it will retain some of the investment as a potential energy in an elevated value surface, representing those consumers who also value the related products but not at a level that would compel their purchase. We call this retained investment the value surface energy<\/em>.<\/p>\n

The difference between the value surface energy and the total investment made represents the energy \u201cdissipated\u201d by the enterprise through the sale of its products.<\/p>\n

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You will also need to understand the market for your representative product.<\/p>\n

We have made some assumptions[1]<\/a> about how the value of a product is perceived across a population of consumers and are able to use just two numbers to characterise our energy-dissipative enterprise:-<\/p>\n