Never have we needed to understand the OODA loop more!

Apr 2, 2020 | Change, Governance

Never have we needed to understand the OODA loop more!

Observe, Orient, Decision, Action, or ‘OODA Loop’ is a thought process articulated by John Boyd, the maverick American fighter pilot, engineer, and scientist, who revolutionised the practise of aerial warfare’. His nickname in the Airforce was ’40 second Boyd,’ reflecting his bet, that he could beat any other pilot in a dogfight in under 40 seconds. It is said, nobody ever collected from him.

Boyd’s OODA loop is a framework for creating tactical advantage. As he put it, ‘To enable you to operate inside the oppositions ability to respond’.

The ability to respond is driven by the speed with which you are able to collect and analyse information, to come up with a tactical response given that it is almost always ambiguous and incomplete information, make the decision, and implement. This is done continuously, creating a ‘loop’ that increasingly becomes quicker than the competition can respond, leading to success.

We are in such a position now.

The ‘Bug’ has turned the way we thought things were on its head, there will be a new normal at some point. Those who survive until then, will be those who are more agile, faster to actively respond in an entirely ambiguous environment, in a manner that learns continuously.

If you apply this sort of thinking to the current situation, you might go through the following process.

Observe.

External assessment.

The state of the economy, recognising the rapidly deteriorating organic demand, seemingly about to receive a public jolt by way of multibillion dollar injections by governments of all three levels.

Corporate failures that are the inevitable outcome of the drop in demand.
Explosive increases in unemployment and resulting community and individual distress

Crumbling of the ability of health institutions to react in sufficient time given the resource shortages.

The emergence of opportunities unavailable previously, such as domestic manufacture of health related consumables and equipment, software that delivers supply chain transparency and accountability, the recognition that remote working is not only viable, but is a cost and productivity effective strategy.
Expected time when economic activity can restart and recover into some sort of ‘new normal’

Internal assessment.

Operating numbers: cash flow, debtors and creditors and varying payment options and cycles, sales pipeline, discretionary spending programs, fixed costs.
Essential people, technologies, products and customer relationships upon which rebuilding can take place.
Sources of cash injections that may be available, including government programs, and the timing and obligations of cash that may be available.

Orient.

Having collected this information, in effect, observed the environment, it needs to be synthesised into a cohesive plan, oriented for action. You might consider factors such as your business model, pricing structures, supply chain relationships, specific market niches, staff deployment, key strategically important customers, and internal reorganisation of individual capabilities.

Decide.

Often, taking what are really challenging decisions, made with incomplete information, that impact the lives of people and the future of the organisation, are easy to put off. There is always another piece of vital information necessary to make a better decision. Unfortunately, in a crisis, you do not have the time to wait, you must decide, be prepared to be wrong, accept the consequences of being wrong, and learn from them, but you must decide.

Act.

Having taken the decisions, take the action necessary. A decision not acted on, is not a decision to do anything other than make yourself feel better, or avoid the pain of implementation. Understandable, but not acceptable.

Wait, your work is not done.

Go back and reassess each stage, apply the OODA loop again, and again, to identify and claim that competitive advantage. In this moment, fighting the ‘Bug’, that advantage might deliver survival, and as the economy improves post bug, prosperity.

Five essentials for SME’s to survive the Corona chaos.

Mar 25, 2020 | Governance, Management

Five essentials for SME’s to survive the Corona chaos.

It is too easy for those not at the front lines of a crisis to brush aside the practical difficulties of day to day survival, in favour of the fluffier, albeit no less important longer term questions and issues.

Currently there is a flurry of activity from political leaders, roused from their partisan politics by this virus, resulting in a raft of measures that is challenging for owners of SME’s to understand, and access. However, it is essential that your spend the time, in a rational way, to understand the measures that will impact your business, what the qualification guidelines are, and how the assistance is to be accessed.

Many businesses are fighting for survival in the face of that Black Corona Swan that flew in and crapped all over them.

The five things business owners should be doing today.

Cash flow forecast.

Cash is the oxygen of business, survival without it is impossible. Having a clear view of the cash coming in, and going out over the immediate future is vital to making informed decisions. I always favour a weekly rolling 13 week forecast in most circumstances, and certainly in this one. There are plenty of tools out there, but a simple spreadsheet, filled with the input of your debtors and creditors ledgers, along with the bank reconciliation and a sales forecast will give the answers you need.

Do it now!

Cash ‘runway’.

You need to know how long your cash reserves will last in the event that you are suddenly trading at a loss, which is broadly illegal. This calculation goes hand in hand with the cash flow forecast, but requires you to break costs up into fixed and variable components. Those who regularly review their Break Even will have this information to hand. The provisions in the Corporations Act that refer to the personal liability of Directors who allow trading at a loss to continue, will be altered to accommodate the Corona virus, according to the PM’s March 22 statement. As yet I have seen no detail about this change, so be wary.

Communicate, communicate, communicate. Talk to major customers and those prospects that were about to be converted, to understand how their businesses are being impacted, and what you might be able to do to assist them. Talk to your staff, include them in the decisions around how best to preserve the business so that there is a job there when things recover. Taking holiday leave, unpaid leave, long service, job sharing, all may play a role. When you as the boss are getting really tired of having the same conversation, over and over, you might just be getting to the point where you are being heard.

Government assistance.

Both state and federal governments are setting out, with it seems common dual objectives, for the measures put in place, which are still evolving.

Provide assistance to those whose employment dissolves. This includes a specific Corona income supplement, the ability to draw down on superannuation accounts, reduction of social security deeming rates, and direct payments to households.
Provide assistance to businesses to keep employees working. This is the crucial one, as it is businesses that will provide the impetus for recovery. From April 28, the government is providing up to a maximum of $100,000 to be used to cover overheads, and keep staff. There is also included in the second package, a payment equal to the withholding tax on wages and salaries, of up to $50,000. The government has also put in place a specific Corona virus assistance scheme to assist access to working capital, by guaranteeing 50% of new loans by banks to eligible SME’s. To fund this measure, the Reserve bank has announced a lending facility to the financial institutions that will reduce the costs to those institutions of lending to SME’s. The states and territories have all weighed in with measures that relate to businesses operating in their states. Ignoring the stupidity of the federated system that results in an inconsistent patchwork of regulations, resulting in complication and confusion, you should investigate the specifics, and understand how you will be effected. In NSW for example, the government has announced they will waive payroll tax, and will being forward planned reductions in that awful tax on employment.

Be of service.

These are tough times, that induce a sense of desperation, which too often ends up being seen by others as the ‘hard sell’. This is the wrong time to be seen that way. Instead, set out to be of service, to use your resources to help mitigate the impact on others. They will respond positively, and remember. This does not mean you do not sell, obviously, but it does mean you do so only with the best interests of the buyer at heart, not your own. And, for heavens sake, stop those silly brand managers sending out those patronising ‘Covid-19 measures for your safety’ emails to anyone and everyone whose email address they collected in some way over the last decade. We do not want to hear from you, but will remember you clogged up our inboxes at a vital time when things get better.

It is a lot, on top of the day to day battle for survival, but spending your time wisely, on the things that will make a difference, is the best investment you could make at this time.

Header photo credit: David Brim, davidbrim.com

A Corona, heavily disguised as a Black Swan

Mar 23, 2020 | Change, Governance

A Corona, heavily disguised as a Black Swan

There is a quote by Earnest Hemingway, when asked how he went bankrupt. His response was: ‘Gradually, then suddenly’.

The same thing is happening to us now, as the Corona bug cuts a swathe through economies worldwide.

For the last 25 years we have become interconnected and interdependent, as individuals, businesses and economies. This added to the stability of the system as a whole, and while all goes well, in the absence of some black swan event, we continue to slowly dig deeper into interconnectivity.

Along comes the black swan, and all that interconnectedness and interdependence pivots in an instant, from being a source of stability and certainty, to the catalyst that suddenly brings the whole system crashing down.

Imagine a group of climbers on a rock face. They are all roped together so that if one falls, the others are strong enough to hold him, and allow him to recover back onto the rock face. That is the case almost always, it is why climbers rope themselves together, as it reduces the risk to the individual. However, if the system fails, a vital piton pulls out, or a holding rope breaks, momentum builds almost instantly, and the whole group falls. The risk to the individual is lessened dramatically by the presence of the ropes, however, if the black swan flies in, the group falls.

It seems Corona is our black swan.

In Australia we have had consistent growth since late 1991, 28 and a bit years. In that time we have hollowed out manufacturing, sold off public and private assets, more often than not to international groups, embraced the ‘gig’ economy of casual and short term employment, and forgotten how to think strategically and for the benefit of the group. In its place, we have lauded individuality, immediate gratification, and the expectation of something for nothing.

It seems we are now about to pay a high price.

The rope has come loose from the rock face.

I wrote an article last weekend for an industry forum, expecting it to be published on Monday or Tuesday after the editor had a look at it and got organised. The pressure of ‘The bug’ got in the way, and it was not published, but I just had a look at the draft, just 7 days later, and it is out of date.

7 days, and some of the observations and predictions I made have been passed by events, predictions just a few days old have become utterly redundant.

That is how quickly this thing is moving, and we are struggling to curb its momentum.

Header photo courtesy Simon Murray.

Cash flow assistance for SME’s

Mar 22, 2020 | Governance, Management

Cash flow assistance for SME’s

Halleluiah

The Government has announced cash flow assistance for small businesses, turnover limit an arbitrary $50 million, impacted by the Corona virus.

Perhaps the precarious position many small businesses are finding themselves in has finally pricked the Canberra political bubble.

The assistance is intended to keep people at work, and therefore money flowing in the economy. Some of the details are in a fact sheet easily downloaded from the Treasury website. If unsure, speak to your accountant.

Industry organisations, particularly banks will play a role in ensuring the information gets out, and those eligible, are helped to make the appropriate applications.

Inevitably however, the devil will be in the detail. Governments being what they are, will without necessarily intending to do so, make it challenging to access the relief.

There will be layers of bureaucracy and miles of red tape to be navigated.

I have one piece of advice to give that might serve to reduce the disruption and stress any interaction with a government agency giving out money and assistance will create:

Start collecting the data you will need now!

Add a category to your ledgers, that captures each and every expense associated with the Corona virus. Direct costs are easily assembled, but put them in one place, and include a calculation that reflects the time people spend sorting through the debris of their employers caused by this blight. Use the total cost of employment X hours spent as the calculating base.

Assembling and reporting the numbers is something that will inevitably have to be done, so do it now, and do it in a disciplined manner, so that when the rush is on nothing gets missed, and having it organised will make the process of accessing the assistance less disruptive.

Header cartoon courtesy Tom Gauld.

The only commercial vaccine for COVID-19. Cash.

Mar 20, 2020 | Governance, Management

The only commercial vaccine for COVID-19. Cash.

When things suddenly get really tough, as we are now seeing, the priority is survival.

That simple word means many different things to different people, but the common denominator is that you need cash to do it.

If your processes do not include short term rolling cash flow forecasting, the best time to start was before the do do hit the fan. The second best time is right now. There are many templates out there, but the information required is simple:

A forecast of the cash coming in.

A forecast of the cash going out.

This is not a managed number like a profit and loss statement, it involves only what goes in and out of the bank account.

My preference for most circumstances is a 13 week rolling weekly forecast. It is long enough to give a good picture, short enough to be sensitive to the immediate challenges that arise.

As a sibling to cash flow forecasting and a little more complex, is an exercise to ‘stress test’ your business. It is in effect a model to enable you to test to see how long your cash will last given a variety of assumptions about the trading environment.

To do a stress test, you need 8 pieces of added information, some will be forecasts, others will be sourced from your trading history, captured in the P&L and ledger accounts. The importance of each will vary depending on the type of business you are in. For example, physical inventories in a service business do not exist, but there will be a work in progress number that can take its place.

Projected revenues

Margins

Fixed costs

Variable cost of goods sold

Accounts receivable

Accounts payable

Inventories.

Cash reserves and available lines of credit

You can make this a sophisticated and challenging exercise, and in a large business, it should be. However, in an SME, it should be simple enough that a competent bookkeeper will be able to create a simple spreadsheet that will reflect the impact on your cash reserves of changing assumptions about any of the variables. Even just the conversation about the weighting of variables going into the stress test model, and their underpinning assumptions, will be extremely valuable.

When you could do with an experienced outsiders input, give me a call.

Header cartoon courtesy Scott Adams and ‘Dilbert’

Canberra bubbles bumble on

Mar 12, 2020 | Governance, rant

#Scottyfrommarketing blew it again on Tuesday morning, (March 10) further demonstrating why he had to move out of marketing, where you need a modicum of common sense, into politics, where common sense appears to be a liability.

He was speaking at the Financial Review business forum in Sydney, looking at the strategic challenges that face us. Amongst his words was an exhortation for business to keep people employed, to keep temporary and casual workers on the payroll despite not having work, for the good of the nation, to help them feel like they were proper Australians.

If he had any common sense he would have known, and as PM, should have known, that those running businesses do so for reason other than patriotism, indeed, they have a fiduciary responsibility to deliver returns to shareholders.

As an alternative to his naive and fluffy exhortation, he should have pointed out the costs of rehiring and retraining employees, the hidden transaction costs, adverse behavioural impact of survivor syndrome on employers, and the opportunity costs involved in cyclical staff management. Produce a few statistics from one of the many bureaucracies tracking this stuff, accompanied by a few real case studies, and the impact would have been significant. As it was, the impact was nothing more than further confirmation that the PM is not dialled into the real world.

I noted, ‘again’, in the opening sentence for a reason. It was not the failed responses to the fires, wooden recognition that there might be a problem emerging from climate change, or the astonishing revelations emerging from the shallow end of the pork barrel pool. It was driven by the stupidity of turning away from the opportunities offered by the rapid evolution of the world economy from fossil fuel to renewables.

Australia has plenty of space for mass solar panels, the resources required to produce batteries for storage, and the opportunity to be at the forefront of developing Hydrogen as a renewable energy source. It has just been too expensive in the past, and requires a lot of energy, to date supplied by fossil fuels. It will not be so in the future. But unfortunately, our scientific resources have been decimated, and what is left, directed elsewhere by ideologues and ‘flat earthers’.

Having sent brickbats in his direction, it is fair to be even handed.

This morning the PM announced the expected response to the virulent growth of the Corona virus. To me it appeared to be measured, sensible, and appropriate, and to be fair, again, the PM appears to be in front of the game this time. Perhaps #scottyfrommarketing is finally listening to those with some expertise in the arena he intends to flap his gums about.

Header cartoon courtesy Mark David and Independent Australia