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while cost reduction is limited. Costs can only be reduced to zero; closing the company tomorrow will cause this to happen. Remember that we need to have the green curve (stability) as well. The two major categories of costs are employees and suppliers. Cutting costs means layoffs. Will you get the collaboration of those who remain in the company? If you lay off people after they have improved, how successful will other improvement efforts be? The other major category is the cost of purchasing raw materials for production of the physical product that is sold. It is not uncommon for a company to squeeze lower prices from its suppliers. The result is that the gross margins of the supplier are quite low—so low in fact that your supplier (which is typically small) can go out of business when the market conditions become bad. The impact of squeezing lower prices is that the relationship between the company and its supplier is not good, but rather can be contentious. What if we instead focused on finding a way for the company and its suppliers to get both their needs met—to find a win-win solution for both companies? The result would be a better relationship and if the solution is effective, both companies will have much higher profits.3

The only way to achieve a very ambitious NP target is by significantly increasing sales. All our efforts should not be focused on reducing costs, but rather on increasing sales much faster than OE increases.

The second PA in Step 1 (Table 34-1) is not just about exhausting the cash resource. A more significant concern is about not exhausting management. Special efforts exhaust people. The result will be the inability to stay on the red curve. We also cannot afford high risks—a 20 percent risk for a decision is high if this type of risk is taken more than once. Do companies build a new plant without knowing the company will sell its capacity? Management does not know they will sell it all. Yet, they put all their cash and credit on the line. This is like playing Russian roulette with more than one bullet in the gun.

Notice how the tactic is a direct logical derivative of the PAs and the strategy. There are five components to this tactic. First, we must have (1) a decisive competitive edge (DCE); an edge is not based on color. Exponential growth in T cannot be achieved without a DCE. Is this enough? Technology start-ups have a DCE—they have a much better product. However, most fail within two years because they did not have the ability to (2) capitalize on their DCE. The third component is (3) competing in a big enough market. It must be large enough to sustain the growth needed to reach the VV target. Therefore, it cannot be a niche market. The last two components are about (4) not exhausting our resources of cash and management (5) without taking real risks.

What we need to do is figure out how to achieve these five components of the tactic. The SA is also a fact of life. It is a fact, which is common sense, that most people will ignore, which if ignored will not result in all the actions being implemented that are required to achieve sufficiency. The meaning of the DCE is described in the SA of Step 1. If a significant competitor has the same DCE, you are in a price war.

After we seriously accept the definitions of strategy and tactic, we realize that we can ask these questions for every action. This means that strategies and tactics must be defined for all levels, not just at the top and the bottom of the organization. As we go down the S&T tree, more and more details for how to achieve the higher-level strategies and tactics are provided. All of the logic for the actions required to achieve the goal is provided within the S&T tree in the three types of assumptions.

There are five major splits below Level 1 of the VV S&T tree, resulting in different generic S&T trees (a generic S&T tree may need to be customized for a specific organization). Each one applies to a different environment:

Retailer: sells end products directly to the client from its shelves. This type of environment is