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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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Discount Discipline: Stopping the Race to the Bottom

Discount Discipline: Stopping the Race to the Bottom

Introduction: Why Discount Discipline Matters

Businesses in competitive markets have only one response when their sales decline: they reduce their prices. Customers will find discounts appealing because they lead to more customers who will drive up revenue levels. But here’s the problem—this “race to the bottom” rarely ends well.

Over-discounting leads to reduced profit margins while damaging brand value through devaluation and trains customers to accept cheaper prices. This approach leads to discount discipline. The method helps organizations avoid impulsive price reductions to create a strategic pricing system which unites customer acquisition with brand worth and sustainable profitability.

Mastering discount discipline represents a growth strategy for founders and CEOs and CFOs and senior staff members because it protects your brand’s market position.

The Psychology of Pricing and Perceived Value

The process of pricing extends beyond numerical calculations. It’s about perception.

People normally link elevated product prices to higher product quality standards. Research conducted by Harvard Business Review shows that consumers believe more costly items deliver greater reliability even when these products share identical features. Your product credibility will suffer when you reduce prices excessively.

Your business should set prices that reflect the value delivered to customers rather than production expenses. Determine what your product or service produces as its final result. Price that value, not the cost of production.

Example: Luxury vs. Commodity

Hermès luxury fashion houses refuse to provide discounts for their fundamental products. The company’s disciplined pricing approach protects its exclusive position and brand strength.

The pricing competition of printer paper commodities results in very narrow profit margins because they compete mainly through price.

The lesson? A brand that presents value as its core value requires disciplined pricing to build stronger market presence.

Why Over-Discounting Damages Growth

The immediate increase from discounting sales leads to substantial long-term financial losses for businesses.

  1. Margin Erosion – Every dollar discounted is profit lost. According to Bain & Company research a 1% improvement in pricing generates an 11% increase in operating profits.
  2. Customer Conditioning – Shoppers learn to “wait for the sale.” This delays purchases and undermines loyalty.
  3. Brand Devaluation – Constant discounts signal desperation. Instead of perceived value, customers see low cost.
  4. Competitive Spiral – If one player discounts, others follow. The consumer receives the benefits from discounts yet remains unloyal to any single brand.

Case Study: JCPenney

The implementation of JCPenney’s “Fair and Square” initiative served as a prime example of this phenomenon. Customers stopped making full-price purchases because JCPenney maintained continuous discounting policies for multiple years. The removal of discounts at JCPenney resulted in decreased sales while destroying customer trust. The brand needed to spend significant funds on rebranding efforts to regain customer trust.

A Pricing Strategy Which Goes Beyond Discounting

The most successful pricing strategies work to maintain a balance between revenue and profit along with customer perception. Let’s explore key approaches:

  1. Value-Based Pricing

Your pricing decisions should reflect how customers value your products instead of focusing on your production costs. Salesforce and similar tech companies find success by focusing on productivity and growth outcomes instead of product features in their pricing model.

  1. Tiered Pricing

Your business should implement different pricing segments to reach various customer groups while maintaining the value of your offerings. The SaaS firm HubSpot employs a pricing system with “Starter,” “Professional,” and “Enterprise” tiers to achieve maximum market reach.

  1. Dynamic Pricing

AI-powered analysis of data enables businesses to perform real-time price modifications. Successful applications of this strategy can be observed in airlines and ride-sharing platforms such as Uber.

  1. Psychological Pricing

Price strategies that include charm pricing ($99 instead of $100) along with bundling techniques help boost sales without lowering core product costs.

  1. Selective Discounting

When discounting becomes necessary it should be implemented according to strategic plans.

  • Offer limited-time bundles.
  • Provide loyalty rewards.
  • Use first-purchase discounts for acquisition, not retention.

Advanced Strategies: Strengthening Discount Discipline

The pricing strategy of executives should maintain alignment with their organizational growth plans:

Subscription Models generate recurring revenue streams which reduce companies’ dependency on discounting practices. The streaming services of Netflix and Spotify deliver ongoing value to customers without depending on periodic sales promotions.

Businesses should grant exclusive member benefits to customers instead of cutting prices to enhance brand value. The approach enables value delivery without damaging profit margins.

  • Price Fencing – Differentiate segments without blanket discounts. For example, student or nonprofit pricing tiers maintain full price integrity for standard customers.
  • Bundled Value – Package complementary services together instead of lowering prices. Adobe Creative Cloud is a classic example—bundling tools for perceived savings without heavy discounting.

Case Studies: Disciplined Pricing in Action

Apple’s Premium Discipline

The company Apple does not provide any discounts to its flagship product sales. The company uses controlled resale channels to deliver value to customers through their trade-in program. The company maintains exceptional market leadership through pricing power that enables outstanding profit margins which demonstrate the effectiveness of discount discipline.

Tesla’s Dynamic Adjustments

The company adjusts prices according to market conditions but does not reduce prices throughout its product lines. The organization maintains selective price adjustments that defend profitability while adapting to worldwide market trends.

Costco’s Loyalty Model

The company operates on a membership-based pricing system instead of regular promotions and discounts. The company uses pricing discipline to retain customers while delivering bulk purchase value.

Southwest Airlines’ Consistency

Southwest Airlines keeps its pricing structure simple by avoiding complicated discounts and hidden fees. Customer trust grows because of this pricing transparency which prevents the company from engaging in price competition with other airlines.

Starbucks’ Premium Everyday Positioning

The competitive coffee market does not influence Starbucks to reduce beverage prices. The company invests resources into developing customer experience and store atmosphere and loyalty programs instead of offering discounts. The approach enables the company to maintain healthy margins while building brand value.

Implementing Discount Discipline in Your Business

Senior leaders can enforce pricing discipline by following these steps to avoid losing customer loyalty:

Step 1: Define Your Value Proposition

Establish what features create value for your product that justifies its price point. Price your products based on ROI and unique outcomes instead of focusing solely on features.

Step 2: Set Guardrails

Internal discount policies should be established to define price reduction boundaries. The company should establish a 10% discount limit for strategic accounts and seasonal marketing promotions.

Step 3: Empower Sales Teams

The training program for your sales team should focus on teaching them to demonstrate value instead of focusing on price points. The organization should offer customers tools which include ROI calculators along with whitepapers and customer success stories.

Step 4: Monitor Customer Behavior

The behavior of customers can be tracked through the use of Google Analytics together with HubSpot and brand monitoring tools.

Step 5: Leverage Certification and Trust

Premium pricing becomes more justifiable when you show certification awards and third-party endorsements. The addition of ISO certification alongside Forbes Fastest Growing Company recognition strengthens your brand credibility.

Step 6: Test and Refine Continuously

You should perform A/B tests with pricing pages and discount campaigns and loyalty programs. AI-driven platforms can reveal how small adjustments improve revenue and retention.

Step 7: Communicate Pricing with Confidence

Avoid apologizing for price points. Your sales teams need training to present value by explaining both the financial savings and operational efficiency and exclusive access customers gain. The confidence displayed during communication stops customers from requesting price reductions.

Internal Links for Further Reading

SEO Best Practices in Action

  • Focus Keyphrase: discount discipline
  • Synonyms/Related Terms: pricing strategy, price discipline, race to the bottom, value-based pricing, profitability.
  • Alt Attributes (example): “Chart showing discount discipline vs. race to the bottom pricing strategy.”
Key Takeaway

A strategic approach to discounts forms the core of discount discipline rather than complete avoidance of discounts. Businesses that enforce pricing discipline develop stronger brands and maintain healthier margins which leads to extended growth.

The bottom price competition cycle leads businesses to burn out and earn minimal profits. The right leaders choose to stop running their businesses to develop pricing strategies that both protect profitability and build customer trust.

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Partner or Build? Making the Smart Ecosystem Decision

Partner or Build? Making the Smart Ecosystem Decision

Introduction: The Strategic Crossroads

Every founder, CEO, or senior leader eventually faces a defining choice: **should we build our own ecosystem, or partner with others to accelerate growth?**The decision serves as a critical juncture which determines future expansion possibilities and market dominance potential and value creation potential.

Ecosystems operate similarly to urban areas. A company possesses the power to establish its own “city” which allows it to determine all infrastructure elements and establish its own set of rules. Leaders who want to establish their business in a new location can use an existing metropolis to gain immediate access to resources, networks and customers.

Ultimately, the right choice depends on timing, available resources, and the competitive environment. The article examines the “partner vs. build” decision by using real-world examples and data-based research and executive-level frameworks.

What Do We Mean by Ecosystems & Partnerships?

The decision requires all terms to be clarified before we can proceed.

An ecosystem consists of products and services and stakeholders which operate together to deliver value. Through its iOS platform Apple creates a connection between developers and users and accessory manufacturers.

A partnership exists as a formal agreement between multiple organizations which unite to obtain mutual advantages. The integration of Spotify with Uber demonstrates this concept through its ability to customize music experiences during car rides.

The distinction between ecosystems and partnerships exists in control although they share commonalities. Ecosystems are typically orchestrated by one company, whereas partnerships rely on shared governance. As a result, executives must weigh not only opportunities but also governance risks before deciding.

The Case for Building Your Own Ecosystem

A company that develops its own platform obtains complete control over customer experience and both data collection and economic operations. This path, however, is resource-intensive and carries higher risks.

Advantages of Building

The company maintains complete authority to determine brand identity and pricing structure and quality standards.

The business model sustainability in the long run depends on the switching costs and network effects.

The exclusive ownership of data enables AI insights and personalization.

Risks of Building

The first costs of building infrastructure and hiring specialized staff turn out to be very expensive.

The market entry delay enables competitors to proceed with their plans.

The delayed market entry creates an opportunity for competitors to advance their operations.

The main challenge lies in the execution complexity which becomes more difficult when scaling partnerships and maintaining standards.

Case Study: Apple iOS

Apple built its own ecosystem instead of depending on third parties.The iOS App Store now produces more than \$80 billion annually (Statista, 2024). Apple maintains control through strict measures which sets development conditions while safeguarding revenue streams and preserving brand consistency.

The Case for Partnering

Through partnership formation companies gain the ability to speed up their growth trajectory. The method allows them to distribute risks while decreasing expenses and accelerating their speed in changing market conditions.

Advantages of Partnering

Speed to market by leveraging existing distribution networks.

The use of shared resources enables both financial and operational cost reduction.

The ability to change direction without significant upfront expenses represents a key advantage.

Risks of Partnering

The company has less control over customer experience and data.

Dependency on partner performance and reputation.

The main potential conflict of interest arises when incentives do not align properly.

Case Study: Starbucks + PepsiCo

Starbucks partnered with PepsiCo to distribute ready-to-drink beverages globally. Starbucks selected PepsiCo’s existing network instead of building its own network to achieve rapid expansion. The partnership now produces more than \$3 billion annually (Statista, 2023).

Data-Driven Insights on Ecosystem Strategy

The Deloitte Global Ecosystem Study shows that executives predict ecosystems will produce more than 70% of future value creation during the upcoming decade.

However, Harvard Business Review reports that 85% of ecosystems struggle with sustainable profitability due to execution challenges. The Accenture research shows that companies which form strategic partnerships achieve revenue growth at twice the speed of companies that grow through internal means only.

The research shows that partnerships lead to faster short-term growth but ecosystem-building provides long-term defensibility when done correctly.

Framework: How to Decide – Partner or Build?

Leaders can apply this four-step framework to guide the decision.

1.Assess Resources & Capabilities

Do you have the capital, talent, and technology to sustain your own ecosystem?

The better choice would be to partner first.

2. Evaluate Market Dynamics

Is speed more critical than control?

The market’s fast pace makes partnership strategies more successful than individual actions.

3.Consider Long-Term Strategic Fit

Does ecosystem ownership align with your mission and growth strategy?

The better choice for defensibility is building.

4.Analyze Risk Tolerance

The construction industry stands as a high-risk sector which provides major potential rewards.

The partnership model reduces risk exposure while both parties benefit from the potential gains.

👉 Suggested Read: McKinsey on Ecosystem Strategy

Hybrid Strategies – The Best of Both Worlds

Leading companies are increasingly adopting hybrid approaches. They build in areas critical to differentiation while partnering in non-core areas.

Case Study: Microsoft Azure

Microsoft built its cloud platform (Azure) while maintaining deep partnerships with software providers. By doing both, Azure became the #2 global cloud provider with 24% market share in 2024 (Canalys).

The hybrid approach demonstrates how organizations can reduce risks while establishing defensibility.

Strengthening Ecosystem Decisions with AI

The “partner vs. build” choice can be de-risked through AI-driven insights by monitoring:

The following tools help businesses detect customer demand signals: Google Analytics 4 and Amplitude.

Brand sentiment (Brandwatch, Sprout Social).

For example, AI dashboards can track partner performance across revenue contribution, churn rates, and customer satisfaction. Leaders must decide between preserving their present partnership network and building their own ecosystem.

Common Mistakes to Avoid

Overestimating control in partnerships. Without alignment, they collapse.

Underestimating costs of building.The expenses for infrastructure development along with community management costs tend to rise above their initial estimated amounts.

Failing to measure impact. The failure to track KPIs results in weakened ecosystem health.

Certifications, Awards & Credibility

Credibility often determines whether partners trust you—or customers adopt your ecosystem. To build confidence:

The company needs to get ISO certifications for data security.

Pursue industry awards (e.g., Gartner Magic Quadrant recognition).

The company needs to show its sustainability credentials by getting B Corp or LEED certification.

The signals create trust while making it difficult for competitors to enter the market.

Key Takeaways for Founders & Executives

The process of *Building* delivers control and defensibility but requires time and capital.

The partnership between companies leads to faster expansion but it also makes them more vulnerable to dependency issues.

Organizations can decrease their risks while keeping scalability through the implementation of hybrid strategies which integrate both approaches.

The AI tracking system and certification process will help you achieve your desired career path regardless of your chosen direction.

Key Takeaway

Leaders must view ecosystem strategy as a defining choice. Partner when speed and scale matter most. Build when defensibility and control are critical. Hybrid models often provide the best of both worlds, especially when reinforced by AI insights and credibility signals.

👉 Next Step: Audit your current partnerships and ecosystem position. Where should you deepen control, and where can alliances accelerate growth?

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Capacity Costing: Charge for the Plant You Actually Use

Capacity Costing: Charge for the Plant You Actually Use

Introduction: Why Capacity Costing Matters More Than Ever

The main obstacle founders and CEOs and CFOs encounter is not revenue growth but profit scalability. Organizations lose their profit margins because they continue using outdated costing models. They distribute plant or equipment overhead across products based on theoretical full capacity, not actual usage.

The game changes when capacity costing enters the picture. Businesses can achieve better product profitability and stronger investor confidence through cost alignment with actual plant usage levels which enables better pricing strategies.

The article presents capacity costing basics through real-world examples which demonstrate its financial value.

What Is Capacity Costing?

Capacity costing is a cost allocation method that assigns plant or facility overhead to products based on actual utilization instead of “ideal” or “maximum” capacity.

The process can be compared to staying at a hotel.

Traditional costing assumes that every room is occupied throughout the entire year (theoretical capacity).

  • Capacity costing only charges costs to the rooms that are occupied.

This approach ensures costs are charged fairly and prevents underutilized capacity from distorting product margins.

The Flaws of Traditional Costing Systems

Most companies still use absorption costing or traditional overhead allocation, which spreads fixed plant costs evenly across units produced. The problem?

The production decrease leads to artificially high costs per unit.

The appearance of products that require minimal resources tends to be more costly than their actual price.

The company makes suboptimal pricing or investment choices through incorrect margin calculations.

A 2022 Deloitte study revealed that 47% of CFOs acknowledged their cost allocation systems produced inaccurate product profitability data which led to incorrect pricing and lost business potential.

How Capacity Costing Improves Profitability

  1. True Cost Visibility

The actual use of plant time becomes the basis for charging managers to determine which products generate profits and which consume resources.

2.Better Pricing Strategies

Accurate cost estimation enables businesses to establish competitive prices that protect their profit margins.

3.Eliminates “Phantom Losses”

Idle time doesn’t inflate product costs. The system stops teams from stopping profitable products because of incorrect accounting.

  1. Improved Investor Confidence

Investors value transparency. Companies using advanced costing models often receive higher valuations because their numbers reflect economic reality.

Real-World Case Studies

Case Study 1: Automotive Manufacturing

A German mid-size automotive parts supplier adopted capacity costing through SAP’s CO-OM-CCA module.

The main issue with traditional costing methods was that they produced higher per-unit costs during periods of reduced production during seasonal declines.

The solution required overhead expenses to be charged only to actual machine hours used which led to a 23% decrease in cost variances.

The CFO achieved a 12% improvement in gross margin reporting accuracy which affected strategic investment decisions.

Case Study 2: Food & Beverage Sector

A U.S. dairy processor faced changing market demand patterns between yogurt and cheese products.

The costs were distributed uniformly across all products which made yogurt seem unprofitable in the old system.

The plant experienced high profitability from Revealed yogurt production yet this profit was concealed by the time the plant spent idle during its low production runs.

  • Result: The company redirected its marketing budget to increase yogurt production by double within 18 months while obtaining a new Walmart contract.

Case Study 3: Tech Hardware Firm

A Fortune 500 electronics manufacturer adopted Time-Driven Activity-Based Costing (TDABC) which serves as an advanced version of capacity costing.

I received the 2023 IMA Corporate Finance Excellence Award to honor my achievement.

The system implementation resulted in a 30% reduction of cost-reporting errors.

The use of real-time capacity dashboards in investor reports improved credibility with analysts.

Certifications & Frameworks Supporting Capacity Costing

Leaders who need to establish authority and structure in their costing systems should consider the following:

  • Certified Management Accountant (CMA) – Covers modern cost management practices, including capacity costing.

The Chartered Financial Analyst (CFA) Institute Research supports activity-based approaches as the preferred method for profitability analysis according to their research.

The Institute of Management Accountants (IMA) publishes whitepapers about time-driven costing systems.

Implementing Capacity Costing in Your Business

Step 1: Audit Current Costing Models

Identify whether you’re allocating costs based on theoretical maximum capacity or actual usage.

Step 2: Choose the Right Tools

ERP Systems: SAP, Oracle NetSuite, Microsoft Dynamics have capacity costing features.

  • AI-driven Analytics: Use tools like Google Analytics 4 for demand tracking and brand monitoring AI (Brandwatch, Sprout Social) to align marketing with true capacity utilization.

Step 3: Train Your Finance Team

The organization needs to choose between employing staff members who possess CMA/CFA certifications or organizing training sessions with the American Accounting Association.

Step 4: Communicate Across Departments

The accurate maintenance of costing requires operations, sales and finance to work together on plant usage data.

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  • Plant capacity costing
  • Time-driven activity-based costing (TDABC)
  • Profitability analysis for CFOs

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Structure Overview

  • Capacity Costing: Charge for the Plant You Actually Use

  • Introduction

  • What Is Capacity Costing?

  • The Flaws of Traditional Costing Systems

  • How Capacity Costing Improves Profitability

  • Real-World Case Studies (H3 subsections by industry)

  • Certifications & Frameworks Supporting Capacity Costing

  • Implementing Capacity Costing in Your Business

  • SEO Benefits

  • Suggested Internal & External Links

  • Key Takeaway

Key Takeaway

Capacity costing allows you to bill for the actual plant usage instead of charging for unused theoretical capacity. The system implementation enables executives to obtain exact profitability data while preventing expensive pricing mistakes and building investor confidence. ERP tools combined with AI tracking and trained finance teams make capacity costing more accessible than ever which could be the profitability solution your company needs.

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Activity-Based Costing Done Right: A Practical Startup Guide

Activity-Based Costing Done Right: A Practical Startup Guide

Activity-Based Costing Done Right: A Practical Startup Guide

Every founder or CFO knows that profitability isn’t just about sales—it’s about understanding the true cost of delivering value. Selecting the proper costing system at startups will decide whether businesses succeed in expansion or exhaust their financial resources.

The solution to this problem is Activity-Based Costing (ABC). ABC tracks expenses to their source activities rather than using traditional costing methods that use equal distribution of overhead costs. The result? The outcome provides a precise view of profitable products and services and non-profitable ones which eat into profit margins.

The right implementation of ABC gives you both smarter pricing capabilities and better guidance for product design and operational efficiency as well as long-term growth strategies.

What Is Activity-Based Costing (ABC)?

The Activity-Based Costing method assigns costs to products and services by measuring the resources they utilize. The ABC system divides overhead costs into separate activities which encompass production runs and customer support alongside order processing.

Key elements include:

  • Activities – the actual tasks that consume resources.

The number of purchase orders and machine hours serve as cost drivers which determine the amount of resource each activity needs.

Cost pools – groupings of costs tied to specific activities.

The allocation process distributes activity expenses to products and services according to their usage.

👉 The main advantage of ABC is that it distinguishes between products with different production costs and support expenses even if they share identical raw materials.

Why Activity-Based Costing Matters for Startups

The scarcity of resources defines startups. Traditional costing methods mask inefficiencies by distributing costs evenly between different products and customer segments. The ABC method shows exactly where your financial resources are being utilized.

Benefits of ABC:

  1. Accurate Pricing – Prevents underpricing by revealing true margins.

The method reveals customer profitability because it shows which clients need more support resources.

  1. Better Decision-Making – Supports whether to scale, pivot, or discontinue a product.
  2. Operational Efficiency – Pinpoints wasteful processes to cut costs.

The implementation of ABC by Deloitte allows businesses to achieve better cost accuracy through 10–30% improvements which produces enhanced profitability and growth decisions.

Real-World Case Studies

Case Study 1 – SaaS Startup Reduces Churn

The mid-stage SaaS organization discovered enterprise clients paid well yet required excessive customer support utilization. Leadership used ABC to determine that smaller clients produced higher value per dollar expenditure than the enterprise segment. The company implemented premium support pricing for enterprises after which they experienced both reduced client departure rates and a 15% boost in net revenue retention.

Case Study 2 – Manufacturing Startup Improves Margins

A hardware startup applied traditional costing to set prices for all their products. The implementation of ABC revealed to the company that specific “hero” products became unprofitable because of intricate manufacturing procedures. The company achieved a 12% margin boost after implementing price adjustments combined with workflow simplification during their first year of operation.

Case Study 3 – Consulting Firm Adjusts Service Mix

The boutique consulting firm employed Activity-Based Costing to analyze service delivery operations. The company discovered that their custom projects consumed more resources than their standardized workshop offerings. Sales efforts directed towards standardized workshops enabled consultants to achieve 25% higher profitability during their working hours.

How Activity-Based Costing Works in Practice

Step 1 – Identify Key Activities

The initial step requires businesses to create a detailed list of their fundamental operational procedures that include order processing and marketing campaigns as well as client onboarding and production runs.

Step 2 – Define Cost Drivers

Choose measurable units (e.g., hours spent, transactions processed, number of design iterations).

Step 3 – Create Cost Pools

The system groups expenses into categories that match particular activities (IT support costs related to customer service requests).

Step 4 – Assign Costs to Products/Services

The distribution of expenses must follow actual consumption patterns. Product A receives a greater portion of engineering costs since it needs twice as many engineering hours as Product B.

Step 5 – Review & Optimize

Each product or service should have its profitability analyzed to decide whether to modify pricing structures or eliminate non-profitable products from the market.

Common Pitfalls and How to Avoid Them

  1. Overcomplicating the System – Start small. The 20% of activities which generate 80% of the costs should be the main focus.
  2. Ignoring Data Quality – Garbage in, garbage out. Tracking activities must be done accurately.
  3. One-Time Setup Mentality – ABC should be reviewed quarterly to reflect business changes.
  4. Failing to Act on Insights – Costing data is only valuable if it informs pricing and strategy.

Certifications, Awards & Industry Validation

Mastering costing helps to gain trust from investors and business partners. Startups can leverage certifications such as:

  • CIMA (Chartered Institute of Management Accountants) – Recognized globally for costing and management accounting.
  • CFA Institute – Provides advanced financial analysis training, including cost management.
  • ISO 9001 – Operational excellence certification that reinforces process efficiency.

🏆 Companies with recognized financial discipline not only attract funding more easily but also justify premium pricing through proven cost transparency.

AI & Technology in Cost Tracking

The ABC process becomes a chore when it is done using traditional spreadsheets. However, modern tools can automate a lot of the process.

Recommended Tools

  • Google Analytics 4 (GA4) – Tracks resource allocation and customer engagement costs.
  • Xero / QuickBooks – Integrates activity-based tracking for startups.
  • Tableau / Power BI – Visualizes cost driver analysis.
  • AI-Powered Tools (e.g., Planful, Cube, Pigment) – Automate real-time ABC updates with predictive insights.

📈 A Bain & Company study found that startups using AI-driven cost tracking improve decision-making speed by 40% compared to manual systems.

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How ABC Supports Scaling

For founders and senior staff, ABC is more than accounting—it’s a scaling strategy. By understanding which products, services, and clients truly drive profitability, leaders can:

  • Price with confidence.
  • Eliminate silent margin killers.
  • Allocate resources to the highest-value opportunities.

The result? Sustainable growth built on financial clarity rather than guesswork.

Conclusion: Costing as a Strategic Weapon

Startups often underestimate the importance of costing. But in reality, Activity-Based Costing is a strategic weapon—one that turns raw financial data into actionable insights.

By tracing costs to real activities, you gain the power to price effectively, streamline operations, and scale with confidence. In today’s hyper-competitive environment, that clarity is the difference between growth and stagnation.

Key Takeaway

Activity-Based Costing gives startups a clear picture of profitability. By mapping activities, tracking cost drivers, and using AI tools, leaders can price smarter, eliminate waste, and scale sustainably.

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