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Weak Link Between Costs and Pricing

Introductory

Multiple organization executives maintain that their pricing decisions should be based on cost considerations. Yet there is a weak link between costs and pricing. Customers pay for results they want instead of the costs you incurred during production. The “cost-plus” pricing method becomes unstable when inflation rates change and market demand patterns shift because it creates unpredictable margin fluctuations that can be either under or overpriced and take too long to adjust.

Why costs ≠ price (most of the time)

Costs are internal. Price is external. Your business operations become visible through your cost structure while market prices reveal what customers value your product at and what alternatives they have. Teams who focus on cost expenses tend to disregard three essential factors which determine prices in the market. The establishment of price floors depends on production expenses but price ceilings emerge from market value and competitive forces.

In the GCC, this gap shows up in B2B services and digital products. A SaaS tool that costs SAR 60 per user because hosting expenses are minimal fails to recognize that banks would spend SAR 120 to reduce their approval duration by 30%. The high cost of maintenance contracts with a 10% margin for mega-projects occurs because buyers can easily find domestic alternatives and face no significant challenges when they want to switch suppliers.

What cost-based pricing gets wrong

The approach does not take into account what actual consumers are willing to pay.

Two customers can see the same product differently. The system requires continuous operation but another user focuses on obtaining the best initial cost. The implementation of average cost pricing with fixed markup results in two major problems: it drives away high-value customers and it makes price-sensitive customers choose to shop elsewhere. The pricing strategy of segmented pricing based on benefits structure enables both approaches.

It blurs fixed vs. variable costs

Executives often allocate overhead uniformly, then “protect margin” by raising list price. The allocation of overhead expenses represents an accounting decision which does not reflect actual market conditions. The wrong allocation of overhead expenses to high-volume products leads to elevated minimum prices which allows competitors to enter the market.

It slows decisions

The implementation of cost-plus cultures requires financial assessments for all price adjustments. The market shows rising customer interest at this time. The delay creates expenses for businesses that operate in markets with extended tender periods and e-commerce and seasonal peak demand patterns which affect KSA retail and travel industries.

Use costs as guardrails, not the steering wheel

Costs still matter. The team determines when to stop and sets permanent conditions which result in lasting long-term success. But the steering wheel is value. Shift to a value-backed, market-responsive approach:

1) Quantify value in money

Translate outcomes into SAR. A 20% reduction in rework on a SAR 10m package equals SAR 2m. Your solution reaches a 70% confidence level to produce SAR 1.4m value which exceeds the predicted outcome. The expected value lets you define delivery price boundaries between 10% and 30% of the achieved value instead of applying the standard “cost + 15%.”

2) Segment by willingness to pay

The data needs to be divided into 3–5 sections which use industry and size and urgency and compliance risk and downtime cost as observable signals. B2B requires deal health assessment through sponsor level evaluation and pain severity assessment and switching barrier evaluation. B2C requires three key use behavior indicators which include frequency and basket size and churn probability. The system needs to link each segment to fences which include contract terms and service levels and features to stop arbitrage from happening.

3) Design price fences and menus

The company should present three different packages which include good, better and best options with specific advantages and disadvantages. The system requires users to perform fence maintenance through SLAs and analytics modules and response time monitoring and dedicated support access. Capital projects should base their selection of structural elements on uptime warranties and project completion timelines instead of focusing on surface-level characteristics.

4) Tie discounts to measurable outcomes

Replace blanket 10–15% discounts with conditional value credits. The pricing model includes two examples which demonstrate its functionality. These pricing model offer a SAR 500k discount when the defect rate reaches above X and it provides price reductions based on monthly usage levels below Y. Pricing model connects prices to actual customer value while maintaining minimum revenue levels.

5) The system needs to enable flexible review processes because it should not require users to perform annual system resets.

Set a monthly price council with sales, finance, and product. The system should track five essential metrics which include win rate performance across different segments and the comparison between actual prices and list prices and discount loss rates and customer departure due to price changes. The system needs to validate all pre-approved employee transfers which maintain their positions within 5-10% of the predetermined boundaries. The GCC e-commerce platform requires weekly testing of shipping fees together with bundle options and payment term functionality.

Practical playbook (two quarters)

Quarter 1: Establish your value and price architecture.

  • Map 5–7 key use cases. Estimate the economic value delivered (EVD) for each situation.
  • Define segments and fences. The company needs to develop three separate menu choices for each product.
  • The system requires three types of guardrails which include walk-away price based on true variable cost and risk and target range between 10% and 30% of EVD and promo rules.
  • Clean the data: one price book, version-controlled; discount reasons codified in CRM.

Quarter 2: Operate and tune

  • The organization should activate its price council to operate as a weekly “deal desk lite” which would handle exceptional situations.
  • Pilot in one country (e.g., KSA) or one vertical. Compare lift in realized price and win rate.

The training program for this field includes three presentation slides and two demonstration examples and one calculation tool to teach value story principles.

  • The two discount options should be removed from the list. Replace with outcome-tied offers.

Numbers that change behavior

Executives begin taking action after they understand the quantitative data. Track these four metrics and review them monthly:

  1. Realized price index (RPI): realized ÷ list price by segment.
  2. Discount leakage: discounts outside policy as % of revenue.
  3. Value capture rate: price as % of quantified value delivered.
  4. Floor breaches: deals below walk-away price (count and SAR impact).

The Riyadh-based portfolio achieved a 3–5% increase in realized prices through their segmented menu approach which also improved their win rate in tender competitions because their entry packages fit budgets and premium tiers offered higher anchors through uptime guarantees.

Address the common pushbacks

  • “Our costs went up; we must increase price.”The market needs to support this practice for it to become possible. Test willingness to pay and reposition value. Organizations achieve their best results through pass-through when they use it to support actual performance improvements.
  • “Value-based is slow.”Not if you build calculators and fences once, then operate ranges. The organization operates at a quick decision-making speed because it follows pre-established approved guidelines.
  • “Procurement only cares about price.”They care about risk too. The implementation of price fences which link to uptime and delivery and compliance standards enables businesses to exchange price concessions for different terms.

Leadership takeaway

Use costs to set the floor. The company needs to determine its pricing strategy through an evaluation of product value and market competition levels. Your organization will defend its profit margins through outcome-based pricing during market declines and produce additional revenue during positive market conditions while maintaining customer confidence.

References:

Internal Links:

https://3msbusiness.store/failure-to-link-costing-to-strategy/

https://3msbusiness.store/capacity-costing-charge-for-the-plant-you-actually-use/

External Links:

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The Risks of Relying on Outdated Corporate Business Models

The practice of using business models from previous times does not follow disciplined business methods. It’s a slow leak in revenue, relevance, and resilience. Market changes cause legacy pricing methods and distribution channels and value creation approaches to lose their ability to generate increasing returns. The regular operations of corporations maintain outdated business models until an unexpected event reveals their outdated structure.

The risk is visible in the numbers

CEOs already understand that their organization faces an impending collapse. In PwC’s 2025 Global CEO Survey, four in ten believe their company won’t be viable in ten years if it stays on its current path. The last five years show that new business revenue accounts for only 7% of total revenue because most companies have not achieved sufficient innovation speed.

Profit pools are migrating, too. The payments industry has experienced a shift where basic processing functions have become standardized yet businesses now focus on software-based payment solutions and financial integration and additional service offerings. The model will experience margin reduction because it depends solely on volume and interchange data for its predictions.

AI technology transforms both the locations where value gets created and the methods through which value gets generated. McKinsey finds more companies now report increased revenue within business units using generative AI. The benefits of AI implementation will go to organizations which transform their operational systems and establish specific performance indicators instead of those who attempt to add AI to their current systems.

Sustainability requires organizations to make a similar transition. The Bain/WEF survey shows that manufacturing leaders expect circular solutions to increase their revenue by more than 70% during 2027 while 65% of them predict these solutions will improve their operational stability. Linear “sell-and-forget” models will lose to “use, recover, and resell” models that lock in customers and materials.

GCC context: short-term confidence, long-term urgency

The GCC demonstrates positive outlook but faces more significant obstacles because of reinvention requirements. The 2025 Middle East research by PwC reveals that GCC CEOs believe their businesses need to transform within the next decade to survive at a rate higher than worldwide averages at 64%. The fast pace of AI development and climate policies and regulatory changes requires immediate action because delay will result in higher expenses in this market.

Translate that into action on Saudi timelines. The telecommunications industry will transition from providing basic connectivity services to offering financial technology packages while utility companies will start providing electric vehicle charging services and flexible service options and banks will integrate financial services into their software platforms. The winners reach their national objectives by implementing business models which produce fast growth.

How outdated models show up on the ground

First, you sell products, not outcomes. The payment system of contracts bases its calculations on the number of units delivered instead of the actual time period of operation. The pricing system operates with a set format which demands customers to pay full costs at the beginning of their buying process. Third, distribution operates through a single channel which remains fragile because new platforms that connect customers to products will cut off your access and steal your data. The practice of innovation takes place in pilot operations instead of through financial performance reports.

The observed patterns point to a problem with the model rather than any issue with marketing operations.

A functional operating system exists to transform your current system design.

1) Map where value will move.

Run a two-week “profit-pool scan” for your sector. The expansion of margins happens through software-wrapped services and platform-based models and usage-based pricing structures. The analysis starts with external trend markers which show payments will shift to embedded finance before it identifies specific business line weaknesses.

2) Select one future model for each core business operation.

Select the single model which provides customers with the strongest lock-in and defensive position through subscription or usage-based or outcome-based or marketplace or circular take-back models. The circular data benefits your business when you perform asset manufacturing and equipment-as-a-service testing and refurbishment operations.

3) Redesign the workflow, not just the wrapper.

Organizations show AI value through their operational adjustments which monitor performance indicators instead of implementing chatbots. The monetization logic requires definition of take rate and attach and utilization rates and the new value unit and data flywheel operation. Set a 90-day redesign sprint for one customer journey.

4) Fund like a portfolio.

The organization should reserve 10–15% of operational expenses for new-model bets which must have defined termination points. Stage-gate on paying users, gross margin, retention, not lines of code. Shift 5–10% of sales comp to the new offer to force focus.

5) Stand up go-to-market in parallel.

Don’t wait for “perfect.” Launch with a lighthouse segment, a clear price metric, and success guarantees. Your software should provide integrated services to enterprise customers for easy transition while SMBs can use it to connect with their current customer network.

6) Measure what the board cares about.

Track mix shift—revenue from new models as a share of total—and gross margin uplift from services. The analysis requires addition of customer payback time and attach rate and net revenue retention metrics. The company needs to shut down or adjust these projects when they fail to show progress during quarter two.

Example plays by sector (GCC-friendly)

  • Industrial & energy: The company needs to transform its business operations by moving from selling CAPEX products to offering outcome-based contracts which provide uptime warranties and energy optimization and equipment renewal services. The revenue model of circular business generates higher customer retention and better market disruption resistance. (Bain)
  • Financial services & payments: The integration of payments into vertical software applications enables businesses to offer reconciliation and payouts and risk management solutions as additional services. Avoid commodity acquiring without software.
  • Retail & consumer: The system needs to have membership levels which provide users with delivery services and financial benefits and return policies. Use AI to optimize demand shaping and personalization within the new value metric. (McKinsey & Company)

Governance: keep it small, weekly, and visible

Create a Model Reinvention Room that meets 30 minutes each week. The system requires one page for each bet which includes problem identification and model development and KPI trend analysis and next proof point identification and blocker identification. We will distribute a Friday note which contains our testing results and learned information and details about Monday system modifications. Momentum beats theater.

If you remember one thing

The past corporate business models stay concealed until their complete collapse becomes visible to everyone. The evidence shows that viability windows are becoming shorter while profit pools are shifting toward new areas and AI together with circularity systems benefit organizations which transform their value creation and delivery methods. Begin with minimal changes that you will implement each week while tracking specific revenue performance indicators. (PwC)

References:

Internal Links

https://3msbusiness.store/when-the-market-moves-faster-than-you-the-real-cost-of-slow-adaptation/

https://3msbusiness.store/securing-essential-profit-pools-to-combat-declining-profits/

External Links

  • External 1 — PwC, 28th Annual Global CEO Survey (2025). (PwC)
  • External 2 — BCG, 2025 Global Payments Report (2025).
  • External 3 — McKinsey, The State of AI: Global Survey (2025). (McKinsey & Company)
  • External 4 — Bain, Circular Business Models Unlock New Profit and Growth (2025). (Bain)
  • External 5 — PwC Middle East, 28th CEO Survey: Middle East findings (2025). (PwC)

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Overpromising Through Price Changes

Price is a promise. The number represents both the worth and the dependability and quality of the product. The alteration of that number produces unrealistic price commitments which damage customer trust.

Leaders require a basic method to modify prices which avoids generating unattainable business commitments.

Why price changes overpromise

A business receives monetary value from customers through price but it represents many other factors. It is a message. A big increase indicates that we have made progress. A deep cut indicates that there are either too many items or items of inferior quality. The rest of the experience stays the same as the message and reality blend into one.

Customers save reference price values in their mental memory system. People use price as a factor to determine the quality of a product. Your company provides service quality and access guarantees through 20% price discounts but these promises remain unfulfilled during times of high demand. The 15% price hike does not provide any better service speed or coverage or support quality which means you make promises of premium quality that you cannot fulfill.

The signal problem

The higher price of a product indicates its superior quality. The product must match it.

The lower price makes the product available to customers. The system needs more capacity to fulfill the growing needs of customers.

The market shows signs of instability because prices in the market tend to change frequently. Buyers either stay in the market or leave it.

The math behind the promise

The price drop causes volume to increase because of elasticity.

The system also shows an increase in fulfillment rates and customer support and return rates.

The discount will create more work when production capacity does not meet the necessary requirements.

The memory effect

The lowest price customers paid becomes their primary memory of the purchase.

People become angry when they must pay additional costs for services which they have already received.

Trust development occurs at a faster rate than trust recovery does.

Reality check

The GCC market functions with high speed. The last-mile delivery expenses experience significant price increases during times of high demand. When you lower prices across the board you need to invest in additional riders and slots and inventory management or you will end up making unrealistic delivery time commitments.

All businesses need to follow VAT rules for proper application. Discounts affect tax-included pricing and invoicing. If stores communicate “before/after” prices poorly, they face both customer backlash and compliance risk. The transport and utility sectors along with other regulated industries use price adjustments to indicate changes in government policies. A single wrong interpretation of customer signals will result in permanent damage to brand trust.

A business must handle price adjustment procedures with care to avoid excessive customer promise commitments.

The safe transfer of price depends on maintaining alignment between operational capabilities and financial resources and messaging consistency.

Tie price moves to visible value

The service provider offers additional options for scope modification which include faster delivery times and extended warranty periods and different support levels.

The system needs to show upgrade details to customers at checkout time and after they finish their purchase.

Show the “what changed” list, not just the new price.

Control volume with targeting

The marketing efforts should focus on smaller audience segments which include loyalty program members and first-time customers and customers who purchase product items.

The system has a capacity protection mechanism which limits each customer to a specific number of redemptions.

Stagger timing by city or channel to avoid spikes.

Protect the reference price

The user prefers to receive bundles and credits and timed perks instead of deep cuts.

The list price should remain constant but the value can be adjusted within this fixed price range.

The price calendar for seasonal events needs to be readily available to customers.

A basic pricing promise architecture exists.

Every price change needs sufficient resources to reach its desired outcome.

One-page pricing brief

The objective of the project is to achieve growth, mix or inventory.

The expected outcomes include units sold as well as Average Order Value (AOV) and gross profit.

The capacity plan includes labor resources and slot availability and stock levels.

“No-surprise” messaging

The evaluation process requires you to determine which element showed the most improvement between speed and features and service quality.

Set limits: quantity, dates, and locations.

The system needs to have a backup system which allows users to join a waiting list or get a raincheck.

Operational backstops

Pre-book logistics and customer support capacity.

The system needs to activate automatic throttle controls whenever Service Level Agreements (SLAs) show any performance degradation.

The system provides real-time access to current NPS scores and cancel rates.

Price changes are not cosmetic. They are public promises. The price should not be changed to avoid overpromising because it should be based on the visible value, targeted demand, and ready capacity. Keep the reference price stable. Be specific about your offerings while being even more specific about your actual delivery capabilities. The right price combined with excellent customer service creates higher trust levels among customers.

References:

Internal Links

https://3msbusiness.store/discount-discipline-stopping-the-race-to-the-bottom/

https://3msbusiness.store/value-based-pricing-charge-for-outcomes-not-hours/

External Links

  1. Harvard Business Review — Pricing Topic

https://hbr.org/topic/pricing

  1. McKinsey & Company — Pricing Insights

https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/pricing

  1. Strategy& (PwC Middle East) — Retail in the Middle East

The link to the report is available at https://www.strategyand.pwc.com/middle-east/industry/retail.

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When the Market Moves Faster Than You: The Real Cost of Slow Adaptation

When the Market Moves Faster Than You: The Real Cost of Slow Adaptation

Leaders fail because of a single poor concept only in exceptional circumstances. The company fails because the world keeps evolving while the organization remains stagnant. Previous business strategies now function as obstacles to present-day operations because companies fail to adapt to changing industries. Revenue decays. Margins compress. Talent leaves for faster ships. The system requires better sensing abilities and faster decision-making and budget adjustments that keep pace with market speed.

The cost of slow adaptation

The value chain undergoes changes when customers begin to adopt new behaviors. Your forecasts will fail because your plan continues to use the outdated chain assumption. The GCC has experienced this transformation through digitalized logistics operations and financial technology infrastructure development and energy sector supply chain modernization. The companies which delayed their entry into the market lost their market share regardless of their size. The business model fails to adapt properly to industry changes at work because it makes small errors repeatedly until it no longer matches the market.

Two signals matter. Your revenue distribution maintains the same pattern from two years ago yet your competitors have made changes to their revenue streams. The market operates at a faster pace yet production cycles extend their duration. If both are true, you are in weak adaptation to industry shifts territory.

1) Spot it early: clear, simple signals

Revenue mix frozen. Your business strategy becomes outdated because 80% of your revenue still comes from traditional products although market trends now favor new products. Watch the share of sales from new products launched in the last 24 months.

Slow product clock-speed. If idea-to-launch takes 12–18 months in a six-month market, you will lose. Track concept-to-cash time every quarter.

Talent and tools mismatch. Your organization will maintain poor market adaptation when you select traditional candidates because the industry demands professionals who understand data and product development and platform management. Measure critical-skill fill rate and productivity per head.

2) Why it happens: root causes you can fix

Annual strategy theater. Many organizations use annual slide presentations as their main method to execute their strategic plans. Markets do not. The 12-month decision lock prevents organizations from making timely adjustments to market changes.

The current reward systems function through systems that have become outdated. The current bonus system gives rewards based on legacy unit numbers which would prevent players from moving their resources. The compensation system should link rewards to new revenue generation and both market launch speed and performance across different business units.

Data without decisions. Dashboards do not function as strategic tools. Determine the essential boundaries which activate the need to take action. The lack of these factors leads to continued poor adaptation to industrial changes.

3) The 90-day adaptation playbook

You do not need a revolution. You need a tight loop.

Sense (Weeks 1–3).

The team should conduct an outside-in analysis once per week by analyzing customer actions and competitor actions and regulatory changes. KSA businesses need to track local content regulations and industrial development plans under Vision 2030 while UAE businesses should monitor Operation 300bn’s effects on manufacturing clusters. Use one page. The study’s main results need to be presented in the last section together with their important implications.

Decide (Weeks 4–6).

The team needs to establish a portfolio board which will meet twice per month. You should place three different types of wagers which include core upgrades and adjacent plays and options. The company bases its capital expenditure choices on present requirements instead of previous patterns. The system stops organizations from making poor adjustments to industry changes because it bases funding decisions on performance results.

Mobilize (Weeks 7–12).

Shift 5–10% of OPEX/CAPEX to new bets immediately. Freeze low-return features. Stand up two cross-functional “mission teams” with a general manager, product, tech, finance, and legal. Every mission needs to have three performance indicators which serve as success measurement tools. Keep scope small, speed high.

4) Metrics that make adaptation real

Time-to-respond. Days from external shock to a funded action. Target <30 days.

% of revenue from new products. Fast markets need to achieve a 15–25% growth objective during the following 24 months.

Budget mobility. Share of spend reallocated in-year. Healthy firms move 10–20%.

Decision latency. Time from insight to decision. Measure it; reduce by half.

Capability index. Skills coverage for priority domains. Close gaps quarterly.

The data shows that the industry is not ready for transition but there is evidence of progress in both board member and financial institution areas.

5) GCC example: a practical pivot, not a press release

A mid-market industrial player in Saudi Arabia made metal components for oil services. The market demand moved toward clean-tech enclosures together with EV supply components. The company demonstrated poor ability to adjust to changing industry conditions because its revenue stayed flat while its inventory grew and its product turns became slower.

They operated the 90-day cycle. The team made changes to the parts production line near batteries during six weeks and joined forces with a local logistics technology company to reduce delivery times by 20%. The company allocated 12% of their capital expenditure budget to start new projects and employed two mechatronics engineers while shutting down three unprofitable product lines. In nine months, 18% of revenue came from the new line, and EBITDA rose 250 bps. It was not flashy. It was disciplined.

6) Governance: make adaptation the default

Your operating model needs to establish three fundamental operational practices.

Rolling strategy. The system needs to reset on a quarterly basis instead of following an annual cycle. Maintain a single-page strategy document which outlines specific exit conditions for each bet.

Budget on rails. Pre-approve reallocation rules up to a threshold. The financial system functions as a speed-enhancing mechanism which drives progress rather than obstructing it.

Board cadence. Add a standing “market shifts” agenda item. Tie CEO/EXCO incentives to the adaptation metrics above. The system prevents organizations from reverting to poor adaptation responses to industry changes.

Finally, communicate in plain language. Avoid buzzwords. State your plans for what you will stop, start, and scale. Share the next 90 days. Then do it. Organizations need to transform adaptation into a structured business process instead of treating it as a surface-level marketing term to solve their weak industry shift adaptation problems. Begin with a minimal approach. Move money. Measure speed. Win.

References:

The internal links:

https://3msbusiness.store/navigating-the-strategic-risks-of-pursuing-multiple-market-opportunities/

https://3msbusiness.store/select-competitive-strategy-you-can-implement/

The external links:

The World Economic Forum published The Future of Jobs Report 2023 which can be accessed at https://www.weforum.org/reports/the-future-of-jobs-report-2023/

The World Economic Forum published the Future of Jobs 2023 report as a PDF document which can be accessed at https://www3.weforum.org/docs/WEF_Future_of_Jobs_2023.pdf.

IMF — Regional Economic Outlook: Middle East and Central Asia (2024): https://www.imf.org/en/Publications/REO/MECA

The following resource provides information about digital strategy in the modern business world: McKinsey — Strategy in a digital age: https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/strategy-in-a-digital-age

PwC Middle East — Middle East Economy Watch 2024: https://www.pwc.com/m1/en/publications/middle-east-economy-watch.html

Saudi Ministry of Industry & Mineral Resources — National Industrial Strategy (Vision 2030): https://www.investsaudi.sa/en/sectors-opportunities/industries/national-industrial-strategy

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Failure to Link Costing to Strategy

Introductory

The main reason teams miss their targets is because their cost management systems do not align with their strategic goals. The guide contains instructions to diagnose Failure to Link Costing to Strategy and outlines required maintenance tasks for this week and demonstrates how to connect budget choices to decisions. Acceptance: (N) or (A-B).

The study examines GCC budgeting through KSA as a case study to understand how costing strategies operate for budgeting purposes in relation to Vision 2030.

acceptance: (N) or (A-B)

Failure to Link Costing to Strategy

The automated costing systems from the previous year generated precise spreadsheets which took you away from your strategic goals. Failure to Link Costing to Strategy represents the core gap because financial standards and unit costs and budgeting systems fail to connect with the limited set of strategic initiatives that generate substantial results. The outcome leads to missed market opportunities and growth-stifling cash that fails to reach any meaningful target.

The observer should note (N) when Failure to Link Costing to Strategy is absent but should record (A–B) whenever any space in this area appears.

Symptoms you will see on the ground

The present budgeting system encounters problems because it uses cost centers to develop budgets which makes it difficult to track how spending affects strategic KPIs.

The drive to achieve lower cost-per-unit production creates adverse effects on customer promise because it causes longer delivery times and lower local production levels and reduced business stability.

The capital expenditure payback period calculations do not include strategic benefits such as resilience and localization and time-to-market advantages.

The quarterly re-forecast process only adjusts financial numbers instead of affecting business decisions because pricing and costing teams rarely meet during this time.

The supply chain policies undergo changes through dual-source and localization but standards need months to get updated. https://3msbusiness.store/capacity-costing-charge-for-the-plant-you-actually-use/

Why this matters now (KSA/GCC context)

The strategic priorities of Vision 2030 demand specific cost trade-offs for efficiency and localization and financial sector development rather than general budget reductions (Vision 2030 overview; Financial Sector Development Program).

Middle East firms are shifting from tactical cash fixes to sustained working-capital and cost optimization, which only sticks when tied to strategy (PwC Middle East Working Capital Study 2024).

The current global market instability requires organizations to establish a specific plan for resilience expenses which boards will accept as an open cost structure instead of concealing these expenses within operational costs (BCG, 2025).

The article in HBR (2025) states that budgets need to follow strategic plans instead of the other way around.

The diagnostic (fast, blunt)

Run these three checks. If any fail, tag CO-031 = (A–B).

  1. Strategy-to-Chart-of-Accounts Trace

The team needs to establish direct connections between strategic pillars and budget lines and cost drivers which enable the achievement of “Localize 30% of spend” and “Cut order-to-delivery by 20%” goals.

o          Pass = ≥90% of pillar spend is traceable to named lines and drivers. Fail otherwise.

The following is a CoA Map of the strategy: https://3msbusiness.store/navigating-the-strategic-risks-of-pursuing-multiple-market-opportunities/

  1. The strategic planning process determines the Unit Cost that will result from organizational decisions.

The standard cost of one flagship SKU requires recalculation under two scenarios which include both strategic choices (dual sourcing and local content and service level).

o          Pass = the delta is explicit in the standard and forecast. The system will fail when it is integrated into overhead systems.

The following guide provides a step-by-step approach to target costing and Kaizen costing.

  1. Pricing–Costing Loop

The system should perform a monthly handshake to update target costs using pricing scenarios and value metrics and price floors using cost changes.

The Pass section contains documented scenarios which establish specific thresholds. The project will fail when the team plans to review it during the upcoming quarter.

The following document contains the RACI matrix for Pricing–Costing.

Root causes (what’s really broken)

The current cost systems operate at departmental levels instead of decision-making points because they do not have TDABC and driver models for strategic control.

The KPI packs display performance differences between planned and actual results which makes every option seem expensive.

The Capex/Opex gates do not consider strategic limitations that go beyond financial considerations which include both local content requirements and service level agreements for resilience.

  • Working-capital policy set centrally, but SKU/segment economics are not segmented.

The following sources provide background information about current cost methods and the value creation process of alignment:

The 2025 literature review about strategic cost management and value creation can be found at https://www.researchgate.net/publication/395027855_The_Link_Between_Strategic_Cost_Management_and_Value_Creation.

The following report provides information about Middle East supply-chain localization and performance for 2024: https://www.pwc.com/m1/en/publications/documents/2024/localising-supply-chains-and-its-impact-on-performance.pdf.

The fix (one-week sprint to green)

  1. Name the bets. Convert strategy into 5–7 funded “choices” with hard targets (e.g., “Local content 35% by 2026-12-31; 2pp margin impact tolerated; 12-day lead-time cap”).
  2. Build driver view. For the top 10 SKUs, model cost as:

The total cost consists of material expenses and conversion costs and logistics expenses and resilience premium and localization premium and learning and kaizen expenses.

The premiums need to be displayed openly instead of being concealed within small print.

  1. Target costing by segment. Set target cost from willingness-to-pay and price fences; back-solve permissible cost and assign owners.
  2. The process of budget decision-making should rely on individual choices instead of following departmental rules set by the organization. The FY budget needs to be reorganized so that every Strategic Action Requirement (SAR) corresponds to a strategic bet while all non-essential items should be frozen.
  3. Working-capital guardrails. The targets for DIO/DSO/DPO need to match segment economics because cash flow days should be the focus instead of inventory tons.
  4. Close the loop monthly. The standard deck brings together pricing and supply chain and finance elements through price floors and cost deltas and mix and resilience KPIs.

https://3msbusiness.store/value-based-pricing-charge-for-outcomes-not-hours/

What “good” looks like (accept “N”)

The development of budget narratives follows strategic betting approaches which function as an alternative to conventional functional guidelines.

Standard costs include line items for resilience/localization which procurement teams receive incentives based on Total Cost of Ownership (TCO) per strategy instead of unit prices.

The price architecture of one page establishes a link between target costs and segment margins and price points.

  • Quarterly board update reports SAR gains and pp move explicitly tied to choices (e.g., “Resilience +1.1pp cost; churn ↓0.8pp; NPS +6; net margin +0.3pp”).

Guardrails & trade-offs

The organization should avoid selecting the cheapest unit cost when it would damage the selected value proposition (speed, resilience, local content).

The company needs to establish resilience and localization as fundamental product features which should be priced as standard components rather than extra features.

The external benchmarks need to stay current and relevant to GCC markets because they include VAT/e-invoicing rules and IPO liquidity trends that affect cost of capital.

External references (3–5, ≤5 years; ≥1 GCC/KSA)

Saudi Vision 2030 — Financial Sector Development Program (KSA): https://www.vision2030.gov.sa/en/explore/programs/financial-sector-development-program

PwC Middle East Working Capital Study 2024 (GCC/MENA): https://www.pwc.com/m1/en/publications/documents/2024/2024-middle-east-working-capital-study-report.pdf

The BCG (2025) study examines Cost & Resilience as a new supply chain challenge in its publication https://www.bcg.com/publications/2025/cost-resilience-new-supply-chain-challenge.

The article “How to Sync Your Budget with a Strategic Plan” from Harvard Business Review (2025) provides guidance on this topic. https://hbr.org/2025/08/how-to-sync-your-budget-with-a-strategic-plan

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The Strategy Without an Exit Plan

The Strategy Without an Exit Plan

Understanding the Importance of an Exit Strategy

The presentation will explain how “no exit path” represents a concealed strategic risk which includes detection methods and a step-by-step guide to create realistic exit strategies through sale or IPO or carve-out or wind-down processes with defined triggers and performance metrics and timeframes.

Why this matters

You have exchanged strategic thinking for optimism because you lack a clear plan to leave a market or product or investment at the beginning. The market direction changes while company valuations decrease and business integration expenses become more complex. Leaders who lack an exit strategy end up staying too long which leads to financial exhaustion and forces them to accept unfavorable sale terms.

How the problem shows up

  • A struggling unit will supposedly experience improvement during the following quarter according to Evergreen.

The sunk-cost bias leads people to pursue outdated research ideas by investing new money into them.

The implementation of custom technology and exclusive contracts for one-way door decisions results in separation costs for employees who decide to exit the organization.

The board pack contains no specific buyer information or listings because it focuses on improving core elements.

Leaders receive their compensation from revenue retention instead of value realization which produces performance objectives that work against each other.

https://3msbusiness.store/navigating-the-strategic-risks-of-pursuing-multiple-market-opportunities/

https://3msbusiness.store/securing-essential-profit-pools-to-combat-declining-profits/

Quick diagnosis (10-minute check)

  1. Option inventory: List all exit routes for each major business/asset: trade sale, IPO/Direct listing, carve-out/spin, JV, run-off/wind-down. Any blanks? That’s risk.
  2. The organization needs to achieve a readiness score between 0 and 5 by showing clean financials and independent operations and readiness for TSA playbook and buyer map implementation. The <3 symbol indicates that the system has no option to exit.

3.The system requires an exit review to take place when quantitative criteria are met (ROIC–WACC ≤ –200 bps for 3 quarters or market share <5% with negative cash ROI). When a statement lacks evidence, it becomes an opinion rather than a strategic plan.

4.Time-to-liquidity: What is the number of quarters needed to convert the asset into cash that is deposited in the bank for each exit route? A project that fails to achieve important targets in four consecutive quarters indicates it will not advance in any way.

Root causes (and what to do)

The growth slides do not match the capital plan because separation costs and working capital unwind do not follow the same pattern.

The complex system structure combined with unclear pricing rules on shared platforms makes divestiture an unappealing solution.

The investment narrative is absent from the buyer perspective because they understand their own investment goals but lack understanding of the buyer’s motivations.

The process of exit requires multiple departments to take ownership of the “sell/no-sell” clock because there are no clear governance responsibilities.

The exit-option playbook (you can start this week)

1) Define the option set and triggers

The document requires two exit strategies for each business segment together with an additional backup plan.

  • Establish triggers that connect to actual value rather than superficial vanity.

o          ROIC = NOPAT / Invested Capital

o          WACC as hurdle

The target for spread is to exit the review process when ROIC – WACC reaches -150 bps over four quarters or when cash burn exceeds SAR X during two consecutive quarters.

The capital allocation policy should contain this requirement to establish a fair competition between growth requests and exit requests.

2) Get separation-ready (make the unit sellable)

The company should present its financial statements as separate P&L and balance sheet reports which eliminate all cross-subsidies.

The IT and HR and finance departments at TSAs already have pre-established rate cards.

The following items are part of the IP and data room hygiene process: contracts that can be assigned and licenses that can be transferred and code repositories that are properly tagged.

The “Day-1” plan outlines which team member will operate each function and establishes service level agreements and identifies critical risks for the first 100 days.

3) Build the buyer map & narrative

The following list includes 10 strategic buyers and 5 financial sponsors with explanations of their current market needs and strategic advantages.

Why Now (Synergies, Capability Gaps, Footprint) for each of the 10 strategic buyers and 5 financial sponsors.

The team should create two different versions of the story which present (a) synergy benefits for strategic partners and (b) independent value creation for sponsors.

4) Select the path based on the existing limitations.

The speed and certainty of a carve-out sale surpasses the process of going public through an initial public offering (IPO).

The valuation optics of an IPO become most favorable when growth potential and company narrative exceed the level of operational complexity because a trade sale becomes more suitable in other cases.

The company should choose a Spin-off or Joint Venture as its exit strategy when it needs to exit partially and wants to maintain option value.

5) The implementation process needs to follow a planned sequence of steps because launching all components simultaneously is not effective.

The following activities will take place during the T–90 days: NDA outreach, teaser, management Q&A scripts, red-flag diligence.

  • T–60: Data room open, VDD (vendor due diligence) launched.
  • T–30: The company issues final offers to customers while adding TSA/SPA price increases.
  • Closing: Communications plan, working capital true-up, Day-1 readiness checks.

KPIs that keep you honest

  • ROIC – WACC spread (bps) by unit
  • Time-to-liquidity (quarters) from decision to cash receipt
  • Separation cost as a percentage of EV.
  • Buyer engagement rate (# NDAs, IOIs, bids)
  • Cash ROI on exit (cash proceeds / cumulative cash invested)

Acceptance guidance (N vs A-B)

The acceptance criteria for optionality demand organizations to meet these specific requirements: (N) The organization must have two operational paths and documented trigger mechanisms and separation readiness at 3/5 or above and time-to-liquidity under three quarters.

The project needs a 90-day plan to handle outstanding gaps which must stay within limits (stand-alone financials, TSA templates, buyer map) and executive sponsorship and monthly board reporting need to be established.

Common pitfalls to avoid

  • “We’ll fix it in diligence.” ( You won’t; it discounts price.)
  • Over-promising synergy to one buyer and under-delivering TSA scope.
  • Treating exit as failure; it’s portfolio optimization.

External resources (recent, practitioner-grade)

Use this now

Pick one at-risk unit. The team needs to develop two exit paths during the implementation of spread triggers and the establishment of the T–90/T–60/T–30 process. The capability to leave a strategy creates a beneficial effect which enables strategic flexibility and achieves optimal capital allocation and highest possible value delivery.

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Securing Essential Profit Pools to Combat Declining Profits

Securing Essential Profit Pools to Combat Declining Profits

Failure to Protect Core Profit Pools

Your business faces profit decline even when top-line numbers remain strong because you have not secured the essential profit pools that sustain your operations. The speed at which profits move between different segments and channels and partners exceeds what most dashboard systems can detect. Your business value creation areas need protection because competitors will be taken over by competitors if you do not defend them. The cash-generating machine that supports your business operations will suffer damage when your growth initiatives consume its resources.

The definition of a profit pool includes its actual meaning and what it does not represent.

A profit pool represents more than your largest market segment or your fastest-growing product line. The profit pool exists as a detailed map which shows economic profit distribution throughout your value chain by customer micro-segments and product lines and channels and geographic locations. Leaders who review their maps four times per year discover changes before others do because distributors take more profit and fast channels give back revenue and premium products secretly consume high-end product mix.

Two main findings from recent strategic initiatives demonstrate that (1) The distribution of industry profit pools undergoes changes because of technological advancements and regulatory requirements and capital expenditure costs and (2) Successful companies track profit pool changes through moat-based explanations that include scale advantages and switching barriers and network effects instead of pursuing revenue growth alone. Morgan Stanley, BCG

The analysis requires you to link your map with customer segmentation data and contribution analysis for proper structure.

Five Warning Signs You’re Exposed

  • Share rising, profit flat. The increasing share of low-margin segments hides a deteriorating core business performance.
  • Price leakage across channels. Uncontrolled discounts in one distribution channel create price erosion throughout all other market routes.
  • Cost-to-serve bloat. Service tiers and SLAs expanded at a faster rate than the company managed to capture additional value.
  • Cannibalization without fences. The “good-better-best” system lacks defined boundaries which allows “good” products to replace “best” products including your top-selling SKU.
  • Regulatory overhang. Your business faces margin compression because of merger control regulations and dominance thresholds and changing compliance expenses unless you develop defensive strategies in advance. The Saudi Arabian government has introduced new economic concentration rules which establish stricter requirements for business control and filing requirements so strategic planning becomes essential. Addleshaw Goddard

A pricing strategy https://3msbusiness.store/discount-discipline-stopping-the-race-to-the-bottom/  and pocket-price waterfall analysis should be performed when price leakage occurs https://3msbusiness.store/value-based-pricing-charge-for-outcomes-not-hours/ .

Map → Moat → Measures: The Core Framework

1) Map the pool.

Create a profit pool matrix starting from the bottom which organizes customer micro-segments across product families and channels. The matrix requires data entry for revenue and gross margin and cost-to-serve and net contribution and capital intensity. Establish a core segment threshold at 60% of total economic profit and identify non-core areas that drain profit from core segments.

2) Moat diagnostics.

Assess the core business segments through moat attribute scoring which includes cost advantage and switching costs and brand power and network effects to detect any signs of decline. The “moat” perspective used by investors provides a method to track how profits evolve and concentrate throughout time. Morgan Stanley

3) Measures that bite.

Organize your findings into specific controls which include pricing restrictions and channel management systems and service level systems and product SKU optimization and partner revenue models that use incentive systems.

Defensive Plays That Actually Work in 2025

A- Pricing fences with teeth

Establish specific criteria that prevent lower-tier offers from reducing premium mix value through minimum volume requirements and feature restrictions and contractual obligations. Leaders who implemented proactive price fence adjustments and indexation clauses during inflation and input price volatility periods managed to protect 200–400 basis points of their profit margins. Simon-Kucher

B-Profit-aware channel governance

The implementation of profit-share parity clauses enables promotional funding to originate from the initiating party rather than affecting your company’s profit and loss statement in other channels. The system requires partners to exchange data for monitoring both pocket prices and product mix distribution.

C-Service tiers tied to willingness-to-pay

The company should establish SLAs for different customer segments while requiring premium contracts or fees to access expedited services. The company can recover uncharged value while minimizing the differences in service costs.

D-Anti-cannibalization design

When introducing new “good” variants or digital self-serve options implement protective measures through feature restrictions and time-based and geographical limitations and establish performance metrics that focus on additional revenue generation rather than user acquisition numbers. Academic research along with industry studies demonstrate that unprotected new offers tend to transfer existing value instead of generating new value. BCG

E-The GCC/KSA region requires M&A and JV operations to follow regulatory guidelines.

The GCC region particularly Saudi Arabia requires businesses to predict merger review results and remedy plans which impact pricing power and integration benefits. The GAC introduced new rules in 2025 to determine control and threshold assessment so you should develop synergy cases and separate sensitive assets from the start. Addleshaw Goddard

The integration planning process requires teams to evaluate market entry obstacles and develop remedy strategies.

The 90-Day Plan for Strengthening the Core Business Foundation

The first thirty days of the plan

Require a complete analysis of profit and loss statements.

The profit pool matrix requires SKU-by-segment resolution to identify economic profit leaders and destroyers among the top 10 items.

The analysis of price movements through channels reveals more than 2% of lost revenue.

The calculation of segment-specific costs reveals which areas exceed 20% above the median value.

The core segment moat scorecard uses a 0–5 rating system to evaluate four moat factors for each segment. Morgan Stanley

Days 31–60: Plug the holes

The two main cannibalization paths require three pricing fences that include eligibility checks and feature locks and indexation to achieve price increases of 150–250 bps. Simon-Kucher

Establishing different service levels while generating revenue from at least two premium service level agreements.

Remove unprofitable products from its portfolio by eliminating the least valuable SKUs that generate negative incremental profit.

Modify its channel agreements to achieve equal profit-sharing during promotional activities.

Days 61–90: Fortify the moat

The sales incentives should focus on core contribution growth instead of revenue targets.

The company should introduce a high-retention package to its most profitable micro-segment during the pilot phase.

The company should create a regulatory protection system through the integration of KSA/GCC deal screening protocols into corporate development procedures. Addleshaw Goddard

The executive team should receive a profit pool review report on a quarterly basis.

A successful price change will produce a distinct audible sound that indicates price competition has been avoided instead of being taken in by the market.

The framework includes specific performance indicators which serve as tracking metrics.

The Core Contribution Share (CCS) metric should reach 70% of total economic profit from defined core segments by Day 90.

The price realization rate after promotional activities should reach +200–300 bps in core segments by Day 60 while maintaining a ±50 bps difference with non-core segments. Simon-Kucher

The cost-to-serve variance between top and median segments should decrease to less than 10% by Day 90.

The cannibalization rate should stay below 5% after 60 days when premium customers switch to value SKUs according to mix-adjusted contribution data.

The Moat Score (Core Avg) should increase by 0.5 points on a 0–5 scale during the first 90 days through strategic changes in customer retention and market dominance. Morgan Stanley

The KSA regulatory system requires 100% of deals to pass GAC 2025 guidelines before LOI submission and no unexpected issues during the filing process. Addleshaw Goddard

Leadership Principles to Keep the Core Safe

Profit pools should receive the same treatment of products in business operations. A profit pool owner should receive a dashboard and quarterly release notes for their management responsibilities.

The implementation of operational barriers requires immediate action. The absence of tooling makes policy ineffective because it remains as empty theater so organizations should integrate rules into their CPQ/ERP systems and partner contracts.

The company should direct its investments toward strengthening its moat instead of pursuing superficial growth initiatives. The company should allocate funds to develop switching-cost features and loyalty mechanics and scale economics which enhance moat scores. Morgan Stanley

The organization should maintain awareness about the specific characteristics of each local market. The GCC market shows increasing competitive competition and enforcement power so businesses need to start legal and pricing and corporate development planning together to prevent margin-diminishing remedies. (Legal Blogs, UN Economic and Social Commission for Asia

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Excessive Idle Capacity Costs: The Silent Profit Leak You Can Fix in 90 Days

Excessive Idle Capacity Costs: The Silent Profit Leak You Can Fix in 90 Days

Excessive Idle Capacity Costs: The Silent Profit Leak You Can Fix in 90 Days

Every factory operating in KSA and the GCC region likely spends money on unproductive idle time that exceeds actual estimates. The facility operates with running electricity and air-conditioning systems while teams remain idle and equipment ages without producing any output. The costs of idle capacity exceed necessary levels because they reduce profit during slow periods and mask poor production choices during busy times.

A step-by-step method exists to detect and value and remove these costs without requiring automatic capital expenditures.

The first step requires identification of idle time sources while distinguishing between useful and unnecessary periods of inactivity.

The maintenance of protective idle time serves to prevent equipment constraints from running out of resources. That’s fine. The actual problem arises from the surplus operational hours which your organization has already paid for but failed to convert into deliverable products.

The evaluation should focus on minutes and rates instead of dealing with abstract overhead costs.

The Capacity Cost Rate (CCR) represents the price of one minute of operation for each line or cell.

The idle minutes represent the operational time that exceeds actual production hours.

Time-Driven ABC enables organizations to track both elements. The model operates with two essential variables which include the expense of capacity supply and the duration needed to complete activities. The model transforms traditional costing methods from uncertain spreadsheet calculations into precise operational calculations based on actual minutes. The following article serves as an essential introduction to Time-Driven Activity-Based Costing for beginners: HBR — Time-Driven Activity-Based Costing.

The second step involves linking costs to actual operational data through OEE (Overall Equipment Effectiveness) measurements.

The OEE system reveals the exact locations where idle minutes occur through its three main categories.

The three main categories of idle minutes include breakdowns and setup times and changeover periods and performance issues from slow production cycles and quality problems from scrap and rework.

Your ability to increase OEE will release paid-for capacity that remains unused. The implementation of TPM and quick changeovers by plants which focus on the “six big losses” enables them to achieve double-digit performance improvements without needing additional equipment. The NIST MEP’s TPM cases demonstrate actual improvements in OEE performance and decreased lost production time on essential equipment. Your business saves money from every production shift through this process. NIST MEP — TPM reduces downtime and lost capacity.

A fast-paced example based on Gulf market conditions

The cast-aluminum cell operates at Dammam facilities. The total yearly resource expenditure amounts to SAR 2.4M.

The facility operates two shifts per day for six days which generates 24,960 available working minutes during a month.

The total number of annual practical minutes throughout the year amounts to approximately 300,000.

The cost per minute of operation amounts to SAR 8.00.

The planned operational time for this month totals 24,960 minutes.

The actual productive minutes reached 12,979 after the OEE measurement improved from 52% to 12,979.

The total idle time reached 11,981 minutes.

The excessive idle capacity expenses for this month amount to SAR 95,848 based on 11,981 minutes multiplied by SAR 8.00 per minute.

The total cost of idle minutes in one cell exceeds SAR 3.4M annually when three similar cells are considered.

The story illustrates the critical point where organizations must choose between investing in capital equipment or demonstrating operational courage.

The 90-day anti-idle playbook

  1. Make the money visible. The Idle Cost Heatmap should be distributed weekly to show idle costs by production line and shift and product family. The calculation of idle minutes at their actual cost in riyals becomes possible through multiplying CCR by idle minutes.
  2. Protect the constraint. The implementation of TPM checklists together with planned maintenance schedules and Andon triggers (visual/auditory alert) will help you achieve this goal. The bottleneck should not receive excessive firefighting efforts.
  3. Slash setup time. The top three changeovers need SMED implementation to achieve time reductions between 30% to 50%.
  4. Stabilize the plan. The S&OP planning period should extend to 12 weeks while establishing boundaries to prevent spontaneous marketing changes.
  5. Fill valleys, not peaks. The implementation of price fences through off-shift price reductions and minimum order quantity increases for slow-moving product families will help you fill production gaps. The constraint needs continuous supply while all other production areas must operate at their designated levels. https://3msbusiness.store/value-based-pricing-charge-for-outcomes-not-hours/

The following KPIs hold significance for measurement purposes

OEE calculation requires three factors which are Availability and Performance and Quality.

The measurement process requires data from MES systems and basic stop logs and cycle counters and first-pass yield records.

Capacity Utilization requires the division of Productive minutes by Practical minutes. The calculation of practical minutes requires subtraction of unavoidable breaks and maintenance time from scheduled minutes.

CCR (SAR/min) requires dividing Total resource cost by Practical minutes.

Annualized controllable cell costs requires division by the total number of practical minutes in a year.

Idle Capacity Cost requires multiplication of CCR by the difference between practical minutes and productive minutes.

Throughput/Constraint Hour requires the division of Value-added margin by Constraint hours.

The calculation of Throughput/Constraint Hour requires OEE data to obtain productive minutes which should be computed weekly.

Implement a costing system that penalizes idle time instead of rewarding it

The traditional absorption method rewards underutilization by distributing fixed costs across fewer units of production. TDABC operates with a different approach. The system should not allocate costs to customers or SKUs that do not use any production time. The unused production time generates idle capacity costs which appear on dashboards that plant managers and financial teams actively monitor.

The time equations should be integrated into ERP quotation processes to prevent Sales from making promises that deplete bottleneck resources or create excessive setup times. The pricing system needs a tool to create price barriers that will occupy unproductive time slots without reducing peak production hours. The implementation of TDABC Modeling and Cost-to-Serve methods is described in https://3msbusiness.store/activity-based-costing-done-right-a-practical-startup-guide/

 and https://3msbusiness.store/capacity-costing-charge-for-the-plant-you-actually-use/

GCC reality check: align with the national agenda

The Kingdom’s NIDLP document explicitly states that efficiency will drive national competitiveness. Plants that adopt ISO-style KPI standards and track OEE daily and use CCRs for capacity pricing will achieve profitable growth beyond physical expansion. Your approach to Vision 2030 implementation will protect your cash reserves. Vision 2030 — NIDLP.

This week’s action list

Create a single slide that presents CCRs for your five most important resource pools without any time is better than never.

Establish a daily OEE huddle at the constraint point which should use a whiteboard if no other option exists.

A 3-day SMED (Single-Minute Exchange of Die) workshop should focus on the most challenging changeover process which should be recorded and timed before implementing solutions.

Create an Idle Cost Heatmap that displays the product of CCR and idle minutes for each shift.

Create two pricing strategies to maximize off-peak production capacity during the upcoming month.

The bottom line

Excessive idle capacity costs do not need to be inevitable. They’re a choice. The combination of OEE for finding minutes and TDABC for pricing them will help you reduce burn rates and delay capital expenditures while enabling better pricing strategies. Most manufacturing facilities can unlock 10–20% of their effective production capacity within a 90-day period. Start there. Then hard-wire the habits.

Do you need assistance to transform idle production time into monetary gains?

Schedule a Capacity & Costing Diagnostic to receive assistance. Our team will determine idle minutes and calculate their costs using CCR before creating a 90-day implementation plan with your operations and finance teams during a four-week period.

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Navigating the Strategic Risks of Pursuing Multiple Market Opportunities

Navigating the Strategic Risks of Pursuing Multiple Market Opportunities

Your organization exists in a state of plate spinning rather than actual growth.

Examine your current situation by asking yourself how many different business ventures you maintain at present. Your business operates across multiple segments and geographic areas while introducing new products through multiple partnership agreements. It feels busy. The presentation appears strong when displayed on a board slide. Multiple market pursuit at one time represents strategy dilution rather than actual business expansion. The death of focus leads to reduced profit margins. Your fundamental duty as a Founder or CEO or senior leader involves making strategic decisions. The following article demonstrates methods to identify potential risks early and evaluate your business portfolio and redirect resources for achieving better outcomes. Strategy requires selecting which initiatives to abandon instead of pursuing additional tasks. Harvard Business Review

Fast takeaways

The power of concentration leads to exponential growth while spreading resources results in thinning capabilities. Strategy requires making deliberate decisions between options. When all tasks receive equal importance then none of them gain proper attention. Harvard Business Review

The available resources in your organization remain limited. Your organization faces three critical limitations which stem from its limited staff numbers and restricted financial and employee morale. MIT Sloan

The pursuit of additional markets leads to the destruction resources and restricted leadership availability.

Kill fast. The implementation of defined exit criteria helps maintain both financial stability of strategic direction

The attraction of multiple markets becomes too appealing because it seems to generate additional revenue paths and flexible business options. The actual results from pursuing multiple markets usually turn out to be contrary to expectations. Sales cycles lengthen. CAC drifts up. Product teams create unappealing generic features that fail to satisfy any customer base. Operations juggle edge cases. The financial department loses its ability to track unit economic performance. The organization shifts from being efficient to becoming overwhelmed with work.

Three silent costs appear:

  1. Attention tax. Executive time gets diced across too many reviews and escalations. Decisions slow down.
  2. Coordination drag. Cross-functional alignment breaks. Handoffs multiply. Rework explodes.
  3. Capital misallocation. The company dedicates its funds to unproven business experiments while its most promising projects receive insufficiently receive financial support. Strategic resource allocation through focused funding methods performs better than random funding distribution. McKinsey & Company

Internal link: Deep dive on triage and focus in our The Importance of Making Informed Choices

https://3msbusiness.store/the-importance-of-making-informed-choices/

The following indicators will alert you when your business attempts to handle too many opportunities

These indicators serve as warning signs which appear before the financial statements start showing problems.

  • Revenue dilution per initiative. The company generates more revenue but each individual business opportunity generates less revenue during three consecutive quarters.
  • Rising blended CAC/Payback. The expansion of marketing efforts into different segments leads to higher customer acquisition costs and longer payback periods.
  • Sales cycle creep. The introduction of new verticals requires organizations to handle additional legal and compliance and procurement procedures which extend the sales process duration. Close rates fall.
  • Roadmap bloat. Your backlog grows with “one-off” requests. The release schedule becomes longer and the content becomes less substantial.
  • Support escalations. The number of support requests transitions from basic usage questions to product deficiency complaints.
  • Leader bandwidth. The calendar reveals your workload through twenty active initiatives that require five minutes each. The activity resembles whack-a-mole more than leadership work.

Monitor these indicators each week. When three or more indicators turn yellow you should reduce the project scope.

Use a basic yet demanding evaluation method to assess your business investments

A 200-cell model is unnecessary for your needs. A straightforward evaluation system exists which you can use to assess your business within one hour.

1) Market Attractiveness

The calculation of total addressable profit should replace TAM in your assessment.

  • Total addressable profit (not just TAM).
  • Growth rate and purchase frequency.
  • The power of buyers concentrates in this market segment.

2) Strategic Fit

Your core business advantage should receive support from this opportunity.

Your current go-to-market strategy should work in this market segment without requiring exceptional efforts.

The initiative will enhance your network effects and data loops and brand value.

3) Unit Economics

The current LTV/CAC ratio stands as the only valid measurement for evaluation purposes.

  • LTV/CAC today, not “after we scale.”
  • Gross margin after discounts and delivery costs.
  • Sales cycle length and win rate.

4) Resource Reality

The leader position requires a person who dedicates at least 50% of their time to the role.

  • Named leader with ≥50% focus?

The team possesses current operational capacity.

  • Clear budget and stage gates?

Each factor should receive a score from 1 to 5. Any score below 12/20 indicates you should either hold or terminate the initiative. Be brave.

The BCG Growth-Share Matrix serves as a portfolio tool to help you make systematic decisions by focusing resources on areas where advantages meet growth potential. Boston Consulting Group

Set goals that force choice

Unlimited ambition creates disorganizes everything. The system consists of two main sections.

The annual “One Big Outcome” defines the essential victory through a single statement. The company aims to achieve #1 market position for mid-market GCC contractors in service costing with a 30% market share.

The system includes three to four measurable key results for each quarterly OKR with a maximum of three OKRs. The system will delay any initiative that fails to advance a KR.

The organization should link financial resources and personnel numbers to these OKRs. No ghost projects.

The link to the article “Where to Begin When Building a Culture of Innovation” and roadmap reset guidance can be found at https: https://3msbusiness.store/where-to-begin-when-building-a-culture-of-innovation/

The organization should allocate resources with absolute dedication

Great strategy fails to deliver results when capital resources and human resources and time resources are not properly synchronized.

Each priority requires a dedicated single-threaded owner who will take full responsibility for its execution. No committees.

The capacity map displays how each team member spends their time through percentage allocations. Your organization faces a reality check when any employee reaches 120% capacity.

The funding process follows a stage-gate system which distributes money through four stages: Discover → Validate → Build → Scale. The evaluation process at each stage requires specific criteria to determine whether to proceed or terminate the project. Stage-Gate International

The organization conducts its weekly operations through a standardized process which occurs at the same time and displays identical information while making uniform choices. The organization maintains brief meetings that produce swift decisions.

The practice of disciplined resource reallocation through CEO-led reviews every quarter leads to better value creation because it directs capital and talent toward the most profitable opportunities. McKinsey & Company

The system should enable adaptability through efficient processes instead of unnecessary tasks

Your organization requires fast learning abilities instead of continuous movement.

The organization conducts three focus sprints during each 90-day period which generate better results than twelve months of unproductive work.

The process of hypothesis-driven experimentation requires managers to establish test plans and performance metrics and success thresholds and termination dates before beginning work. The system should give performance bonuses to managers who end their projects with low success potential. MIT Sloan

The organization should maintain direct contact with its customers through ten active dialogues per segment during each quarter. The organization should use factual data instead of personal opinions for decision-making.

The strategy exists in different versions. The current quarter’s business strategy exists as version 1.0. The organization will deploy v1.1 after conducting their learning review.

Mini-case study 1

The B2B SaaS company attempted to serve five different market segments simultaneously which included healthcare and logistics and retail and finance and education. The company experienced sales cycle fragmentation and extended demo sessions and engineering teams worked on multiple projects simultaneously. The CEO conducted a brief portfolio assessment after the company achieved no growth during the previous year. The financial analysis showed logistics delivered the highest LTV/CAC ratio and best gross margin through its ability to secure multiple mid-market deals. The company eliminated three verticals from its operations while putting one on hold to focus all marketing efforts and SDR activities and product development on logistics applications. The company released targeted content for each segment and improved their ICP definition and created new demo content that demonstrated two essential workflows. The company achieved a 100% increase in win rate and reduced CAC by 28% while achieving 121% net revenue retention during the following two quarters.

Mini-case study 2

The regional contractor entered five new markets at once by offering telecom services and HVAC solutions and solar power and smart metering and facilities maintenance. The company experienced delayed cash flow while its workforce spent time moving between sites which resulted in high idle periods. The company implemented stage-gate procedures and selected water and sanitation services and electrical maintenance as their main business focus because they already had established crews and customer relationships. The company ended its solar EPC business while forming telecom partnerships and implemented standardized bid documentation. The company achieved an 18% increase in fleet utilization while reducing rework and achieving a 7% increase in gross margin during the three-quarter period. The company achieved better profit margins and more loyal customers and improved operational safety through its reduced market presence.

A functional “Focus Operating System” exists for real-world implementation

The system requires only seven days to implement.

Start by making a complete list of all current initiatives and their owners and stages and financial allocations and projected effects.

The 4-lens filter enables you to evaluate initiatives through market assessment and fit evaluation and unit economics analysis and resource availability assessment.

Choose three initiatives from your available options. Your Q-level portfolio consists of these three selected items. All other initiatives need to wait in a backlog.

Each initiative needs a dedicated single-threaded leader who should receive complete authority and focus. The system should provide complete authority and focused work responsibilities to these leaders.

Establish kill criteria at this moment. Create the red lines before emotional reactions begin to influence your decisions. MIT Sloan

The funding process should follow stage-based allocation instead of depending on faith-based decisions. The organization should only release funds after obtaining concrete evidence. Stage-Gate International

  1. Build the dashboard. Five measures: pipeline health, win rate, CAC/payback, gross margin, cash runway.
  2. Run weekly reviews. Decisions, not status.

The organization needs to establish customer feedback through interviews and NPS verbatim data and lost-deal notes.10.  Archive and learn. What did we stop? Why? What would change our mind?

Financial discipline that protects focus

Multiple market pursuits hide the fact that individual business units generate unprofitable results. The business needs protective measures to maintain its stability through these three elements:

  • Gross margin floors by segment. The pilot needs to reach the floor by month six to continue operations.
  • CAC payback limits. The maximum time for SMB customers to reach payback should be 12 months while mid-market customers should reach it in 18 months and enterprise customers in 24 months unless their switching costs exceed normal levels.
  • Working capital control. The company should avoid extending payment terms to acquire strategic business logos.
  • Portfolio cash view. The finance department should present both burn rate and initiative runway data to stakeholders. Organizations that can quickly adjust their resource allocation achieve better results. McKinsey & Company

Market intelligence without analysis paralysis

You don’t require extensive research to obtain the information you need. You need useful signals.

The tracking of three essential segment indicators includes search demand metrics and deal velocity measurements and price competition analysis.

Use GA4 and Search Console to track which content drives qualified sessions instead of general website traffic.

The system monitors competitors through brand and feature alert notifications.

Update your segment brief document once per month by maintaining a single-page summary.

The following actionable strategies help businesses develop flexible business plans

Organizations need to select their main strategic approach between cost leadership and differentiation and focus. The combination of different strategies will create confusion among your teams and your customers. Harvard Business Review

Establish the opposite goals for your organization. Establish specific actions that your organization will avoid performing during this year. Display it for public viewing.

The organization needs to display its available capacity to all teams. The organization should create a resourcing chart that all employees can access. A project cannot begin without sufficient personnel to handle it.

The organization needs to establish clear definitions for its ICP. The ICP definition requires information about industry segment and customer size and application use and purchasing role and spending capacity.

The organization should implement standardized procedures for discovery operations. The organization maintains uniform first call presentation materials and uses MEDDICC or BANT evaluation methods and follows standardized “next step” protocols.

The roadmap needs reduction through feature elimination while increasing completion rates. The company should reduce its features by half while achieving double the number of completed projects.

The organization should establish a dedicated “fast fail” track for short-term experiments which include predetermined termination points. MIT Sloan

The strategic narrative should be more important than all other information. The strategy story needs to be presented on one page which should receive updates every quarter.

TL;DR

Multiple market pursuits create the illusion of expansion yet they damage operational performance and profitability and market concentration. The early warning signs of revenue dilution and CAC drift and cycle creep and roadmap bloat help businesses detect this issue. The evaluation process for market bets requires assessment of attractiveness and strategic alignment and unit economics and resource availability. The organization should establish one major yearly goal while restricting OKRs to specific targets and funding operations based on development stages. Three strategic priorities need capital and personnel alignment through designated owners who must establish termination points. The organization should use 90-day sprints to acquire knowledge through customer validation. Fewer bets. Better bets. Strategy achieves exponential growth through this approach.

CTA

Identify your current overextension points so you can select two essential projects to halt by Friday for maintaining concentration.

The following hashtags are used: #BusinessStrategy #MarketFocus #UnitEconomics #Leadership #Execution #B2BGrowth #GCCBusiness

 

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Choose Competitive Strategy You Can Execute

Choose Competitive Strategy You Can Execute

For busy executives

  • Strategy ≠ Slogans. A business needs to pick a distinct position which involves specific trade-offs because it cannot cater to all possible markets. Harvard Business Review
  • Portfolio must match the pose. Invest money into the few strategic bets that align with your position and use a growth-share matrix to decide whether to harvest or exit the rest of your portfolio. Boston Consulting Group
  • Execution lives in decision rights and information flows, not in org charts. Fix how decisions get made and how facts move. Harvard Business Review
  • Capabilities are the engine. Fit for Growth enables you to fund a small system of differentiating capabilities. PwC
  • Cadence beats chaos. Develop a weekly–monthly–quarterly rhythm that brings decisions into visible schedules and financial plans and performance targets. McKinsey & Company

________________________________________

Why this matters now

Markets are jittery. Talent is stretched. Technology keeps shifting the goalposts. The focus should be on specific goals rather than attempting to solve everything at once. Your organization requires a strategy that it can execute by selecting a clear choice which can be backed by resources and governed to achieve implementation without excessive challenges. The foundation for developing a strategy involves defining how your company will differ from competitors alongside the deliberate choices you will avoid making. The fundamental nature of strategy involves an uncomfortable process. Harvard Business Review

Step 1 — Choose: Position with real trade-offs

Choose one domain to dominate completely while controlling all aspects of it.

According to Porter strategy functions as a distinct market position backed by a set of related activities. The sting in the tail? You must accept trade-offs. The attempt to combine low-cost operations with premium quality results in the mushy middle which makes your business vulnerable to competition. Harvard Business Review

Leaders find the Value Disciplines model more practical than generic strategies because it includes operational excellence and product leadership and customer intimacy as separate disciplines. The approach requires different funding levels as well as measurement criteria and behavioral requirements. Choose one main strategy as your headline while keeping the other options separate. Harvard Business Review

Teaching moment: Use a whiteboard to complete these three sentences without using slides or technical terms:

  1. We win by… (state your discipline or position)
  2. Therefore we will always… (3 behaviors you’ll reward)
  3. Therefore we will never… (3 temptations you’ll reject)

Your leadership team must be able to explain these statements in basic terms or else you have no option but to have wishes rather than real choices.

Step 2 — Align: Put your money where your mouth is

Strategy without resource allocation is just a press release.

You should evaluate your offers through the BCG Growth-Share Matrix to determine the future allocation of capital and talent and attention for the next quarter instead of planning for the next decade. The growth strategy identifies Stars for capital infusion while Cash Cows maintain operational excellence through question Mark experiments and Dog businesses get eliminated unless they support larger system effects. This framework should help organizations stop providing financial support to non-core operations that do not fit their strategy. Boston Consulting Group

Now perform a budgeting process similar to that of adults through “Fit for Growth.” You need to eliminate funding for non-essential capabilities which do not support your competitive advantages while redirecting these funds to the vital differentiators. The process requires targeted funding of core winning capabilities rather than uniform budget cuts. PwC

To achieve the best results allocate 70% to core fit (today’s edge), 20% to adjacencies that enhance the system, 10% to bold bets that could redefine the edge. Make the mathematical breakdown of your choices visible within the company walls so all employees can understand the consequences of your decisions.

Step 3 — Execute: Fix decision rights and the operating cadence

Most execution challenges stem from unclear decision processes. Who decides? With what information? How fast? The study conducted by Harvard Business Review demonstrates that two decisive factors for execution success are defined decision authority and effective information distribution. Structure matters, but these two matter more. Harvard Business Review

A leadership operating rhythm should be established to run the clock weekly while businesses conduct monthly reviews for learning and adjusting and quarterly strategy resets for fresh decision-making. According to McKinsey the same drum keeps beating to show that leaders who implement annual and monthly cadences reduce the strategy–performance gap. McKinsey & Company

Light ceremonial processes include one-page documentation and five KPIs that support your position and a single essential goal for each team during the quarter. That’s it.

Step 4 — Build the few capabilities that create your edge

Your ability to execute a strategy depends entirely on capabilities rather than meaningless slogans. According to Strategy& a capabilities-driven approach requires building a compact interconnected system of processes technology skills and governance that allows you to perform operations your competitors cannot or will not do. The system requires absolute funding through the Fit for Growth lens. PwC

MIT Sloan’s execution work provides a valuable modification to strategy implementation through concrete guidelines that connect to vision and focus on crucial vulnerabilities to direct choices at every organizational level. Think guardrails, not scripts. MIT Sloan Management Review

Example capability systems

  • Operational excellence play: demand forecasting → S&OP → supplier collaboration → plant/field scheduling → last-mile reliability.
  • Product leadership play: discovery sprints → design-to-value → rapid prototyping → launch factories → post-launch telemetry.
  • Customer intimacy play: account pods → data-driven pricing → lifecycle marketing → customer success monetization.

Choose one system and make it functional by connecting it to roles and metrics for performance.

Two compact case studies

Case A — Mid-market B2B SaaS (“Pick a lane”):

The company attempted a dual approach of product leadership and enterprise consultancy. Sales cycles ballooned; roadmap whiplashed. The new CEO decided to adopt product leadership while maintaining a strict ICP that focused on mid-market clients with usage-based pricing. A portfolio review eliminated 18% of unproductive features because of low user adoption. The decision authority regarding pricing lies with PM but Sales needs finance approval to exceed a 5% discount threshold. Weekly operations cadence pairs with monthly business evaluation meetings. NRR increased by 9 points and win rate improved by 6 points while time-to-value decreased by 30% after six months. (Mechanics aligned to HBR execution levers and McKinsey cadence guidance.) Harvard Business Review, McKinsey & Company

Case B — Regional contractor, GCC (“Capabilities, not slogans”):

Leadership declared “quality and cost leadership.” Impossible combo. The company selected customer intimacy as its commercial maintenance approach. BCG lens: harvest retrofit “Dogs,” double-down on service “Stars.” The company developed a capability framework through quick dispatch services together with first-time-fix diagnostic tools and contract analytics which received funding from cuts in low-yield advertising and bespoke retrofits. The 9-month period resulted in a 55% decrease of call-backs alongside a 11% increase of contract renewals and reduced margin volatility. (Moves echo BCG/Strategy& playbooks.) Boston Consulting Group, PwC

Your 30–60–90 execution starter plan

Days 0–30: Make the choice

Days 31–60: Move the money

  • Apply Fit for Growth: identify 10% of cost to reallocate to your capability system. PwC
  • Decision rights need to be redesigned for the five strategic decisions that determine the fate of your business including pricing and roadmap and capital allocation and service levels and hiring. Harvard Business Review
  • Define KPIs that match your position (e.g., cost per unit, release cadence, NRR, first-time-fix).

Days 61–90: Make it stick

  • Launch 3 capability workstreams with named owners and quarterly outcomes. PwC
  • Run the first monthly business review; make one big trade-off public. McKinsey & Company

The organization should reward the execution of a behavior which demonstrates the new rules (culture = repeated behaviors you pay for).

Common traps (and how to avoid them)

  • The “strategy zoo.” The combination of cost leadership with premium service alongside bleeding-edge innovation creates confusion among both teams and customers. Pick one. Harvard Business Review
  • PowerPoint strategy. Beautiful slides, zero resource shifts. Tie every priority to a budget line and a named owner next week. McKinsey & Company
  • Reorg obsession. Reorganizing boxes fails to deliver any results when decision rights and information flows remain unclear. Fix the flows first. Harvard Business Review
  • Cadence drift. Postponing monthly reviews because of being too busy will create future unexpected situations. Guard the rhythm. McKinsey & Company

External sources you can trust (further reading)

The classic strategic analysis of Porter addresses trade-offs. Harvard Business Review, Harvard Business School

The executional approach uses decision rights to control information flows according to Harvard Business Review.

  • Strategy cadence & operating model (McKinsey, 2024–2025). McKinsey & Company
  • Capabilities-driven strategy & Fit for Growth (Strategy&). PwC

The execution of strategy follows the model developed by MIT Sloan.

Final word

The companies which succeed do not merely exist with a strategy. The selection of strategic position requires money and talent realignment followed by precise decision making with a consistent execution rhythm. The complete game requires you to Choose. Align. Execute. The combination of courage in these three actions ensures both survival and compound growth.

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