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A very important topic for any manager or entrepreneur to know is Source-Derivation. Understanding Source Derivation is to the Entrepreneur as understanding the laws of physics is to an engineer. If you go into business without it, good luck.
Source Derivation is this: The entire operations of a business is derived from the product(s) or service(s) it sells which is derived from customer needs. Every single function of a business has some relation, direct or indirect, to either the product and/or customer. In a vague sense, departments such as marketing, finances, operations, human resources, and their internal elements have some relation to either the product and/or customer. Thus, the nature and operation of these elements must complement the nature of their sources.
Further, and more specifically, the intrinsic nature and specificity of these departments will be determined by the specificity found within the consumers' needs and the product or service. For example, the marketing message of a software firm will include details directly related to the unique software being marketed and its relation to the unique consumers of this product.
To help you better understand this source-derivation concept, let me give a parallel: Religion. Virtually all ancient religions, excluding Christianity, were created to explain reality; reality is the source, religion the derivation. One can know that theology will contain particular thoughts simply because there must be a explanation for each major element of reality. For example, Greek mythology teaches that man became man (different than animals) because Prometheus, a god, chose to steal various powers from the gods and give them to man. They also teach that Kronos is the god of time, Uramos the god of the sky, etc. Every major aspect of reality is explained by these gods. Thus, if a student understands reality (the universe, earth, sky, man, etc), he or she can infer virtually the entire theme and direction of Greek Theology without having any prior learning.
In the same way, all operations of a business are derived from a need just as each aspect of religion is derived from a corresponding aspect of reality; since a company creates a product/service to fill this need, everything about a business revolves either around the customer or product. One may know the derivations which may be created by simply extrapolating rationally and creatively from the sources. For example, if some product is small in size, durable in nature, and appeals to a basic need of a specific target audience dispersed over a large territory, there is a good chance that it will be marketed directly utilizing direct marketing selling principles.
In extrapolating rationally, one may also know what elements of business simply must exist'and it is in this principle that we discover invaluable application. For example, a business with an uncommon and complex product requires extensive communication with consumers; this is absolutely vital and there must be no compromise whatsoever. You can only understand the vitality of communication, and thus, effectively carry out communication on a consistent basis if you understand the source'the complex product'and realize the simple fact that it must be explained.
This is very important for an entrepreneur. Typically, an entrepreneur has already found a need and has already determined the product or service. What has not been determined is how the rest of the business functions will operate in order to create the product, secure customers, and keep customers; in essence, they haven't determined the derivative of the primary need-source. Understanding the Source Derivative concept, combined with horizontal analysis, creates a rational and systematic procedure for determining the structure and operations of a business and an approach based upon sound principle and greater assurance of relative effectiveness (not necessarily feasibility).
This isn't rocket science, yet many fail to define the customer needs and product and thus fail to create an optimal business. Why? Because too many begin by creating the derivative functions before understanding the product/service an how it relates to consumer needs. The equivalent of this in the real world is like an engineer who does poor engineering analysis before building a bridge, and a bridge with weak support will surely not be able to withstand time and may even fall apart in extreme weather. Amazingly, much the same way, businesses are often left to a little good business sense and the rest chance.
Why do so many businesspeople do this? Simple. Either they don't have a proper understanding of business and/or they care more about something else (profits, a personal agenda, a certain function instead of the whole, etc) rather than the consumers' needs; they are like the engineer who doesn't understand the laws of physics or the one who cares more about ease or speed of construction instead of long-term stability. They try to get by without properly communicating an uncommon, complex product maybe just because it doesn't jive with the bottom line. Little do they know that there will be no bottom line without such communication.
Interestingly, business textbooks nowadays do in fact teach the customer-centric approach, however, most of them seem to simply state the importance with only a vague reason or two why it is so. They do not stress the fact that every single operational element of a business is dependent upon the consumer and product of the firm and if there is an alteration in the sources, there should be an infusion of change throughout the derived business functions. They also don't tell you how to create these business functions, in a rational and sound manner, with this relation in mind; and thus, they fall short where it matters because we know that ideas without practical application are useless.
In my next post, I will explain the leverage in operational strategy. That is, how one can look at a business's consumer needs and the business's product or service combined with horizontal analysis to create business functions that operate properly in respect to these sources. When all functions operate in such a manner, synergy is created and competitive advantage is often gained.
I will give a real life example of this operational strategy'which utilizes source-derivation'in my next post. |
| Author: Eliot Wasmund |
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Author Bio:
My name is Eliot Wasmund. I am a humble college student at the University of Wisconsin Whitewater majoring in Entrepreneurship where I��m VP of the Collegiate Entrepreneurs Organization. I��ve been fortunate enough to have quite a bit of entrepreneurial experience in my young years, and I definitely have some more to come in the future. I just so happen to love entrepreneurship; I guess I got that gene that they��re talking about or something like that, maybe the blood type�CI don��t know. For more information and great articles, go to www.eliotwasmund.com where I write on entreprneurial topics for those who dare to think big. I look forward to seeing you! |
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