May 22, 2023 | Change, Governance, Leadership
The most valuable resource in every business is the time, talent, and energy of employees. However, as these are hard to manage, and do not appear on any balance sheet, they are often grossly under-managed or completely ignored.
By contrast, Capital is readily available, cheap, and readily returnable, and as it is recorded and easily managed, it consumes our whole management focus.
Dollars are really the only easy measure of compliance and outcomes. However, they are a poor measure of much else that actually makes a business successful.
Time, strategic and tactical focus, and employee engagement are our most valuable resources, but are universally managed poorly.
There is lots of advice from the digital ‘cheap seats,’ all of it obvious with thought, but equally challenging to implement.
Wasted time in meetings, unnecessary email, excessive double handling, unnecessary process delays, broken processes, cultural norms, and many others. All add complexity, ambiguity, and time, while obscuring accountability.
Employees start covering their arses by copying everyone, shifting responsibility, hedging on project delivery times, duplicating unnecessarily, and focussing on the trivial while ignoring the risky.
You have all seen it, and from a distance shook your heads and asked yourself:
“Why not a bit of common sense?”
These transaction costs consume huge unrecorded amounts of time and energy, which translates into commercial obesity.
Think about all this as the ‘organizational load’ that is being put on people.
This load is similar to being overweight. As complexity increases, we allow practices to creep in that adds obesity to processes. It is a bit like letting your belt out an extra notch.
As of November 2022, we have the most potent anti-obesity drug ever conceived in our midst.
Artificial Intelligence, trained on large Language Models arrived with ChatGPT3 leading the charge. The performance improvement between Chat 3 and Chat 4 launched in March 2023 is astonishing. Forecasting what Chat 5, 6, and 7, just around the corner will be able to deliver makes my head hurt.
Are you thinking about your obesity problem now??
Your competitor surely is!
May 17, 2023 | Analytics, Management
The ‘Long tail’ is a graphic recognition of the Pareto principle, the 80/20 rule. It holds true in every situation I have ever seen. Rarely exactly 80/20, but always somewhere in the region.
We tend to accept it as a reflection of revenue and profit: ‘20% of our customers generate 80% of our revenue’.
Often, we manage our businesses, particularly the sales effort, as if this is the only place the principle works.
It applies equally to transaction costs, long term potential, management attention, geography, product class, customer type, and many other useful to know indicators.
Take for example, those customers that in 5 years’ time will be amongst your most profitable. Chances are, they are currently hiding somewhere in your long tail, denied the focus and assistance they might value that will assist them to grow in importance, simply because they are not seen. I call them ‘Strategically Important Customers.’ Unimportant now by most measures, but critically important in the long term.
Ignore these customers at your peril.
So, how do you find them?
- They meet the parameters of your ‘ideal customer.’
- They have a problem to which you have or are developing the ideal solution.
- Your share of their ‘wallet‘ is low when they meet other ‘ideal customer’ parameters.
Conversely, set your sales team to dig them out of your competitor’s long tail, deliver value to them, and convert.
An equally important task is to identify those customers who cost more to service than their current or potential profitability. The best thing you can do is send them to your competitor, so they can be saddled with the usually hidden transaction costs and low margins.
The profit and Loss statement is, or can be, a remarkably efficient way of capturing the information required to focus resources in the most optimised manner, dictated by your strategy. A P&L by customer, product, geography, market, and any other driver can be generated using readily available and relatively simple tools. The challenge is in overcoming the institutional definitions of how the data for the statements is collected, collated, and presented.
For example, what is an overhead, and how is it allocated?
In a factory, is the cost of supervisory staff allocated to individual product lines based on the actual costs, some rough ‘standard’ cost, or not allocated at all? Are those costs seen as overhead? Is the total overhead spread across total production by some magical formula devised by the accountants, or treated as a cost centre and managed proactively? What about those directly on the production line? Are their costs allocated in proportion to production volumes, customer offtake, or some mythical ‘absorption’ rate?
Take the time to ‘slice and dice’ your Profit and Loss statement. After having tackled the greater challenge of having the costs as they are actually incurred reflected in the customer P&L statement, you will be in a great position to take decisions that will have a significant impact on your overall profitability.
May 15, 2023 | Governance, Strategy
‘Occam’s Razor’ is the idea that as you progressively eliminate possibilities, what you have left must be the truth, no matter how unlikely it may seem. Some might call it ‘first principles’.
While Occam’s Razor goes back to William of Occam, the 14th century philosopher, there is a recent iteration.
Occam’s broom.
A molecular biologist by the name of Sidney Brenner introduced that addition to describe the brushing of inconvenient truths under the carpet.
Last Thursday night at a ‘workshop’ hosted by a voluntary group, ‘Re-Invent Australia‘ both were on display.
The strategic objective of Re-Invent Australia might be summarised in the words of the great Peter Drucker: “Ideas are cheap and abundant, what is of value is the effective placement of those ideas into situations that develop into action.”
The task set was to identify the major causes of failure of Australian political governance under the headline five general areas nominated from a wide field by the committee: Education, health, innovation, diversity, and aged care, which need immediate attention.
The second, and to my mind even more important part of the exercise is the question: ‘How would we change them’?
The eternal strategic ‘What and How’ questions.
The objective was not to host another gabfest, but to motivate action that might generate results from which we could all learn.
We have just seen a federal budget. ‘Back in the black’ briefly, for the first time since 2007. If ever there was a time for a federal government to seriously address some of the big and growing structural inequities in the economy, it is now. This is where Occam’s broom came in for some extensive use.
First term government, first (sort of) budget, an opposition in total disarray and incapable of tying its own shoes, and it goes soft on anything that might prove combative with vested interests.
In short, they squibbed it based on the expected noisy backlash, rather than taking the once in a generation opportunity to address those structural challenges we all see.
The agreement of the fossil fuel industry to the barely apparent uptick in the PRRT shows how much harder the government could have gone, minimal changes to a taxation system no longer fit for purpose, the ‘palm-off’ of any discussion about the scheduled income tax cuts, or little genuine analysis of the long term causes of the housing shortage with concrete actions and timetables, and so on.
Vanilla.
The politically difficult reality is that if we want to change the infrastructure of the economy to better reflect the country we want to live in, and the world we wish to be a part of, we will need to take some challenging decisions. Many of these will prove to be unpopular with varying noisy and often cashed up segments of the economy, who will not stop at anything to protect their immediate narrow interests.
We cannot afford any longer to exercise Occam’s broom and sweep them under the carpet.
That is what government should be for, exposing and acting on the failures of the market, to shape the future of the country our children and grandchildren will inherit, not guarantee yourself access to commonwealth cars for the next 3 years.
May 11, 2023 | Leadership, Small business
SME’s suffer in many ways from the lack of scale when competing against much larger enterprises. However, if you look hard enough, there are always benefits to be found that may outweigh the costs.
- Small budgets mean reliance on qualitative rather than quantitative research and market intelligence, which require deeper pockets. Go out and talk to a few customers, ex customers, and non-customers in your market, you will learn more in a couple of afternoons than the spreadsheet jockeys in the larger companies will learn in a year.
- Make niche choices early. Rather than scanning the horizons for opportunities, pick a niche and own it. Chances are it will be something that the larger companies have overlooked, or is too small for them to allocate resources, but for an SME, they can be a great stepping-stone to profitability and growth.
- Revel in being the underdog. Avis Vs Hertz.: ‘We try harder’ the line Hertz used is the standard bearer for this battle of the underdog. We humans love to support the underdog against the impersonal giants.
- Be very price sensitive. Pricing high is always a good strategy, as it is easier to come down than to go up, and avoid predictable and regular discounting like the plague. Your larger competitor is unlikely to be as sensitive to the difficult task of optimising price as you are, working off price lists that are updated in total, from time to time.
- Pareto the pareto. Focus, focus. Bring all your resource’s to bear on a point of value you can deliver, don’t dissipate them by being all things to all people. This applies to customers, service offerings, communications, everything, focus on the points that will deliver the most bang for the buck. Be the king of ‘No’. Warren Buffet noted that the one common feature of successful people is that they say no a lot. The larger your competitor is, the easier it is for them to be distracted, and gummed up by bureaucracy.
- This point will seem inconsistent with the point above, but watch for anomalies. While focus is essential the risk is that you are so focused that you do not see things that will make an impact when they are just small points on the horizon. These small anomalies are the things that generate change. Large businesses tend to ignore them, or they get lost in the bureaucracy, SME’s have the opportunity to move quickly and decisively.
- Balance the tactical and strategic. Small businesses tend to be seduced by the tactical stuff. Short term this is OK but not a good long-term recipe. Both are necessary, but you must resist the temptation to worry about the future when it comes, as it is already here in some form, so you have to build for it before it gets to you. Be specific about the breakup you deploy, knowing the big blokes are stuck deploying changes in either.
- Be flexible and agile. They are different, flexibility enables you to move with the changes in the market, agility is more short term, enabling you to make choices that are outside the ‘brand architecture’ as they emerge. Pivot in the jargon, your larger competitors will find it hard to get out of their own way.
What have I missed?
May 8, 2023 | Branding, Marketing
It seemed impossible to ignore that piece of luxurious marketing content being rammed down our throats over the weekend, after a build-up over previous weeks. After Christianity, the British monarchy is the most successful, long term marketing program on the planet, and what a show they produced on Saturday!.
Like most, I watched bits of the coronation at a mates place, conveniently happening on a Saturday evening. Along with a large and sometimes noisy bunch of friends, piles of delicious nibblies and a mountain of spicey BBQ’d sausages, the debate over the relevance of the occasion raged. There may have also been a few lubricants. My friend and his wife were born in England but came here to escape to the good weather and to dodge the crushing burden of just being English. It was however a big relief when Charlie stepped under the big hat, indicating the excruciatingly boring but for some compulsive watching was nearing an end.
To some it may be interesting to recall that if it were not for deed polls (or the royal equivalent) Charlie Windsor would have been named Charles Saxe-Coburg-Gotha. That mouthful was the family name of his mother Elizabeth, changed to Windsor by her great grandfather King George V in 1917. That change was probably prompted by the fact that London at the time was being bombed by King Georges first cousin Kaiser Wilhelm of Germany, using the first heavy bomber capable of such a mission, the ‘Gotha’.
It seems a bit slow to change your family name from a German one to a British one after almost four years of war. Perhaps it was that Georgie did not want to upset his cousin any more than he already was.
I wonder what the Murdoch press would have made of that at the time. Ruperts father of course had been sending false reports back to George and his cronies from Gallipoli just two years earlier. Fake news reporting must run in the Murdoch family.
Families are often difficult, especially when the tree has grown in an environment insulated from any sort of genetic diversity, which perhaps explains a lot. It is however somewhat pleasing to see that apart from the inheritance of wealth and position at the tip of the artificial British social hierarchy, they are pretty normal. Broken marriages, sibling rivalry, affairs, seedy personal practises, the odd visit to barristers, grifters, and social media advisors, and the never-ending demands from people they do not know to donate money.
All good fun, and we finished the night watching ‘The Windsors’ on Netflix. If you haven’t caught up with it, hurry before it goes away. Satire to some is a documentary to others.
Vive le Republique!
