Reference: This methodology applies the formulas, sector weights, and gate logic defined in the Calculation Manual. All formula references point to mechanics.html.
Asset Preservation Analysis
The calculator diagnoses where a company stands. The potential analysis determines what it would take to move. It translates the diagnostic into board-level decisions: which levers to pull, what the financial impact would be, and how the business model needs to change. The potential analysis is structured as four interconnected views of a single company.
1. Strategic Position Assessment
The starting point is the company's current position on the Extended Return Risk Assessment Matrix™. The assessment follows a fixed six-part structure, each section building on the previous one. No section is optional.
Part 1: Matrix Position
The quadrant name and a one-paragraph description of why the company is there. This is the executive summary. Example (BMW): "Undervalued Asset Risk Zone. Strong circular economy assets but the compensation architecture does not yet reward circular value creation. The market underprices the circular infrastructure BMW has built."
Part 2: Why This Position (Axis Explanation)
Two paragraphs explaining how the two axes produced this placement. The vertical axis (Economic Asset Viability) is explained through the company's RAR, LVE, CRR, and theta values with evidence. The horizontal axis (Capital Stewardship) is explained through ROIC-WACC spread, CDQ Score, and the TR³S compression effect (if PA is negative, the horizontal position compresses leftward). This section names the specific bottleneck. Example (BMW): "The composite CRR (0.15) partially lifts the Regenerative Multiplier, but the conversion gap between infrastructure and revenue is the primary bottleneck."
Part 3: What Led to This Position
Six evidence-based subsections:
3.1 What Led to This Position: the factual chain from financial gates through asset viability to capital stewardship. Numbers, not narratives. ROIC-WACC spread, CDG status, RM composition, CDQ rating.
3.2a What Speaks For the Company: competitive advantages with evidence from annual reports. Structured by framework variable: RAR evidence (recycled material percentages, closed-loop partnerships), LVE evidence (asset utilisation metrics), CRR evidence (infrastructure built), Capital Discipline evidence (FCF, ROIC spread).
3.2b What Speaks Against: same structure, opposite direction. CRR revenue gap (infrastructure exists but not monetised), LVE deterioration (parallel capex), compensation misalignment (no circular gate in LTI), resource cost exposure.
3.3 Risks Embedded in This Position: what could push the company deeper into its current quadrant or into a worse one. Tariff exposure, competitive threats, execution risk, the CRR trap (high RAR + zero CRR = sustainability cost without return), the Pandora precedent (circularity that commoditises the product).
3.4 Levers to Move Toward Resilient Transformation Zone: three levers with their formula impact. Primary lever (typically CRR Conversion), secondary lever (typically LVE or RAR), TR³S lever (PA Direction). Each lever states the board decision required.
Part 4: Capital Discipline Assessment
Three gates with actual values, displayed as a gate dashboard:
Gate 1: ROIC vs WACC (actual percentages). Gate 2: Free Cash Flow (actual amount). Gate 3: Leverage (ND/EBITDA vs sector cap). CDG Verdict: PASS, PASS (marginal), or FAIL with explanation.
Part 5: Return Performance
Three metrics in a single row: TRS (traditional), TR²S (regenerative), TR³S (restorative). Each with a one-line description of what it measures. The difference between the three metrics makes the framework's value visible: BMW TRS = -16.5%, TR²S = -11.5%, TR³S = -8.5%. The asset preservation and restorative layers reduce the penalty by 8 percentage points. That is the CEO's transformation mandate made measurable.
Part 6: Structural Vulnerability Assessment
Overall vulnerability rating (Low / Medium / High) followed by three detailed cards:
Business Model Exposure (PA): score, interpretation, evidence, benchmark (e.g., "Rolls-Royce TotalCare PA approaching +1.0 shows what full regenerative alignment looks like").
Supply Chain Resilience (VCI): score, interpretation, evidence (closed-loop partnerships, single-source dependencies, geopolitical exposure).
Ecosystem Contribution (ECR): score, interpretation, evidence (operational decarbonisation vs systemic restoration), sector weight context.
2. Acceleration Levers
Three concrete levers, each targeting a specific variable in the Extended Return formulas. Each lever specifies a current value, a target value, and the board decision required to close the gap. The target must be achievable within a defined timeframe and grounded in the company's operational reality.
Lever Card Structure
Each lever is presented as a card with the following elements:
Lever name and description: what is being moved and in which direction. Example: "CRR Conversion: Convert CRR_infra (0.75) into CRR_rev."
Current value → Target value: displayed as a from/to with arrow. Example: "CRR_rev 0.03 → CRR_rev 0.30."
Board decision: the specific action required, stated as a decision, not a recommendation. Example: "Disclose Encory, battery 2nd-life, CPO, and material credits as auditable circular revenue segment."
Formula impact: the quantified effect on RM and CDQ (for Card 4 levers) or RE and TR³S multiplier (for Card 5 levers). Shown in monospace. Example: "RM: 0.424 → 0.501 | CDQ: 9.7pp → 10.2pp."
Lever Design Rules
Lever 1: CRR Conversion. Targets the Circular Value Capture variable. The observable proxy is service/aftermarket/repair revenue as a percentage of total revenue (mechanics Section 1.2). The board decision: convert existing circular infrastructure into auditable, monetised revenue streams. The lever moves CRR_rev, which moves CRR, which moves RM. This is frequently the primary lever. Working hypothesis: most companies in the Undervalued or Commoditization zones have built circular infrastructure (CRR_infra) but have not monetised it (CRR_rev near zero). This hypothesis holds across the examined cases but requires validation as the case base expands beyond asset-heavy sectors.
Lever 2: PA Direction (Business Model Deepening). Targets the Purpose Alignment variable. The observable proxy is the share of revenue from extractive vs regenerative end-use (mechanics Section 1.3). The board decision: deepen lifecycle custody contracts, launch product-as-a-service models, restructure revenue from unit sales to asset longevity. The lever moves PA, which moves RE, which moves TR³S. Example (BMW): "Move from selling vehicles (extraction: revenue depletes inventory) to custodying assets across lifecycle (preservation: revenue from asset longevity). Rolls-Royce TotalCare proves this is possible in mobility."
Lever 3: LVE Deepening or RAR Improvement (Capex Concentration). Targets the Asset Utilization Intensity or Resource Allocation Ratio variable. The observable proxy is capex/revenue (LVE) or recycled material input share (RAR) per mechanics Section 1.2. The board decision: reduce capital intensity through asset concentration, platform models, or phase-out of parallel investment tracks (e.g., parallel ICE/BEV/H₂ powertrain). The lever moves LVE or RAR, which moves RM. Example (BMW): "Phase out parallel ICE/BEV/H₂ powertrain. Concentrate on Neue Klasse. Declining capex intensity = rising revenue per installed base."
Compounding Effect Calculation
The three levers compound. The compounding effect is calculated and displayed as a summary box showing current vs target for five metrics:
| Metric | Current | After Acceleration | Change |
|---|---|---|---|
| RM (Regenerative Multiplier) | From calculator | From lever targets | Absolute change |
| CDQ Score | From calculator | Recalculated with target RM | Rating change (e.g., Moderate → Strong) |
| TR²S Multiplier | 1 + RM_current | 1 + RM_target | % increase |
| TR³S Multiplier | (1 + RM_current) x (1 + RE_current) | (1 + RM_target) x (1 + RE_target) | % increase (compounding) |
| Quadrant | Current quadrant | Target quadrant | Must be Resilient Transformation Zone |
where target values reflect the acceleration lever endpoints, using the same sector weights as the current calculation
where PA, VCI, ECR targets reflect the lever endpoints for system conditions
The compounding narrative is critical. Example (BMW): "CRR lifts RM, RM lifts TR²S, TR²S feeds into TR³S where PA amplification creates a second multiplicative layer. Together they push the TR³S multiplier from 1.581 to 1.998, approaching the 2x threshold where circular transformation doubles the base return."
Structural Vulnerability Reduction
The acceleration levers directly reduce structural vulnerability. Each lever maps to a System Conditions Factor input. The vulnerability reduction is displayed as a before/after table:
| Variable | Current | Target | Driver |
|---|---|---|---|
| PA (Purpose Alignment) | From calculator | From Lever 2 | Revenue restructured around asset longevity |
| VCI (Supply Chain Resilience) | From calculator | From closed-loop partnerships | Feedstock substitution, supplier diversification |
| ECR (Ecosystem Contribution) | From calculator | From CRR conversion incentive | Economic incentive for ecosystem investment |
| RE (Regenerative Exposure) | PA x RI (current) | PA_target x RI_target | Compounding of PA improvement |
| Vulnerability Rating | High / Medium / Low | Target rating | Overall trajectory |
Matrix Visualization
An SVG matrix showing the company's current position (navy dot) and acceleration target (orange dot) with a dashed arrow connecting them. The target must land in the Resilient Transformation Zone. The horizontal position reflects CDQ Score adjusted by PA. The vertical position reflects RM. Below the matrix: a caption stating the current RM/PA and the target RM/PA.
Acceleration Target Constraints
Target values must satisfy three constraints:
1. The target must land the company in the Resilient Transformation Zone. The entire purpose of acceleration is to reach this quadrant. A target that lands in Commoditization or Undervalued is incomplete.
2. The target must be achievable within 3 to 5 years based on the company's current capabilities, capital position, and industry dynamics. A blast furnace steelmaker cannot reach 80% recycled input in 3 years. An automotive OEM cannot reach 40% service revenue in 3 years.
3. The target must not violate the Data Quality Audit Trail caps (mechanics Section 1.5). The plausibility limits apply to targets as well as to current values.
Governance Anchoring Conditions
Acceleration levers are analytically defined but operationally inert without governance activation. A lever remains inert until the board has assigned a named owner, set a reporting obligation, and embedded the target in executive compensation. This section specifies the minimum governance conditions required to activate each lever. They are binary: either the condition is in place or the lever does not move.
The distinction between a lever being identified and a lever being pulled is the Jon McNeill problem. A company can have every element of CRR conversion mapped, modelled, and presented to the board. None of it converts to CRR_rev until a CFO is obligated to report circular service revenue as an auditable financial segment. The analysis is not the decision. The governance condition is the decision.
| Lever | Board Decision Required | Reporting Obligation | Compensation Linkage | Status if Absent |
|---|---|---|---|---|
| Lever 1: CRR Conversion | CFO mandated to report circular service revenue (CRR_rev) as a standalone auditable financial segment in the next annual report. Not disclosed within a broader sustainability narrative. Reported as a financial line with margin. | Annual Report and Accounts: separate revenue line for circular service, repair, remanufacturing, and lifecycle custody contracts. Independently auditable. Traceable to the CRR_rev input in the framework calculation. | CRR_rev target replaces or supplements a general revenue KPI in the CEO and CFO LTI structure. The target is not bundled into total revenue. It is reported as a distinct metric with a threshold and a cap. | Lever inert. CRR_infra accumulates as a cost centre. RM does not improve. The company remains in the Undervalued or Commoditization zone regardless of infrastructure investment. |
| Lever 2: PA Direction | Board resolution to exit or taper extractive end-use revenue streams within a defined timeline. Customer mix review embedded in the annual strategy process. New contract approvals require a PA impact assessment. | Annual Report: revenue split by extractive vs regenerative end-use application disclosed as a percentage of total revenue. The split must be verifiable against contract data, not estimated from product categories. | PA improvement target in the CEO LTI. Measured as the year-on-year shift in regenerative end-use revenue share. The target has a minimum threshold below which no TR³S bonus activates regardless of financial performance. | Lever inert. RE stays flat or declines. TR³S multiplier does not compound. The company can have strong TR²S and still fail the restorative layer because the business model direction is unchanged. |
| Lever 3: LVE or RAR Improvement | Capex allocation decision: parallel investment tracks (e.g., simultaneous ICE, BEV, and hydrogen powertrain, or virgin and bio-based feedstock at equal scale) must be resolved. The board approves a primary platform and a phase-out schedule for secondary tracks. | Annual Report: capex/revenue ratio disclosed by platform or material category. Alternative feedstock share disclosed as a percentage of total raw material input. Both must be independently auditable. | LVE or RAR improvement target in the CEO LTI. For asset-heavy companies: capex/revenue reduction linked to platform concentration. For materials companies: alternative feedstock share increase linked to RAR improvement. Both tracked annually against a multi-year trajectory. | Lever inert. Capital intensity remains high or primary material dependency persists. RM improvement from CRR conversion is partially offset by LVE drag. The company reaches a plateau in the matrix before the Resilient Transformation Zone. |
The CDG Gate as Governance Pre-Condition
The Capital Discipline Gate is not only a formula input. It is a governance pre-condition for all three levers. A company that fails CDG (ROIC below WACC, negative FCF, or leverage above sector cap) cannot activate lever-linked compensation regardless of circular progress. The governance anchoring conditions above apply only once CDG passes. For companies currently failing CDG, the governance priority is ROIC recovery. Every lever described in this section is economically irrelevant until the spread turns positive.
This sequencing is deliberate. Embedding circular KPIs in executive compensation before CDG passes creates perverse incentives: executives can report circular progress while destroying capital. The CDG gate prevents this. It forces the governance conversation in the right order: first, is the company creating economic value? Second, is it doing so in a way that preserves the asset base? Third, is the business model direction restorative?
Governance Anchoring and the Compensation Framework
The Framework Value Factor (FVF) in the Extended Bonus Calculation already provides the mechanism. FVF = 0 when CDG fails. The governance anchoring conditions extend this logic to the lever level: each lever has a binary activation condition. If the condition is not met, the lever contributes zero to the acceleration target, regardless of what the formula would otherwise project.
Practically: when a potential analysis is presented to a board, the governance anchoring table is presented alongside the acceleration lever cards and the before/after matrix. The board is not asked to approve a target. It is asked to approve the three governance conditions. Approving the conditions is the act of pulling the levers. The targets follow from the conditions, not from the analysis.
3. Business Model Canvas
Two canvases side by side: As-Is and To-Be. Nine blocks each, following the standard BMC structure (Key Partners, Key Activities, Key Resources, Value Propositions, Customer Relationships, Channels, Customer Segments, Cost Structure, Revenue Streams). The To-Be canvas shows what changes when the acceleration levers are pulled.
Implementation Structure
Each canvas is rendered as a proportional grid matching the Osterwalder layout. Items within each block are displayed as post-it notes: navy-tinted for As-Is, orange-tinted for To-Be. This visual distinction makes the transformation visible at a glance. Each To-Be post-it must reference the lever that drives the change.
| BMC Block | Grid Position | As-Is Content Source | To-Be Content Source |
|---|---|---|---|
| Key Partners | Top-left | Annual Report: supplier list, JV partners | ESM Layer 3: identified partnership gaps |
| Key Activities | Top-centre-left | Annual Report: operating segments | Lever 1/3: new circular activities |
| Key Resources | Bottom-centre-left | Annual Report: asset base, IP | Lever 3 (RAR/LVE): secondary material, extended assets |
| Value Propositions | Centre | Annual Report: product/service offering | All levers: circular value proposition |
| Customer Relationships | Top-centre-right | Annual Report: sales model | Lever 1 (CRR): lifecycle custody, subscription |
| Channels | Bottom-centre-right | Annual Report: distribution | Lever 2 (PA): regenerative channel partners |
| Customer Segments | Right | Annual Report: market segments | Lever 2 (PA): shift from extractive to regenerative clients |
| Cost Structure | Bottom-left | Annual Report: COGS, capex | Lever 3: reduced primary material spend |
| Revenue Streams | Bottom-right | Annual Report: revenue breakdown | Lever 1 (CRR): service contracts, repair revenue |
Transition Rules
Each block change must be traceable to a specific acceleration lever. If Lever 1 (CRR Conversion) targets service revenue, the Revenue Streams block must show the shift from product sales to service contracts. If Lever 2 (PA Direction) targets customer mix, the Customer Segments block must show the shift from extractive to regenerative end-use clients. Changes that are not connected to a lever are speculative and must not appear.
Causal Impact Chain
An eight-step sequence showing how the transformation propagates through the business model. Each step connects a BMC block change to the next. Example (BMW): Key Partners (SK tes, Redwood closed-loop) → Key Resources (secondary battery materials) → Key Activities (remanufacturing at Encory) → Value Propositions (circular product guarantee) → Revenue Streams (Battery-as-a-Service contracts) → Cost Structure (reduced primary material spend) → Customer Relationships (lifecycle custody) → Customer Segments (fleet operators, V2G partners).
4. Ecosystem Strategy Map
Three concentric layers showing the company's position in its value creation ecosystem. The map is rendered as a circular diagram with six Life Areas (Mobility, Consumption, Work, Health, Living, Education) arranged as segments. Each segment contains partnership entries classified by role.
Life Areas
Six domains of human activity where value creation occurs. A company's ecosystem footprint extends beyond its primary sector. BMW operates in Mobility (primary) but creates value in Living (V2G energy), Work (fleet services), and Consumption (aftermarket). The Life Area framework identifies adjacencies that the company's current business model does not yet capture.
| Life Area | Definition | Example Adjacency |
|---|---|---|
| Mobility | Movement of people and goods | Vehicle OEM → fleet custody, MaaS |
| Consumption | Product acquisition, use, disposal | Manufacturer → remanufacturing, take-back |
| Work | Enterprise operations, productivity | Equipment maker → fleet-as-a-service |
| Health | Physical and mental wellbeing | Vehicle telemetry → occupational health data |
| Living | Home, energy, built environment | EV battery → V2G, home energy custody |
| Education | Knowledge transfer, capability building | Circular know-how → B2B training platform |
Roles
Three roles a company can play in each Life Area:
Orchestrator: designs and governs the collaboration. Sets the rules, owns the platform, captures the coordination premium. Example: BMW orchestrating Battery-as-a-Service across the vehicle lifecycle.
Realiser: executes the operational work. Manufactures, delivers, maintains. Example: BMW as vehicle manufacturer (current core role).
Enabler: provides infrastructure, capital, data, or regulatory access. Example: BMW providing ConnectedDrive telemetry data to fleet management partners.
Layer 1: As-Is Partnerships
Current partnerships extracted from the annual report. Each entry specifies: Life Area, Role, label, detail (what the partnership does), and BMC link (which BMC block it connects to). Source: annual report, sustainability report, investor presentations.
Layer 2: Board Strategy Direction
Partnerships that the company has announced or is developing. Same structure as Layer 1. Source: strategic announcements, press releases, investor day presentations. This layer shows where the company intends to go but has not yet operationalised.
Layer 3: Untapped Potential
Framework-identified opportunities. Partnerships that would accelerate the levers but do not yet exist. Each opportunity links to a specific lever and a specific BMC block change. These are derived from the gap between the As-Is ecosystem and the acceleration targets. Example (BMW): Energy Custody (Living, Orchestrator) links to Lever 1 (CRR Conversion) and BMC blocks 05 (Customer Relationships) and 08 (Revenue Streams). If Lever 1 requires CRR_rev to increase but the current ecosystem has no energy custody partners, Layer 3 identifies the missing role.
5. Bridge Tab
A nine-row table mapping each BMC block to the Ecosystem Strategy Map. For each BMC block: the Life Area it operates in, the company's role (Orchestrator/Realiser/Enabler), and the strategic insight connecting the business model change to the ecosystem opportunity. The bridge makes the connection between internal transformation (BMC) and external collaboration (ESM) explicit and traceable.
| BMC Block | Life Area | Role | Insight |
|---|---|---|---|
| Key Partners | [from ESM] | [from ESM] | Which ecosystem partnerships are required for this BMC block to transform? |
| Key Activities | [from ESM] | [from ESM] | Which new activities does the ecosystem enable? |
| Key Resources | [from ESM] | [from ESM] | Which resources come from ecosystem partners vs internal? |
| Value Propositions | [from ESM] | [from ESM] | How does the ecosystem reshape what the company offers? |
| Customer Relationships | [from ESM] | [from ESM] | How does the ecosystem extend the customer lifecycle? |
| Channels | [from ESM] | [from ESM] | Which ecosystem channels replace or augment current distribution? |
| Customer Segments | [from ESM] | [from ESM] | Which new segments does the ecosystem unlock? |
| Cost Structure | [from ESM] | [from ESM] | How does the ecosystem reduce cost of primary inputs? |
| Revenue Streams | [from ESM] | [from ESM] | Which new revenue streams does the ecosystem create? |
Strategic Direction Diagnosis
Four strategic directions assessed for each company:
1. Vertical integration of circular loops: does the company own or control the return flow of its materials?
2. Horizontal ecosystem expansion: does the company collaborate across sectors to create circular value chains?
3. Platform model adoption: does the company operate asset-sharing, service, or data platforms that extend the life of its products?
4. Regenerative value chain positioning: does the company's ecosystem actively restore the natural systems it depends on?
Each direction is rated: Active (underway with measurable progress), Emerging (announced or piloted), or Absent (not yet addressed). The diagnosis identifies which directions the acceleration levers should prioritise.
