The Brew Framework : Evolution of a Firm

Evolution of a Firm

(This is 2nd article in the Series leading to The Brew Framework, a Capability Maturity Framework, designed to evaluate Enterprises at different levels to improvise their performance to favorable outcomes)

Post understanding the Fundamental Forces that govern the fate of Enterprises, this article will build and extend on the findings of our research, which is essential in understanding the Evolution of these structures over the scale of time, growth, contribution and impact (essentially, Value).

The Evolution of Enterprise charts out a Firm’s growth on 2 dimensions:

a) External: From Consumer Needs Offerings to a Consumer Solutions firm, Continual improvement of Value Created v/s. Value Captured ratio, favourably in the order of Consumer, For Firm itself and for Ecosystem.

b) Internal: From Establishing Competence to Additional Value Creation Firm

Most of the Firms (and sub-firms) start in an all-similar way of offering a Consumer Product or a Service, essentially driving parity between the value congruence of the USP of the offering and fulfillment of the Consumers Need. That very much forms theory of going from Zero to One, on both the scales, From an Idea to an Offering, and From the perspective of onboarding Consumers.

Going by the Fundamental Forces theory established in the previous article, as the firm’s scale up beyond One, its essential and pertinent to study their trajectory to understand the various milestones that lay enroute along with their implications, and as one goes in depth of delayering businesses, one as well understands the irrelevance of having Competition as an important factor of consideration in decision making, Cos Competition only exists at an Offering Layer, it ceases to exist beyond the realms of Business.

The Brew would like to draw parallels with the Hierarchy of Human Needs, where the needs are progression of Human desires at a Meta level, similarly, Enterprises also have their Hierarchy of Needs, with some levels in progression, while some being fluid, and every Firm should ideally try progressing to the next level, thus optimizing its capabilities, and fulfilling its purpose of existence.

The following are the layers of progressions of the Firms:
1)    Basic Value Creation: Firms start with offering a Product or a Service, which are aligned to the Purpose of the Firm, along with Fulfilling of Need Satisfaction for the Consumer. This is a proper Marketplace model, where the Competition exists, and so does the value parity between the similar offerings in the market.

Additionally, there are 3 more factors, which matter in this stage, Rate of Change in the Industry, Consumer Fatigue of the Offering (if its not unique) and Market Stage. 

If the Consumer Fatigue is not high and Market is in expansion stage, then a variation to the USP with key benefits remaining intact can turn to be lucrative, along with Competition helping to expand the markets, Whereas if the Consumer fatigue is high and the market is in stable or contractionary phase, then it makes sense to disrupt the entire offering altogether.

This stage should ideally get characterised by limiting it to minimal time, speedily gaining the learning curve and experience curve effect in the Short run (focused completely on Efficiency, Effectiveness and Innovations at offerings level), with the urgency and necessity to move as fast as possible to the Next level (Point 2).

2)    Additional Value Creation: As the Firm scales up, On the internal side, it has to establish a Competence or an Advantage, by which it will keep delivering its existing solution to the Consumer, by adding more value or offering it at a lesser value. The Value Created v/s. Value Captured ratio will start turning favorable for both, Consumers and the Firm.

On the External side, driven by the Purpose of Existence, the Firm has to advent in the space where it starts focusing on the Consumer Needs at a Meta level which align with the purpose, and ideally as well connects favourably with the Competence / Advantage gained.

Cos the Firm now starts operating on the Needs Level of the Consumers, it either expands its Offerings Portfolio to cover the spectrum of needs (partially or totally, depending on the competence level gained) or it starts focusing on a specific Sets of Consumers with whom it can relate to, and the starts serving them with the expansion of offerings to their needs.

Gaining the Competence/Advantage at this stage is a key criterion to sustain the earlier growth and progress to the next level of hierarchy, but an important point to note is that the Competition decreases exponentially with the unique capabilities of gaining a Competence. Essentially, Weak Firms compete at an Offering Level, whereas Good Firms establish a Competence to create further value for Consumer, in turn eroding the Competing firms, which lack the similar, or other unique advantage.

This as well triggers the next cycle of growth for the Firm, where with ratio of Value Created v/s. Value Captured starts turning favorable for the Consumers, and the Firm, and at this stage, the Consumer start actively buying out on the Firm’s philosophy and purpose rather than its offerings. And hence, at this stage the Firm should start Operating at the Needs Level of the Consumer or focusing on Specific Consumers, serving them with the broader set of needs satisfaction.

At this stage, the Firm gets promoted to a Broader Business Model with offerings additions to its portfolio. At an individual offering level, it follows a similar trajectory mentioned till here, but at a Business Model level, the Firm is now challenged to not only Establish and sustain Competences, but as well with deriving a Convergent, Consolidated and Cross leveraging of competence

3)    Beyond Stage 2, Consumers start buying on the identity of the firm, and hence at this stage, the Firm, which has multiple business models, developed off multiple offerings, should seek progression to encompassing the entire ecosystem, which cater to the Needs Continuum of its current trajectory of offerings. The aim is to leverage the identity and create further value for the Consumer along with diffusion of value in the Ecosystem.

This stage is characterized by Value Created v/s. Value Captured v/s. Value Shared, effectively getting these ratios favorable for Consumer, Self and Ecosystem.

One can as well argue that Firm can choose the Organic way of building competence rather than developing the Ecosystem model, but it all depends on the Purpose of the Firm as well as Ecosystem Readiness at this stage.

But keeping the driver to be the Purpose, irrespective of Ecosystem’s readiness, its wise to develop this model to expand and deepen the Firm’s identity in Consumer’s Perception, rather than forgoing the opportunity to the Competitor or New folks.

At this stage, the firm is operating at multiple levels, at Offerings Level, at Competence Level, at Business Model and at Ecosystem level. The aim is to move in direction of purpose, with optimizing and improvising Value Created v/s. Value Captured, and Value Created v/s. Value Captured v/s. Value Shared at respective levels.

And just like Basic Value Creation Model and Additional Value Creation Model are the Growth levers of Firm, and so is The Innovation Model, which will be disjoint but with being present at all the different levels in respective value creation models, but binding all with the common fabric of purpose of existence.

And hence, the Evolution of the Firm is characterized on the scales of Leverages created, Competences established,  Rate of Changes (Innovation + Disruption) and Value Creation to Consumers (with respect to Consumer Fatigue and Incrementally, with respect to Industry).

4)    A alternate to point 1, holds true, if any firm which is able to disrupt the existing solution offered to Consumer by altering the behavior of the Consumer with its offerings in a unique sustainable way, starts enjoying an advantage in relevant Continuum of Needs and might not have to establish an Internal Competence, but rather can simply move to Second part of Point 2 of expanding its offerings in alignment with the Purpose of firm.

At any point of time in this evolution, The Transaction Cost of Creating Value and delivering value to the Consumer, should ideally be less than the Value Incremental created for the Consumer. The only exception to it being at Stage 1, where can afford to add burden for either a quick scale-up and/or disruption of existing market.

This is the 2nd article in the series of 3 articles leading to The Brew Framework, a Capability Maturity Framework, build on these fundamental forces, which evaluates Enterprises at different levels to improvise their performance, insulate from external exigencies and harness these forces to favorable outcomes.

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