Bob Lewis
Columnist

Are revenue, cost and risk enough?

analysis
Apr 18, 20062 mins

The KJR Manifesto has generated a great deal of correspondence. Most of it has been favorable. Quite a bit has been to clarify one point or another. And a few have provided challenges - tests, to probe whether the guidelines hold together.A recent example: Whether it's valid to limit business benefit to three categories (Guideline #9: Benefit has three core components: revenue enhancement, cost reduction, and ri

The KJR Manifesto has generated a great deal of correspondence. Most of it has been favorable. Quite a bit has been to clarify one point or another. And a few have provided challenges – tests, to probe whether the guidelines hold together.

A recent example: Whether it’s valid to limit business benefit to three categories (Guideline #9: Benefit has three core components: revenue enhancement, cost reduction, and risk mitigation). What about other benefits, like flexibility? asked my correspondent.

The underlying question is what constitutes means and what constitutes ends. In limiting benefit to these three categories, the manifesto claims that revenue, cost and risk are the sole ends of business, and all other benefits asre intermediate means.

Isn’t that a bit … overconfident?

Perhaps – nothing says these core principles are perfect. Here’s why I think this analysis will hold up (for businesses – government agencies are a different matter):

Businesses need to turn a profit so they can continue to operate. Businesses need to grow because otherwise they shrink (to remain exactly the same size is to be poised on a knife-edge). This is, by the way, as true of non-profit organizations as for any other business, only non-profits have a different name for the difference between revenue and cost.

There are only two ways to increase profits: Increase revenue or decrease costs. That’s it. So far we’re on safe ground. Cost and revenue are definitely ends rather than means. Superficially, they would seem to be the only ends.

So the question arises, why might a business deliberately increase cost or decrease revenue? The only answer I can think of is to prevent situations that might otherwise increase costs or decrease revenue even more. The generic name for situations like this is “risk.”

That’s how I got there.

Other benefits, like flexibility, are usually good ideas. Flexibility that doesn’t result in reduced costs, increased revenue or mitigated risk, though, is misdirected flexibility.

I think.

This discussion brings up an underlying assumption – that businesses “want” to continue to exist. To the extent continued existence becomes irrelevant, Guideline #9 becomes invalid.

Keep those challenges coming. We want the guidelines to be as solid as possible.

– Bob