A companies “Economic Engine” is Jim Collins term for how the company makes money. He focused on a single question for management to consider – “If you had to select a single Economic Denominator, phrased as Profit per X, to systematically increase over time that would feed into better and better economics, what would it be?
The theory behind this question is that driving this metric will create a positive Virtuous Circle that reinforces itself.
When is it useful?
Settling on a single denominator like this is a challenge to most management teams. The value of the question is in the dialogue it creates as it helps to create a better shared understanding of how the business works
An Engineering Consultancy could select the denominator “Profit per Engineer”. To drive this up, the Engineering company will need to continuously increase their value-added to their customer, invest in the best productivity tools and be very selective on hiring. As a result of their higher profit per employee, the engineering consultancy will be able to attract the best engineers by paying higher salaries than competition and outspend its competitors on training and development. The result is more skilled and motivated employees than their competition who can create high profit per employee. Driving this “Virtuous Circle” creates the companies Economic Engine.
How do you do the analysis?
I want to know more
Read “Good to Great” by Jim Collins
How can you adapt this concept?