Sep 9, 2024 | Governance, Leadership, Strategy
Amongst the tsunami of gratuitous advice on the web about how to manage remotely, whether you be the team leader, or a team member, there is a critical piece missing.
Depth of strategic thinking.
Regular and managed team video gatherings, as well as a range of individual catch ups for assistance, follow up, mentoring, and all the other things that go on, are tactical.
Particularly in times of crisis and high stress, it is sensible and natural to focus on tactical execution. However, tactical can only take you so far, and in the absence of a strategic framework, can lead you astray quickly.
Consider breaking out specific sessions for the discussion of the strategic issues and questions that emerge. They remain in place irrespective of the current crisis, whatever that may be.
Strategic depth is not something generated in a series of quick meetings. It requires data, forecasts, scenarios and deep discussion and contemplation by people who know the box from the outside, as well as from the inside.
These deeper questions of strategy usually reside in the ‘very important but not urgent‘ basket. In the absence of being addressed, they will be forgotten. Worse still, they will be over-ridden by short term tactical outcomes that would not have been allowed to evolve with sensible strategic oversight in place.
We are social animals, our best work is done when people get together, and together look to solve problems and pressure test assumptions. This takes time and human engagement. Verbalisation of ideas, questions, and explanations is only a small part of ‘Communication’. Face to face, there are a myriad of non-verbal nuances and contextual contributors to ‘communication’ that are lost over Zoom or Teams.
Failing to accommodate these human interactions will destroy your capacity to generate the insight necessary for deep and productive strategic thinking.
Header credit: Tom Fishburne at Marketoonist. Thanks again for encapsulating a difficult idea in a cartoon.
Sep 6, 2024 | Governance, Leadership, Strategy
Opportunity cost.
The mistakes you make of Commission are the ones by which performance is judged. They show up in a profit and loss and balance sheets of businesses. However, when you pass up a golden opportunity that turns out to be a winner, that ‘cost of potential profit’ does not show up anywhere.
It is a mistake of omission, not commission.
Those of us who failed to buy Apple shares when they were less than a dollar in 2003, and similarly, NVIDIA shares when they were $1.30, might see a missed opportunity. Both now trade at well over 100 times those prices.
However, such mistakes are acceptable when the opportunity is outside what Warren Buffett calls a ‘Circle of competence’. This is the area where you have the expertise to understand the opportunity being offered, but fail to accept it.
In the case of Apple and Nvidia, they are both outside my circle of competence. Therefore, I did not know enough to recognise the opportunity. Had I been immersed in the IT industry it might have been clearer.
Buffett’s seven rules for successful investing, summarised, are:
- Hire only intelligent people with integrity.
- Pay attention to facts, not emotions.
- Buy wonderful businesses, but not ‘cigar butts’
- Buy only stocks you understand.
- Seize the opportunity.
- Don’t sell because of price fluctuations.
- Buy stocks below what they are worth.
Passing up an opportunity that turns out to be something you should have grabbed, with the benefit of hindsight, means you have failed to give yourself an adequate answer to one, or more, of three simple questions.
- How much cash would the opportunity deliver to you?
- When are you going to get it?
- How sure are you?
Buffett and his late side-kick Charlie Munger are widely seen as geniuses. I suspect Mr Buffett would be embarrassed by that label. He might respond that all he did was follow the simple 7 rules, something most cannot do.
Sep 1, 2024 | Leadership, Strategy
Today, September 1, 2024, is the 85th anniversary of the German invasion of Poland in 1939.
There are very few people left alive who were old enough at the time to remember that critical date that drove the world into an orgy of destruction, death, and depravity.
Over time we tend to lose the instinctive understanding of the context, circumstances, and drivers of events. This increases the risk that we fail to learn, so we repeat our mistakes. In short, our institutional memory fades, becomes distorted, and is often rewritten.
There is evidence of this all around us.
- After the French conceded defeat and left Vietnam, the US went in, believing they could win.
- The US again, (who deliver us numerous examples), thought their invasion of Afghanistan would work better than the Russian one. Like the Russians and British before them, they failed to have any understanding of the tribal, ethnic and historical context of Afghanistan, so were destined to repeat their mistakes.
- Few saw the 2008 financial crisis coming, despite the intensively researched similarities to the lead-up to the 1929 crash.
- The litany of failure of appeasement as a strategy to harness the aggression of regimes in Europe going back to the Romans. ‘Peace in our time’ sounded good on Chamberlin’s return from Berlin, but was empty hope.
We see it in our personal lives every day.
That bully in the schoolyard is not going to stop being a bully by having the tactic proving to be continually successful.
30 years ago, I left corporate employment, suddenly, after 10 years of accumulating market knowledge, experience, and ‘gut-feel’ insight. I was replaced by a group that had no such knowledge and insight, and who for the next few years made utterly predictable mistakes. This is despite the records left in a great big storage box filled as my former office was cleaned out, and in the heads of my former colleagues, but disregarded.
When we lose institutional memory, we are almost destined to repeat the mistakes of the past. This applies equally to individuals as it does to businesses, families, institutions, and countries.
So, how do we best avoid repeating the mistakes of the past?
Rely on data. This requires intentional and effective documentation and archiving of material. It must articulate the varying views and perspectives and their logical base, the hypotheses generated, tested, reviewed, implemented, and the outcomes of implementation tied back to cause-and-effect chains. In effect deliver yourself a searchable OODA loop for reference.
Leverage technology. The above step used to be a monumental undertaking, but current and emerging technology makes it not just easily doable, but a competitive and strategic necessity.
Knowledge transfer and mentorship. Culturally, there must be a recognition of the value not just of having the information but building on it and sharing widely. This takes a particular skill in leadership that builds a culture of learning and trust.
The successful corporations of the future will avoid repeating the mistakes of the past, which leads to erosion of their values and culture. They will see individual and group productivity and innovation as the two necessary sides of the same coin. They will navigate the tensions created by the order and repeatability of optimisation, with the messy and uncertain terrain of innovation.
They will not be able to succeed in the absence of that critical component, institutional memory.
Today is also Fathers day, a triumph of marketing by the Hallmark card company.
Lest we forget.
Aug 30, 2024 | Collaboration, Marketing, Small business, Strategy
Identifying, building, defending and leveraging competitive advantage has been, and will remain, the foundation of successful marketing.
It is also the essence of strategy: making choices with incomplete information that serve to shape the future to your benefit as it arrives.
The challenge is, the location of competitive advantage has moved, and many, if not most, have failed to pick the move.
Think about it.
Until the early 2020’s, competitive advantage was still all about brand, scale, control of supply chains, access to capital, and the ‘old boys network’. To use Charlie Mungers description, they constituted the ‘Moats’ around successful businesses. Kodak, Xerox, GE, GM, Exxon, IBM, Wal-Mart, P&G, and the banks and insurance companies ran the world on the basis of wide and deep moats built on these 5 factors.
Suddenly, the world moved on.
We watched as a raft of new businesses leveraging the capabilities of the internet took over. Along with the obvious Amazon, Facebook, Alibaba, Google, Uber, Air BnB, eBay, Netflix, Salesforce, and others that are pure internet plays, you had Apple, Microsoft, and more recently Tesla, combining the connectivity of the net with the ‘old school marketing moats’ in whole new ways.
What made the difference?
Each of the newbies benefitted from network effects.
Those that dropped out of sight did not.
Even some of the tech giants of the very early 2000’s, such as Yahoo and Alta Vista have dropped out of sight because they failed to recognise the potential value they had in their hands. They did not leverage the potential network effects.
Those network effects have two differing core types:
- An ecosystem of complementary, and often partially competitive enterprises that support each other’s efforts. This occurs particularly often in R&D, early-stage commercial development and in logistics and supply chain management.
- Double sided markets, such as eBay, Facebook, and Air BnB, where the value of the offering increases with the number of people connected to it.
The answer to the question posed in the header: in your networks!
On a simple scale you see it all the time in retail. The specialist shoe shop in the mall collaborating and cross promoting with the fashion dress shop.
Your networks will build as you create value for others greater than the cost of being a part of the network.
Aug 26, 2024 | Lean, Operations
‘Five Why’s’ is a commonly used tool, widely seen as one that when used well gives you answers to challenging operational problems.
Mostly it will, but what happens when the answer lies hidden outside the consideration of the effort to identify the cause-and-effect chains that lead to the problematic outcomes.
To solve any challenging problem, there are 4 stages that are used:
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- Collection of data
- Analysis, segmentation, and classification of the data
- Generation of a theory that might explain the condition and
- Experiments to identify the cause of the outcomes rather than just the observations of it.
What happens when the third stage fails to produce a theory that explains under experimentation the outcome?
Go back to the basics, by looking at the data more widely, as clearly something is missing. Often it pays to reverse the process and ask yourself ‘what could have caused this outcome’ starting at the problematic result.
Years ago, Dairy Farmers limited had a monopoly in retail UHT processed long-life custard. It was a modest sized niche market that was quite profitable. There had been several attempts by competitors to grab a piece of the action, all of which had failed. Suddenly we started having problems at seemingly random times. When opened the custard was the consistency of water. The costs of lost production were substantial, but the far greater costs were those of the product recall from retail shelves, and loss of consumer confidence.
The condition was caused by either the presence of an enzyme called amylase, or a failure of the CIP system. Amylase is a naturally occurring enzyme in starch, which had been eliminated by processing from the complex hydrocolloid (starch) ingredient we used in the custard. We had accepted the assurances of the supplier that the ingredient supplied was amylase free, as per our specifications. We assumed therefore that the problem lay with the processing plant. The plant was torn apart several times, cleaned meticulously, and on one occasion, underwent some expensive engineering changes.
All efforts failed to fix the problem.
A valuable question to ask in this circumstance is: ‘What would have to be true to…..’ In this case, the answer would have been: ‘there is no presence of amylase in the hydrocolloid ingredient’. This may have, much earlier than it did, spark the further question: ‘Is a test with a sensitivity level of 1 part per million a reliable indication that there is no amylase?
When we finally asked this question of ourselves, the answer was clearly ‘No’. We set about refining the test our suppliers used to a sensitivity of 1 part per 10 million. This more sensitive test showed up in a random manner, the presence of amylase in the supplied ingredient.
5-Why is a great tool. However, like any tool, it must be used by an expert in order to deliver an optimum result.
Header is courtesy of a free AI image generator, depicting some tortured engineers doing a root cause analysis..
