Analzying the predominant business equation
In greek language ,analyze means cut to prices which we will proceed to do with this theory before positing a better theory. When you think about the traditional theory of an enterprise, you would no doubt construct a model similar to this
Revenue = capacity * efficiency*cost plus price
Since this model dominates the thinking of business leaders to this day, it is worth explaining the model in greater detail in order to understand both its strength and as will be increasingly detailed its fundamental weaknesses.
Consider a professional service firm, such as accounting, legal, architecture, engineering, consulting, or advertising; the archetypal pyramid firm model rested on the foundation of leveraging people power, in effect their “capacity.” The theory is this since the two main drivers of profitability are leverage (number of team members per owner and the hourly rate realization a form of cost plus pricing ) if each partner could oversee a group of professionals, this would provide the firm with additional capacity to generate top line revenue, and thus add to the profitability and size of the firm. If a firm wanted to add to its revenue base, it had two primary choices : it could work its people more hours. Or it could hire more people it is no secret which choice the average firm tends to choose, much to the chagrin of its already overworked team members. In most firms, the partners wait until demand is bursting at the seams before they add more professionals.