Oct 10, 2022 | Governance, Marketing
Marketing programs should always be driven by the combination of your current position and the agreed strategy. Your marketing objectives should be directly and overtly tied to the achievement of the longer-term strategy.
In the absence of an overall strategy, writing a marketing plan becomes an exercise with little meaning. The marketing plan is how you allocate external communication investment and align internal resource allocation priorities to the achievement of the strategic objective.
The marketing objectives should be designed to contribute to the achievement of the strategic objectives, along with other corporate plans such as the financial plan (budget) manufacturing plan, personnel plan. They work together to achieve the overall strategic objective. They represent the desired end points, the strategies and tactics employed are how you get there.
It is a simple formula: Objectives = Current situation X strategic choices.
A plan without an objective is not a plan.
Objectives have three functions:
- They provide the target that every stakeholder understands is, or should be, the focus of their daily, weekly, monthly activity.
- They provide the framework and means for the alignment of cascading contributing objectives, performance measures, milestones, accountabilities, and responsibilities, through the organisation, up, down, and across.
- They provide a framework for measurement of progress.
The compounding of the effectiveness of effort when these three functions are present, and working together, is enormous.
These three functions of objectives are the same at the strategic level as they are at the coalface. The only difference is the time frame, the nature of the immediate objectives, and the activities to be undertaken by individuals.
At the coalface you are looking at the objectives for today, tomorrow, and next week.
At the strategic level you are looking at next quarter, year, and 3 years.
The means by which the gap between the levels is addressed is reflected in the 2-way flow of information, priority and feedback that occurs, which is a function of the culture and resulting ‘flow’ through the processes in the business.
It is easy for me to say, but very hard to get right, and it is not a task, it is a continuing journey.
Everyone, at every level should be aware of the strategic objectives, the strategy, and how their piece of the world fits into and contributes to the larger picture.
Think about the many wheels inside a mechanical clock, all are driven by the central objective of telling the time, then hours, minutes, date, day of the week. All are run off the central powered flywheel.
The strategy is the flywheel, delivering accurate information is the objective.
The strategic objectives should evolve out of the interrogation and questions that are asked in the assessment of the current situation, and the vision/mission, whatever you choose to call it, of the organisation.
A daily ‘toolbox’ or ‘stand-up’ is the coalface equivalent of a quarterly strategy review, just held at a different level. They are the catalyst for the difficult questions that need to be answered.
Sep 30, 2022 | Governance, Leadership, Strategy
At a time when the market value of a business bears no relationship to the financial balance sheet, when PE ratios of market darlings are counted in geometric multiples, something is wrong.
Currently the PE ratio of stock market darlings: Apple at 33, Microsoft at 39, Alphabet (Google) at 34, Facebook at 30, and Amazon an eyewatering 68, are completely disconnected to the tangible assets of the businesses. By contrast, the PE ratio of some of the industrial stocks which built the economies we currently enjoy, GM 9, Ford 9, GE zero, (25 years ago the biggest company in the world is trading at a loss) still reflect tangible asset values.
The governance and operational reporting of business is often left in the hands of the CFO. They produce all the numbers and do most of the analysis of those numbers, as well as determining the investment choices other functional heads make by way of budgets, and the accounting for the spending of those budgets.
Several things have changed recently, on top of the rapid change that was proceeding up to 2020. The drivers of our economies took a dose of steroids from Covid, which not only accelerated the rate of change, but drove it in unpredicted directions.
- The accounting function deals with patterns and reporting that relies on history. This is a very poor guide to what happening around us now. The landscape has changed fundamentally, and that rate of change is not slowing down.
- Legacy systems now includes much of the stuff that was installed last year. Digital transformation has happened, redundancy is now counted in months, not years and decades.
- Business models have changed dramatically. Online ordering, and ‘no touch’ delivery of various types, previously struggling to get a foothold in many categories have taken off, while those that were already strong, have had their pedal to the metal. Legacy business models are dead. For accountants, trying to make sense of all of this while knee deep in the financial and governance accounting required, have run out of the gas necessary to accommodate it.
- Suddenly there are new power bases within an enterprise. All sorts of ‘Chiefs’ have emerged from hiding, and a few new ones have popped up. CDO (chief digital officer) CMO, CIO, and others that now have as much grunt at board level as the CFO, changing the nature of boardroom debates. ‘Traditional’ accounting is struggling, and largely failing, to keep up with the reporting and forecasting of increasingly fast cycle times and changing market and regulatory demands.
- How should the CFO deal with the accounting for innovation and change? The key for them is to learn much more quickly than they are used to doing, so they can recognise the demands, risks and costs of innovation, and think their way around the legacy accounting systems to deliver some sort of innovation and qualitative scorecard that fills the need for quantification.
- Sorting out Capex priorities, used to be done by business plans and discounted cash flow models driven by the often optimistic forecasts of marketing people. They usually relied on history to deliver an extrapolation, with allowances for the vagaries of new stuff. The time frames are now much shorter, the 10-year depreciation schedules allowed in financial accounting have become irrelevant when you are dealing with radically shorter equipment life and competitive needs.
- The significant move has been from a balance sheet that had little influence exerted by qualitative stuff, to a balance sheet structure that absolutely fails to reflect the real value of an enterprise, i.e.: what is in people’s heads. Those assets walk out the door every night and make choices about what to do tomorrow. This was previously a challenge, now it is a huge problem. The stock market calculations of start-ups with small if any revenues, but a few employees with a great idea can run to billions in the extreme case. They are backed by no hard, resalable assets at all, making valuation a nightmare for accountants.
What is a Strategic balance sheet?
Just as businesses undergo a regular financial audit, to ensure the appropriate governance and consumption of the enterprises resources, and account for the gains and losses of owners’ equity, so should it undergo a process of a Strategy Audit.
The financial balance sheet has a key role in articulating the ‘balance’ of assets and liabilities built up by the business, the difference between those totals is the owners’ equity, or what is left over to repay owners for the risks they have undertaken in lending the enterprise their money.
A standard balance sheet is a document assembled with historical data. It is subject to considerable ‘management’ by the valuation and classification methods employed in determining how an item will be treated.That is no longer even a fraction of what is requred to reflect the real competitive and strategic health of an enterprise.
Strategy drives the way resources will be deployed today in an effort to harness and maximise the potential for future returns.
This process of identifying the drivers of performance, and forecasting the optimised outcomes, is considerably harder than simply extrapolating the past. The only thing we know for sure about the future is that it will not be the same as the past, and even present.
Therefore, the strategy audit process is more qualitative. This does not mean that data and critical thinking should be thrown out the window as often happens, it makes it even more critically important.
Building a Strategic Balance Sheet is an iterative process. As you cycle through the expected costs and outcomes of strategy implementation, you will learn more and more about the relative weight, timing, cause and effect chains, and the trade-offs that exist between them. Being difficult to do means very few are doing it.
What an opportunity for those few who can get their heads around the drivers of strategic success and start to quantify them.
What do you think?
Send me your suggestions.
Sep 16, 2022 | Change, Governance, Strategy
In an economy desperate for productivity, how often does stupid, mindless bureaucracy get in the way?
This is not an argument against bureaucracy, rather it is an argument for strategic common sense. It is a nonsense to apply one standard across a myriad of differing circumstances, allowing no margin for reasonable error, then penalising tiny acts of reasonable noncompliance that do no harm.
A tale of woe.
One of my mates runs a small freight company based in a town in the central west of NSW with his two sons. He carries a range of agricultural goods, from grain to fertilisers to live animals, and has built a successful business by skilfully providing specialised services requiring investment in customised trailers designed to meet these specialised needs.
I spoke to him on the phone yesterday as he fumed at yet another example of bureaucratic stupidity making his life a misery.
One of his sons had been pulled up earlier in the day and fined $600 for being 40kg overweight in a 68,000 kg load of grain, loaded from a farm silo without a weighbridge. This is an error margin of .059%, hardly earth-shattering, presenting no danger to anyone, and absolutely understandable given the lack of expensive public infrastructure at the loading dock. The monitors on his axles, properly calibrated and checked, showed no overweight at the time of loading. His assumption is that one axle was in a very slight depression not visible to the naked eye in the loading area.
This is the second time in a few weeks this has happened.
His solution: get out. He can retire, remove the stress of running a small capital intensive business, and his sons will make more money doing something else. Meanwhile, the grain, and live animals he transports either stay where they are, or the costs of moving them go up dramatically as the haulage contractors either charge more to cover the risk of such tiny errors, or simply take less on board.
These standards are set and enforced by the ‘National Heavy Vehicle Regulator’ which has operations in each state. In NSW, there are 310 admin staff and 250+ compliance inspectors, according to their website. I wonder if any will jump in a truck to move the freight when my mate closes his business?
Who knows how the standards are set.
My assumption is that the big operators, Linfox, Toll, and perhaps a few others sit around with a few bureaucrats, agree some stuff, and go to lunch. The big operators go from weighbridge to weighbridge, they are unlikely to ever go up a muddy track to a paddock to take on a load of cattle or sheep to go to the abattoir, or a load of grain in an isolated silo going to a processor.
Is it any wonder it is getting harder to keep the supply chains moving, when the experienced owner-drivers are being driven from the chain by bureaucratic short sighted stupidity imposed for no good reason. The undertrained and inexperienced drivers being pushed in to fill in the gaps are a greater danger to themselves and everyone else on the road than a truck 0.059% overloaded, driven by an experienced driver with skin in the game.
Update: September 23, 2022. This ABC article dramatically underscores the point made in the post.
Aug 26, 2022 | Governance, Leadership
There is an additional and dangerous downside to former Prime Minister Morrison’s grab for power I have not seen aired anywhere.
Like everyone else, I have watched the emerging revelations with amazement.
The weight of commentary against the actions he took is total, even his supporters in the Liberal party are having trouble even talking about it, let alone justifying it. The solicitor general’s report confirmed what others had assumed. It concluded that there was no illegality in his actions, but that they were ‘inconsistent with the principle of responsible government‘
We live in a highly volatile and complex world, one where the cycle time required of decision makers is contracting, as the need for wise input born of diverse knowledge from different perspectives into decision making is increasing.
This is where I believe the other great threat to good decision making in the nations interest lies.
Our political system is good at weeding out any diversity of view, it demands adherence to the party line, and as a result, decision making suffers, badly. Good people with good ideas and wisdom inconsistent with that party line do not get a say. As a result, we have a parliament and supporting systems filled with careerists who understand the way to progress is to be yes men.
Anyone running any sort of enterprise facing complex problems understands the challenge. The best way to address those complex problems is to seek a variety of views from experts looking at the complexities from different perspectives. You then blend those views into a decision making process that enables clear accountability and continuous improvement of the outcomes as results emerge. This requires a culture that encourages diversity and transparency.
Morrisons power grab is that he removed any sense that there was a valid opinion on any topic other than his own.
Everyone comes to any situation with a perspective of their own, moulded by their life experiences, beliefs, and positions taken in the past. This is entirely normal. It reduces the cognitive load required to get through the day by allowing us to act almost on auto pilot for most of the time, leaving cognitive capacity to deal with the unusual.
Complexity by its nature has all sorts of second and third order impacts when you set about addressing that complexity. No one person can hope to see them all, or even a small proportion of them. It takes a wise group of diverse minds to focus on the problem from differing perspectives to anticipate those second and third order impacts.
So, just at the time when collaboration, diversity of opinion based on fact, and transparency is vital, the former PM goes the other way, looking at the problems faced by the nation only through his own particular version of the truth, an overload of confirmation bias.
He is the one who exhorted a church audience in Perth a few weeks ago not to trust governments, presumably in total ignorance of the reasons why public trust has been trashed, and the blatant hubris and hypocrisy of his words.
Wouldn’t you love to be a fly on the wall the next time he meets some of his former colleagues in private?
Aug 24, 2022 | Governance, Leadership, Management
There has been an awful lot of trees cut down to accommodate the blather about the new world of post covid work. In an effort to condense the ‘debate’ and save a few trees, the following is what I have gleaned.
Humanity.
We humans are social animals, we need other people around us for our own psychological health and creative productivity. Therefore, the idea of general remote work becomes a potential mental health time bomb. We will adjust to it by mostly going back to the office. it is very unlikely to be 9 to 5, there will probably be more satellite offices, short term but regular meeting schedules, but back we will go in some form.
Proximity.
Physical proximity enables deeper communication than any other form. Even the distance apart in the office makes a difference to the nature of the communication we have with each other. Not just about work, but the tiny things that we do not notice until they are not there, and even then, often with hindsight only.
Trust.
Trust enables teams to work together. The less face to face contact, the harder it is the generate that trust, making teams harder to assemble, generate productive outcomes, then disassemble and reform for another project or purpose.
Belonging.
We are sustained by a sense of ‘belonging’. We are drawn to ‘people like me’ but when we do not see them, or see them only occasionally or over Zoom, the sense of belonging frays, leading to eroding productivity and sense of community.
WFH.
Working from home for many has been great, not having that commute every day. It is convenient for many. However, convenient is not always good for us. Going to the gym every day may not be convenient, but it is good for our health.
Leadership.
Leadership and the nature of that leadership has never been more important. In the past we had a few leaders, and a lot of managers. In a world where remote work is a consistent part of the output, just being a manager will not cut the mustard. We need more leaders, and have not trained them, which indicates problems for many, and opportunity for the few in the coming few years.
Alignment.
The alignment of priorities and performance measurement and the place each individual has in the scheme of this is critical. When an individual cannot see how their efforts contributes, to both those in their immediate vicinity and to the overall objective, the effort will become diluted. Working remotely in the absence of that focus on priorities and outcomes will lead to real productivity challenges for the enterprises, and personal ones for the individuals.
Culture.
Culture is a function of the leadership, and how the leadership permeates the organisation. Building a culture in a remote workforce is more challenging than when face to face is the norm. Some have done it well, but mostly they are the enterprises that have started life as remote enterprises, so those who join, and remain, have the right ‘remote work DNA’ from day 1. The holding company of website builder WordPress, Automattic springs to mind. Founder Matt Mullenweg set out to make the company completely remote from day one, but even he has co-working spaces in places where employees are concentrated.
Technology.
Technology is what has made this remote working possible, but it is also planting the seeds of our own disassociation with those we need around us for our own well-being. Like most things, too much of anything good becomes a problem.
Clearly, we are not yet ‘Post covid’. However, the workplace has changed over the last 2 years, and while the jury is still out, when it comes back the status quo will not be the same as pre covid.
There has also been a lot written about the great resignation, and its relationship to covid. My suspicion is that it is not covid specifically that has driven the change, although covid was the catalyst. The model we have been using to get the work done was over a century old, and getting pretty creaky. Covid acted as the catalyst for many to simply reconsider their working lives in the light of the tools that have emerged in the last 10 years, and they chose to make a change. Enterprises must adapt to these new models of work. Those that can’t will become rapidly extinct.
What have I missed?
Header cartoon credit: Tom Gauld
Aug 3, 2022 | Governance, Leadership, Management
We are in a climate of uncertainty. The next twist in the Corona pandemic, war in Europe, confrontation with China, and the daily scrambling at all levels of government, stacked onto the usual challenges of making decisions in a business, all make the current situation especially difficult.
The instinct is to wait a bit and see how it evolves.
However, having a bias to action, being prepared to do the groundwork, consider options that take a calculated risk, being prepared to back away with the learning of being wrong and having another go, is a key leadership characteristic in uncertainty.
Essential to leadership is taking decisions with less than complete information. You must then be prepared to adjust on the run, or even retreat when the planning assumptions are proven to be off target. However, there is a danger in being too aggressive. Sometimes delaying a decision is the best strategy. It is a critical balance.
Following are some ways you can bring some order to the decision-making process.
- Gather as much data as you can, but in uncertainty, it is the ‘gut’ of deeply experienced people who have ‘been there done that’ which often makes a critical difference to the quality of the outcomes from the decision. By definition, in highly uncertain times, there may not be much relevant data available.
- Ensure those experienced people are heard in the decision-making process. Ensure ‘due process’ is observed
- As part of the consideration exercise, undertake a ‘reverse 5 why‘ exercise.
- Ensure you have what I call an ‘Andon‘ system in place. This term comes from Toyota, where there is an ‘Andon chord’ which anyone on the production line can pull to stop production in order to prevent a fault progressing to the next stage, and being hidden as a result. It works for Toyota, and has been adopted widely elsewhere as a means to deliver consistent quality
- Gather as many ‘metaphors’ and similar situations in other industries as you can, there will be lessons there. For example, disc brakes were developed first to stop trains in the 30’s, and aeroplanes during WW11, as drum brakes were woefully inadequate. Citroen introduced the first successful mass production of discs on their ground-breaking DS in 1955, and now they are on every car made.
- Leverage ‘reverse planning’ and ‘What if’ questions. Every decision is based on both data and some level of instinct. When considering the future, few questions are as powerful as ‘What if….’ Being prepared by asking a wide range of questions that subject the assumptions often made automatically, often without consideration, will prepare for the unexpected.
- Be very clear about the problem being solved. Any decision can have second and third order impacts, so consider them beforehand as far as possible.
- Never move away from being customer centric. When this becomes a slogan, or ‘core value’ whose only role is a place in the reception of head office, beware!
- Don’t be a wimp. Make the tough calls while being transparent that not all the information you may like is available, but that the very least it will be a learning experience.
As a final note, good decisions can sometimes deliver poor outcomes, and the reverse is also true, bad decisions can lead to good outcomes for all the wrong reasons. Do not confuse the two.
Header cartoon credit: Gapingvoid.com
