[FoRK] RPE and understanding company performance

Jeff Bone jbone at place.org
Fri Jun 18 10:49:30 PDT 2010


Didn't imply that it was a universal fitness metric. Agreed re all  
your points.



On Jun 18, 2010, at 11:35, Dave Kammeyer <kammeyer at kammeyer.org> wrote:

> On Thu, Jun 17, 2010 at 11:14 PM, Jeff Bone <jbone at place.org> wrote:
>>
>> You know, I've long been obsessed with EPE as a key indicator  
>> of...  something important about how different companies go about  
>> their business.  Wish more people paid attention to this metric and  
>> what it *means* --- particularly in terms of how to get things done.
>
> My take on what it measures is that it's the average degree of
> differentiation or uniqueness of strategy in a business.  In the
> Mcdonald's example, Mcdonald's generates some of its profits from the
> fact that it has a consistent product across lots of outlets, which
> people are familiar with, and that it has created procedures to
> produce the product at low cost. The other part of its profit is
> actually following those procedures and providing the product.  The
> first part is highly differentiated, and the second is not.
>
> That doesn't mean though, that higher EPE is necessarily better, and a
> lot of companies get into the trap of assuming that higher EPE is
> necessarily better.  This metric is what started the outsourcing trend
> in the nineties.  A company can get higher EPE by outsourcing
> everything but the CEO, but it has less control of its operations that
> way, and may be less profitable if outsourcing is less efficient than
> doing the job in-house.
>
> High EPE may also be indicative of a less stable business.  High EPE
> means that the market will be attractive for competitors to attack.
> There must therefore be some reason why the company is able to
> maintain high EPE -- some competitive advantage.  If that advantage is
> breached, the company could go from very profitable to out of business
> quickly.  A low EPE business generally would be harder to attack
> directly, because it requires capital and time to build up a large
> organization that competes with it.  Of course, low EPE can be
> disrupted, e.g. Amazon attacks Borders.
>
> -Dave
>
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