[FoRK] RPE and understanding company performance
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
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.
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