Why measure business performance by a return on key component and not on the competitive edge the key component provides?


A few people who have read ROKC, Leadership built on the Return On Key Component have asked this question so I feel it is best to answer it publicly for the benefit of all group members and those who read the book.

Although it makes perfect sense to measure business performance from the return on the competitive advantage since this is ultimately what allows the business to operate in its market it does not go far enough to the root of the business. Much like the vast majority of business techniques which measure their performance against some rather arbitrary benchmarks, calculating a return on competitive advantage would be hindered by the same drawbacks: it doesn’t get to the assumptions.

By measuring everything the business does against its key component leaders are obliged to question the primary assumption of how competitive is the key component. Likewise, the key component is an asset while the competitive advantage is conceptional and relative. Having something “concrete” helps make decisions real.

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