In one of my all-time favorite business books, Business Model Generation by Alexander Osterwalder and Yves Pigneur , they discuss the key resources that drive business. I really enjoy this topic because it speaks not only to the financial assets that a company owns, but also to the non-financial resources as well. Many accountants understand the financial assets of a company because they are listed in the financial statements. However, the non-financial resources that a company possess are just as, if not more important, than the financial assets.
The Business Model Generation handbook categorizes ‘Key Resources’ as:
– This would include physical assets such as manufacturing facilities, buildings, vehicles, machinery, equipment, computers, and distribution networks.
– This would include items such as brands, proprietary knowledge, patents, copyrights, partnerships, customer databases and goodwill. Some of these could be listed on your financial statements depending on how you acquired them. If you build a brand or a customer base over a period of years, this would not be on your financial statements. If you purchased an existing business, it’s likely that you paid for a customer database or other intangible assets that are listed in your financial statements.
– All enterprises require human capital, but certain business models are knowledge intensive. Examples that require extensive human capital are law firms, medical groups, creative industries, accounting firms, and pharmaceutical companies.
– Some business models require intense financial resources such as cash, lines of credit, or stock option pools for hiring key employees.
Now that we know the different categories of ‘Key Resources’, what do we do with them? Here is an exercise that you can go through with your business:
- Inventory your top five to ten resources. This will most likely entail resources that spread across the above categories. Let’s assume that you are a manufacturing business that relies heavily on machinery. Your machinery may or may not be your most productive resource. It is quite possible that you brand precedes your machinery as your most valuable resource.
- List your top resources in order of importance. I would suspect that your brand/reputation comes very close to the top (if not the top) of your list. Other intangibles that could potentially be at the top are patents and intellectual capital.
- Determine revenue drivers. Once you have your top five resources listed, determine how they drive revenue in your business. You may have a patent that allows you to produce a certain widget and you may have machinery that you use to make the widgets. You may have key people on your team with specialized knowledge that drives your revenue. An example would be a doctor within a medical group that has highly specialized knowledge and a significant amount of published research. The intellectual capital that the doctor has may be a key driver to the medical group’s revenue.
- Consider different ways to generate revenue with the key resources that you have. Many people would consider Apple a computer or electronics manufacturing company. However, they don’t manufacture their own products. That is all contracted out. As a result, they have chosen to invest more in intellectual and human resources than into physical resources. If technologies continue to rapidly change, which they do, Apple does not risk in investing in the manufacturing equipment to produce their goods. Instead, they invest in invention and design and then allow other companies to invest in the plants and machinery to produce the inventory.
In summary, consider the key resources in your business and then determine if you are maximizing the amount of revenue that you can generate from them. If you want help with this exercise, let me know.