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This article is about how looking at the assets behind the results is a first-thing-first principle.
What is is
As business owners we are not trained and informed to look at what is standing behind the results but we are encouraged to interpret the results in order to drive our decisions. Performing financial ratios and using simple key metrics in order to inform us on our punctual or periodic progression is an important if not crucial business practice.
Assets (tangible and intangible) are an organization’s building blocks of value and it is equally important to take a look at the assets behind financial results and behind the results producing activities. Looking at assets and how we combine them into a business model allow us to get at the heart of what can make a business different or move it into an insurgent posture with an offering that the competitive would find hard to match.
Most businesses operate on a tactical level in their day-to-day activities like selling more but in order to become highly competitive they need to combine their assets in a different and remarquable way so they are not trying to sell a product or offer a service that thheir market has a shrinking appetite for.
In order to help organizations think more about they assets they have and how they combine them to their great advantage requires for them to (1) augment their definition of assets and (2) be able to use a simple format or framework so it becomes an easy habit to implement.
An extended definition of assets
In the old/previous economy, organizations ran mainly on tangible and physical assets. In the current economy the organizations that produce astounding values running do it with much lighter and intangible assets. Uber and AirBnB for example are digital platforms that create value from assets they do not even own. The Virgin Group creates tremendous value from partnerships. An other form of assets that may not really be perceived as assets are processes, it is only when the reengineering movement appeared that companies began to see how much the operational processes (assets) underlying their operations were fundamental to their success. The very definition of a value producing asset has extended far outside of what we use to own, measure and see.
How to organize it
The Modern Portfolio Theory (MPT), a popular investment strategy offered an alternative to stock selection by replacing it with a portfolio selection. This augmented view of investment management offers a superior tool to achieve a better overall success and match to investment objectives like risk management and yield for example. Having a bigger picture is always an advantage.
Applying this portfolio approach to organizations helps them map their assets including for example leadership and culture, intellectual property codified in patents, systems and processes, their partnerships and other assets in their ecosystem.
We call this “Your business, a portfolio of assets”.
This makes it easier to identify all the sources of value, both internal and external. Organizations will thrive or fail based on how they design, invest in, and manage their entire portfolios of value for their company.
Why it is important – Connecting assets with strategies
Mapping all of an organization assets, all of them, is important in order to know whether an organization’s assets are deployed to create or erode value. Organizing the assets into a portfolio also helps them create a balanced scorecard simply because when a broad strategy statement can be broken down into the underlying assets that are being used to deliver value to customers, it helps them focus the balanced scorecard metric selection process on the assets that are critical to achieving strategic objectives.
Managing a business as a portfolio of assets provides an augmented view of the business and its capabilities. It also makes it easier to spot the missing elements with regards to its strategic objectives. Managing a business as a portfolio of assets provides a big picture information for the leaders and managers, it offers a superior information which then can better inform the tactical decisions. It provides an augmented information that then can help create an augmented positioning in the market place. It helps an organization articulate a better startegic plan allowing it to move from improvisation to a planned insurgency. It is extremely useful to highly perform in critical situations like financing, acquisition and acquisition integration.
Implementing the Assets Portfolio approach