Jun 10, 2021 | Change, Governance, Management
Culture change is perhaps the hardest challenge to be faced by any leader. It can evolve over time, with patience and commitment, but every successful change I have seen comes after a catalytic event of some sort.
Many years ago, I worked for a manufacturing business that had built a new factory in the west of Sydney, which had more than its fair share of teething problems. The production the factory was supposed to absorb and build upon came from an inner-city site that had been operating for almost 100 years.
In those years there had been built up a powerful culture of management Vs workers, and fierce demarcation battles between the many unions on the old site, several with only one or two members, desperately trying to build their position.
This toxic mixture was transferred to the new, automated site with the predictable results. Manufacturing productivity was appalling, labour relations non-existent, demarcation disputes ongoing, the place was on the brink of being closed as the biggest disaster since the Titanic.
In a desperate dispute, to make a point, someone (no charges were ever laid) resorted to arson in the warehouse. The damage was extensive, and the already hobbled ability to produce saleable product was almost destroyed.
However, it was a monumental catalyst for change.
In the middle of the night, I found myself driving a forklift, working shoulder to shoulder with warehouse and production staff clearing stock from the refrigerated warehouse into trucks for transport to outside storage.
This would have been absolutely unthinkable just 24 hours before.
Suddenly, everyone in the plant recognised that their jobs were about to go, forever. The unionised workforce recognised that those in so called ‘management’ were just people who wanted, like them, to do as good a job as they could. We found it was easy to communicate without the artificial barriers that had existed, and we all had a common purpose, to survive.
Within a few months, after enormous effort and collaborative changes unthinkable before the fire, the business had been transformed. The fire had been the catalyst for a determination to acknowledge the failures of the past, and to accept massive change was necessary, welcome, and in the interests of every stakeholder.
In a small way, this is what is needed in Australia.
A common purpose, clear and consistent communication, determination, and goodwill.
This does not mean there will not be fierce debates, and difficult decisions that need to be made, but it does mean that there is a general understanding of why those decisions were made.
After royally stuffing up the reaction to the fires in December 2019 and January 2020, the government recognised their failings when the Corona virus took hold. It served as a catalyst, and suddenly there was bi-partisan and general community agreement that change was needed.
We moved forward.
As things quietened down, the collaboration and goodwill dissipated, partisan politics and apparently ill-considered and reactive decisions taken by fragmenting politics at all levels re-emerged, driving people apart.
Question is, can we restore the emergent culture of goodwill and collaborative communication that served us well in the crisis? It is the same question commercial leaders need to ask of themselves after experiencing a catalytic event.
Do we have the leaders capable of driving the culture change necessary?
How do we assemble the resources necessary?
Can those with vested interests in the status quo, resistant to the changes, be shunted to the sidelines?
In the case of ‘Australia Inc’, failure to respond will leave all our children and grandchildren poorer: financially and emotionally.
Header cartoon credit: Dilbert, again. Scott Adams and his mate have a knack of hitting that vital nerve.
Jun 8, 2021 | Governance, Marketing
Part of the job of marketing is to make the complex simple and understandable, while retaining the essential core of the proposition.
As Einstein said, ‘Everything should be made as simple as possible, no simpler’.
This is the same logic used by ‘Occam’s Razor’, which summarised tells us that the best theory is the simplest one that still explains all the facts. Arthur Doyle’s character Sherlock Holmes was referring to both these when he said: “When you have eliminated the impossible, whatever remains, however improbable, must be the truth’
However, there is a point beyond which the process of simplification becomes corrupted by the selective choice of facts and variables, of leaving out those that might deliver a conclusion different to the one that is preordained, and preferred
People are not stupid, but sometimes they are lazy, do not have the technical knowledge to fully understand, or their cognitive capacity is consumed just by living, and a host of other mental barricades.
However, that is no excuse to oversimplify the complex when the complex is important, or to be sufficiently selective with the facts to be grossly misleading.
Successful long-term marketing depends on the truth, expediency may be attractive in the short term, but is poison over a longer period.
Our current PM, labelled ‘Scotty from marketing’ by that most reverential publication, the ‘Betoota Advocate’ has gone too far.
He has been conducting a masterclass in oversimplification on one hand, and obscurification on the other, for political purposes. It has been going on for some time now, and it is time to stop.
To be fair, ‘Scotty’ is not alone in the political sphere, (and I use the word political in its broadest sense), but he does set a very high bar.
We, the electorate, are not stupid. We may be disengaged, cynical, selfish, and mostly put our immediate family and community above the greater good, but treating us as stupid is a bridge too far.
It is easy to go too far in simplifying a message, which then is read as patronising, self-interested, and with little relationship with the facts. This erodes credibility, and therefore the ability to get anything done by any means other than leveraging institutional power.
Header cartoon courtesy Tom Gauld in New Scientist magazine.
Jun 2, 2021 | Governance, Leadership, Strategy
Successful businesses in my experience have several things in common, and in general do most of them well.
Focus.
They are sufficiently disciplined to be able to assemble and deploy resources against a limited number of objectives and opportunities. This requires that there is a robust strategy in place, as they have made a series of choices about what they will do, and what they will not, which are all clearly understood throughout the business. Being all things to all people is never an achievable outcome, so they leave it alone.
Niche.
In one way or another, all successful businesses I have seen operate in a niche, where they have sufficient scale to be relevant to their selected customer base. This is the same for a small local business as it is for a multinational, each in their own way have defined a niche and set about owning it. Of great value is the niche that others do not recognise, where competition does not exist, or is marginal.
Leverage.
Leverage is doing more with less, so it follows that the greater the leverage of assets, the greater the success. Of course, when taken in purely financial terms, leverage can lead to disaster, as leverage also increases risk, but when looked at from the lens of human capabilities it works. It also works when you consider outsourcing as leverage, keeping your most valuable assets doing jobs that deliver greater returns. In successful companies, the jobs that just must be done to keep the machine grinding, are broken down to repeatable processes and done at the least cost, so the assets released can be deployed to deliver optimised results.
Differentiation.
In the absence of some sort of differentiation that increases the value of an offering to a group of customers, all you have is price. When price is all you have, you will, eventually, lose.
External sensitivity.
Being able to ‘feel’ the changes as they happen in their competitive environment and react before others marks not simply good businesses, but ones that have the DNA to be sustainable, as they incorporate in their DNA the ability to change early, and often. This does not imply a moveable feast of strategy, rather an agility in the implementation, which requires a considerable dose of leadership.
To my mind, businesses that are able to keep themselves in front of the ‘market Takt time’ are well placed to prosper.
Robust and shared culture.
‘Culture’ has become the rallying cry of all sorts of pundits, and self-proclaimed experts, but is clearly a major differentiating factor in good businesses. The cliches of all rowing in time and in the same direction apply, but the best definition is still Michael Porters definition: ‘Culture is the way we do it around here’ holds. In addition, when setting out to measure culture, as we are increasingly trying to do, I have yet to see any measure of culture that make a lot of sense beyond the simplest, ‘bad news travels quickly, & untainted, to the top’. When I see that, I know there is a robust culture in place.
Collaboration.
Part of superior performance is understanding where your capabilities are best deployed, and from time to time, a collaboration makes sense as a means to leverage both yours and another’s capabilities into an outcome neither could hope to achieve on their own. Collaboration is a really challenging thing to pull off, as it requires that both the businesses and all the personnel understand that their own best interests are best served by serving the best interests of the partners.
They have a detailed understanding of their strategically important customers.
This may not always be their biggest, although that helps, but those that will deliver sustainable profits into the future. Every large and important customer started as a small one, the trick is to pick those that will, long term, make a difference to your business, which can only be done when you can make a difference to theirs. This implies some sort of key account strategy is in place.
Robust financial management.
It should not need to be said, but sadly, genuinely robust financial management is not all that common. Anyone can deliver the statutory accounts required, but it takes creativity and understanding of the complexity of customers and markets to produce useable management reports that reflect the current, and more importantly forecasts of the state of the business.
Of all the reports, cash is the most important. All the sophisticated marketing, procedures, and cultural initiatives become redundant in the absence of cash.
Header cartoon credit: Hugh McLeod at www.gagingvoid.com nails it.
May 26, 2021 | Governance, Management
I was astonished when I recently went back to all the stuff I had written to copy and paste a simple explanation of cash flow into something I was doing. I had written a post some years ago, but not in the detail required in this instance.
Astonishing because I rabbit on about cash flow all the time.
Cash flow is the measure by which SME’s live and die.
I encourage as strongly as possible, repeatedly, that those I work with do a weekly rolling 13-week cash flow forecast.
It saves a lot of grief, and once set up is simple to do.
The real benefit of cash flow understanding for an SME is that it is cash, it cannot be ‘managed’ by various accounting practices, you either have it or you do not. Understanding the detail of where it comes from, and where it goes, and when, is the single most important metric for any business. This is particularly the case for an SME without a depth of reserves to accommodate when things go pear shaped.
So here goes.
Cash comes in from only a few sources. Most comes from being paid by customers in an ongoing business, but it can also come in from borrowings, sales of assets, capital injections by the owners, and incidentals like dividends.
Cash goes out in a similarly limited manner. Payment of purchases from suppliers, for anything from leases, capital items, manufacturing inputs, wages and salaries, to paper clip purchases, and repayment of borrowings, dividends, and tax payments.
In the presentation of statutory accounts, the required cash flow statement is broken into three parts.
Cash flow from Operating activities. This records the cash generated, and where it is used in the course of the normal operating activities of the business.
Cash flow from Investment activities. This records cash going into and out of investments that are outside the normal operating business. For example, a business deciding to invest in an adjacent business to firm up control of the supply chain, would record the investment in this part of the cash flow statement, as they would any subsequent dividends that were received.
Cash flow from Financing activities. This category records cash coming in from sources such as bank loans, and capital raising, as well as cash going out in repayments and dividends.
For most SME’s, the first is the major item, with only occasional intrusions from the other two, so I tend to just lump them together.
The format is the same for each. The source of the funds, and the use of the funds.
It is often useful to break the captions up a bit for a greater level of detail.
For example, you might break cash received from customers by geography, type of customer, or product group, all of which can give you a more detailed view of which parts of your business are working as expected, and which are not.
Coming out of pro-actively managing your cash flow are a number of other key improvement strategies, amongst which are:
- Reducing your cash-to-cash cycle time, which reduces working capital
- Managing inventory down without compromising supply,
- Actual cost of goods sold analysis rather than relying on some arbitrary standard,
- Positive relationship management with funders, especially valuable when you are looking for more capital
- Cash can act as a leading indicator of trouble with an individual customer or supplier, or indeed of a market segment in which you compete,
- Goodwill coming from being able to pay your bills on time, every time,
- Cash is the basis of several important investment analytical tools; a robust history makes the numbers even more credible
- Most importantly for most owners of SME’s, pro-active cash flow management delivers peace of mind.
Managing your cash is management 101. Unfortunately for many, it has become surrounded by accounting jargon, and mixed up with the more complex practises employed in the P&L and Balance sheet. Alan Mullaly when in the throes of saving Ford from extinction, demanded a daily cash balance assembled from operations around the world. If it can be done daily in an operation as complex as the global Ford organisation, it should be really simple for you to do it weekly.
Cartoon credit: Scott Adams and Dilbert again make the point better than I can.
May 19, 2021 | Governance, Leadership
The characteristics of leadership we expect from the local non-profit, to the largest businesses in the country, to the Prime Minister, are pretty much the same.
Trust.
We need to trust those who lead. However, trust is never just given, it must be earned by the behaviour we observe. It is also incremental, built over time, it is fragile, and can be brought down in a minute by one bad example. The test, if there is such a thing, is whether we believe that the private conversations the ‘leader’ is having are the same as the public ones, and would they be prepared to say those private things on the 6 O’clock news. By this test, many in prominent so called ‘leadership’ roles in this country fail. Dismally.
Dependability.
Dependability is a component of trust. It has many forms, from delivering on the big promises made, to turning up on time for an appointment with the local hairdresser. In any leadership role, no matter the size, when a real leader finds themselves from time to time unable to deliver, they do not walk away from the fact, they acknowledge the failure, learn from it, and move on. To many, this is the essence of leadership, to me, in it is simplest form, it is only common courtesy painted on a wider canvas.
Competence.
Leaders must be Competent. Someone placed in a leadership role, who is an example of the Peter principal is corrosive to the rest of the organisation. Those being led must believe that the leader is someone who can get the job done. That does not mean they never make a mistake; it does not mean they are never unsure of themselves or exhibit human frailties. It just means that we believe that they have the wisdom, skills, and experience to get the job done. This extends further, by ensuring they teach others to be competent at their job, and the next one. Competence is a compounding quality they pass on to others.
Humanity.
We are herd animals, we rely on those around us for safety, and security. We have evolved and prospered as a species because we are able to collaborate and care for one another and rely on our neighbours in times of stress and crisis. Someone in a leadership position who does not care about those being led, is not a leader, at best they are a manager, dispensable and easily replaced.
In summary, you can always tell who the real leader is: they are the ones others follow because they want to.
How does your leadership style stack up??
May 9, 2021 | Change, Governance, rant
As I look at the current state of the economy from my spot as a boomer who has largely lived my life in times of peace and easy excess, it is becoming clear to me that there are two tracks at work.
The first is the one along which is driving those who work for a wage, pay taxes in the absence of choice, and struggle to feed, house and educate the kids. In the decreasing incidence of the traditional nuclear family, both parents tend to work, often multiple jobs, and seemingly get nowhere.
The second is those who own stuff. Specifically, property and shares. They are doing OK in the enormous inflation of price that has occurred.
The problem for our society and the glue of community is that the latter group are living on what economists call ‘rent’.
Income from ‘rent’ comes from what you own, rather than what you produce. In the absence of producing greater income ‘producing’ than from ‘owning’ you get what we have now, a two-speed economy.
It further seems to me that the system is weighted towards those who own, so can charge rent. Our tax system and increasingly education system which is the gateway to ownership is increasingly weighted towards ‘rental’ at the expense of ‘production’ by those in control. The controlling group are themselves renters, and so set the rules favourable to them, rather than being equitable to all.
This is not a simple challenge for us to address. It has been a long time in the making, and will be a long time in the fixing, which makes it unlikely to be fixed in the absence of strong political leadership that is able and willing to look beyond the current electoral cycle.
The economic problem posed by renters is that they tend to double down on what is producing the income today. In other words, optimising the short term at the expense of the long term, which is messy, uncertain, and therefore subject to greater risk. Risk minimisation is core to a renters mindset. That is why small enterprises are more innovative and less risk averse, they have much less to lose, and are reaching for the point where they can become renters, a much easier life.
When looked at through such a lens, the source of the current malaise in this country is obvious. Too many renters, owning way more than their ‘fair share’ of the largess we have inherited.
I wonder what constitutes a ‘fair share’? This is not something you can legislate, and in any event, the legislature is controlled by renters, so no joy there. In a democracy, we the great unwashed are supposed to be able to bring about change via the ballot box, but that seems unlikely in the short term. Again, the game is rigged to exclude anything other than very gradual change from the edges, and that is too hard for the renters to think about and accept the minor risk it might entail. The outcome of the last federal election when the Labor party put a few anti renter ideas on the table, they were scuppered. To my mind this was the result of incredibly poor marketing rather than the ideas being lousy.
I am first and foremost a strategist, one who looks at the big picture and articulates the principals by which the resource allocation and tactical decisions are made. As such, I propose two principals by which the foundations of our economy, and therefore the society we should be aiming for are sourced.
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- Education. Make this more accessible to all, from preschool to advanced tertiary, and everything in between. We need not only the scientists, doctors, and managers, that make the industries and services we want work, but the plumbers and toolmakers who actually make things that produce income. It is that latter group that have been killed off by policy decisions based on something other than the long term good of the community.
- Funding. It is a simple matter that the aspiration above needs to be paid for, somehow. Increasingly the tax burden is supported by the ‘workers’ while the renters get a pass. This simply must change. Not a proposition easily accepted by those who will ‘lose’. It will be resisted with all the resources at the disposal of the renters, and their allies. First target should be the multinational corporations that infest our industries, who reduce their tax, legally, to close to zero by a mix of entirely legal strategies, usually involving transfer payments to head offices domiciled in places where the rates are lower. This is an international problem, not just ours, so the benefit is that others need our cooperation as much as we need theirs, and the economies of the Bahamas and Cook Islands can be assisted in other ways to play their role in a fairer world economy. Then there are multiple soft targets in our domestic tax system that need to be progressively addressed so the balance is reweighted towards those making, at the expense of those renting.
We need to share the largess of the golden goose more widely by re-weighting the distribution of the gold, rather than the ownership of the goose.
It is Sunday morning, and clearly, I am dreaming!
