Believe what they do, not what they say.

Believe what they do, not what they say.

Apr 8, 2019 | Governance, Leadership

Last week I was reminded, again, to take what people told you with a grain  of salt, and to watch closely what they did, rather than believing what they said.

I watched as the CEO of a significant business took a decision that was in direct conflict with the values he regularly espouses to staff and customers, in the interests of a short term cost mitigation.

He did not seem to accept the inconsistency when it was pointed out.

In the early 70’s as a student, I did a couple of holiday stints as a door to door market researcher. In one project, we were banging on doors and asking which brand of cigarette was smoked (in those days, smoking was widespread). When the answer was one of a couple of premium brands, we had to persuade the respondent to show us the packets in the house, and half the time, it was one of the cheaper brands.

Had we accepted what they said, rather than confirming with what they did, the research results would have been even more rubbish than they were.

Putting yourself in the shoes of a research respondent is really hard. It requires empathy, close observation, robust but sensitive questioning, and savvy choices in who you talk to if the results are to be reliable. It also offers the opportunity to gather insights into behavior that enables better product and service design, uncovering unstated or unrecognised problems being faced.

I hesitate to mention, we are about to go into an election campaign, the reality is we are already there, with the welter of blather, tired clichés and bullshit about to overwhelm us, again. As a community, we should really point out to all who want our votes the truth of the post headline.

Illustration credit: Tom Gauld from Instagram.

How to build a hierarchy of performance measures.

How to build a hierarchy of performance measures.

Apr 1, 2019 | Governance, Management

 

Corporate KPI’s should be evolved as a hierarchy, that measures the cause and effect relationships through an organisation, and be largely agnostic to the individual. After they are in place, you can develop the KPI’s for a role to be filled, for which an individual allocated to that position has responsibility.

There are 4 levels in most organisations that I see.

Measures of  sustainability.

These measures are connected to the purpose of the enterprise, they answer the question, how do you know if you are successful?. Sustainability is used in it broadest sense, commercial, cultural, and ecological.  In effect they are the harbingers of future success as well as current levels. Most organisational KPI’s that I see are all about financial success, which is critical, but is an outcome of success in other areas, not in itself a driver of success.

Measures of  strategic success.

These measures are directly related to the strategic priorities set. As strategy is about choices, so the performance measures should reflect the quality of  the choices made, and progress towards the agreed objective. Some will be financial, ROI, shareholder value, but the most effective ones will be about customer churn, geographic footprint, innovation, customer satisfaction, reflecting the strategic resource allocation decisions made to prioritise activities.

Process measures.

Process measures are those tactical measures that reflect the performance of the processes in the business that deliver value to customers, and feed the measures of strategic success. These will vary widely dependent on the type of business, but logically they include things like customer satisfaction, delivery performance, lead conversion, revenue, customer profitability, and so on. They tend to be the measures most appropriately reviewed on a shorter time scale than those above.

Operational KPI’s.

Operational measures should deliver a picture of  how the individual cogs in the wheel are operating. They should be directed at the items that are at the root of process productivity and efficiency. Measures such as machine availability, lost time injuries, rework, inventory turn, daily output to plan, and so on.

Together these measures should offer a complete picture of the way the separate parts of the organisation mesh together to deliver the enterprise purpose, the ‘Why’ you are here.

Ensuring measures are transparent across and through the organisation gives them ‘life’ beyond the dry review process.

Financial measures play a role at each level. However, because it is generally easier to gather financial information, and they are more commonly understood, they have become the default and only measures many use, which is to their detriment. They also fail the test of telling you why an outcome occurred, they just tell you it did.

Mapping the cause and effect chains summarised as KPI’s is always a useful exercise. Many people learn and understand visually, particularly when they have a role in the process mapping, and such an exercise enables a connection of KPI’s throughout an enterprise to be made. Experience shows it is a great way of generating the strategic alignment and buy-in so hard to find in most businesses.

 

What does marketing to Supermarkets and Pharmaceutical research have in common?

What does marketing to Supermarkets and Pharmaceutical research have in common?

Mar 13, 2019 | Branding, Governance, Marketing, retail

Quantifying the ROI of marketing investments remains the single most challenging task of marketers. While marketing costs  remain being seen as a variable expense, stuck in the monthly P&L , it will remain hostage to the whims of expediency, corporate politics, and short term thinking. The real KPI of marketing investment should be the sustainable margin delivered over a considerable time, as you would with an investment in machinery.

The obvious problem is that you can measure the output and productivity improvements associated with a piece of machinery, the numbers become available with use, although, they are all in the past. Marketing investment is all about influencing the future, and measurement, even with the benefit of hindsight is very hard, and useful only as a learning tool.

Is there something we marketers can learn from elsewhere?

The  Kaplan Meier curve is a basic concept used all the time by medical and pharmaceutical researchers. For example, if they are testing a new drug for say, patients with diagnosed terminal prostate cancer, you plot on a daily curve the lifespan of those on the test drug, and those on the placebo.

Assuming there are 100 patients in the trial, at day 1, all 100 are alive, then  you plot the numbers who remain alive daily with, and without the drug. If the plot line of those with the drug goes above the line of those without, you can imply the outcome of longer life, and you have some numbers to support the conclusion. If the line of those on the drug dips below the placebo line, you are killing patients. Lines that stay together indicate the drug has no impact.

Simple idea, widely used in medical research.

For years I have watched suppliers to supermarkets being screwed by those supermarkets, and increasingly allocating advertising funds aimed at brand building , which delivers margins over time to the brand owners, and indirectly despite the protestations to the contrary, to the retailers. This reallocation of advertising to working capital and margin via in store promotional activities, and supermarket profitability, at the expense of advertising, has been a huge mistake.

It has seen the demise of some great brands. To be fair however, consumers have benefitted by cheaper prices, at the expense of choice.

A few weeks ago,  the recently merged businesses of Kraft and Heinz, announced a disastrous profit result. This came about as progressively brand advertising that gave consumers confidence in the  brands has been redirected to price promotion that is the primary competitive tool of supermarkets. Meanwhile, those  same retailers have introduced house brands that look very similar, and that trade off the value proposition developed by Heinz and Kraft over many years.

The same thing has happened in Australia, perhaps more so given the concentration of supermarket retailing.

I was around as a junior product manager in the early  days of Meadow Lea brand building, at what was then Vegetable Oils Pty Ltd, a long gone business, swallowed up by corporate stupidity.

 ‘You ought to be congratulated’ is one of the great propositions of Australian brand building. In a hugely crowded margarine market, Meadow Lea held at its height, a 23% percent market share at premium prices, four times that of its closest rival. This was a direct outcome of a good product, great advertising, and a brand that delivered.

I had a look in a supermarket yesterday, and had trouble finding anything labelled Meadow Lea.

What happened?

Retailer power happened, combined with the lack of  understanding of the power of great brand building consumer propositions by retailers. Meadow Lea was squeezed by retailers for more and more promotional dollars that ended up  being funded by reductions in the brand advertising and building activity, with the end result that the brand in effect no longer exists.

It has become nothing more than a label!

I wonder where the  next market building initiative will come from?

Certainly not from the manufacturers, as they know that immediately they create a market the retailers will undermine it with cheap versions, so there is no value in the risks involved in the innovation necessary, and no reward.

Back to where I started, and I do not have the data for this, but I bet that applying a Kaplan Meier analysis to  the delivered margin from Meadow Lea over time, both to the now owners of the brand, and the retailers, would show that the allocation of brand activity to the low prices demanded by retailers had hurt everybody concerned, including consumers.

Image credit: Wikipedia

 

 

The problem with politics

The problem with politics

Feb 22, 2019 | Governance, Leadership, Personal Rant

We are facing two elections here in NSW, one for the state government, and then federal almost immediately following.

What a mess we are in, disengagement, distrust, cynicism on the part of the electorate, and flatulent promises and claims by the body politic.

The problem is trust.

There is none.

When I apply what I have learnt in 45 years of commercial life to this problem of trust in politics, I come up with a few simple observations.

Lack of strategic clarity.

There is no consistency between the claims and stated objectives of each of the parties and the experience of those who will be voting. The same party cannot even get their messages consistent between the state and federal levels of the parties, so why on earth do they think we, the electorate will believe their conflicting, fatuous and hyperbolic messages.

No accountability.

As a director of several companies, there are rules that apply that demand truth be told to shareholders. Clearly these rules do not apply to politicians as they talk to their stakeholders, we, the electorate. I would be dragged into court if I told the sort of porkies, used facts selectively and out of context, and generally failed to answer any question in a substantive manner,  the way politicians do as routine. They take credit for good things over which they had no influence, and blame the others  for any outcome that can be painted as poor. They are simply unaccountable for their promises, there is no sanctions on them beyond the cliché about the ballot box being the ultimate sanction.

We feel scammed every day as a result.

Governance, where is it?

The governance of government, and political processes generally, leaves a lot to be desired. It is appropriate that there are rules about the manner in which public money is spent. However, when the rules get in the way of common sense and equity, while leaving gaping holes through which the scammers can swim, it can be seen as a system that favours those in the know, at the expense of the rest of us. It is also the case that when  you regulate something, by definition, behaviour not captured by the regulations is OK, irrespective of the morality of the behaviour.  This can be clearly seen in the case of the financial services cesspool uncovered by Royal Commissioner Hayne. 

To be fair, public governance is a massive task of strategic and moral leadership,  and there are bound to be missteps, but we need to be better than we are, by a mile.

As a final observation, these people cannot govern themselves, why is it then so strange that we do  not trust them with the wider task of governing the rest of us?

Absence of cross functional collaboration.

When it is clear that the right hand does not know  what the left is doing, and seemingly does not care, why would we trust either? This not only applies to the functions of any individual government, but to each of the three levels we are burdened with, overlaid by the federated structure of states we are left with from colonial times.

We could not design a model better able to stuff up just about everything they touch if we tried!

The only antidote to all of the above is leadership. The sort of leadership  that takes responsibility, offers a compelling vision of the future and articulates a credible path towards it, is prepared to take difficult decisions and argue the logic publicly, then lives to be accountable for it all.

Pity there is so little of that going around.

 

Cartoon header credit: Again, Hugh McLeod at gaping void nails it!

 

What will happen after the Hayne report goes off the front pages?

What will happen after the Hayne report goes off the front pages?

Feb 15, 2019 | Change, Governance

 

Following the rather cynical post last Wednesday asking where the blame would be placed when the Royal Commission dust has settled, it seems only fair that I be prepared to stick my neck out to make some observations and suggestions, rather than just chucking stones.

•   The root cause of the malfeasance is the huge pot of money accumulated via Australia’s superannuation and various tax policies. Such juicy pots are always going to attract the sharks, therefore the oversight has to be that much more rigorous and transparent. APRA and ASIC have clearly failed in this arena, perhaps predictably as their resources have been progressively ‘trimmed’ by both sides of politics and the capability and motivation gap between them, and those setting out to get their noses in the trough, is significant.
However, we should not throw them too the wolves, rather we should give them the tools and leadership to do the job they were set up to do, and by world standards, have done pretty well to date. I am not so sure of the commissioners recommendation to establish an oversight body, as it seems that another bureaucratic level will just add to weight of bureaucracy for little value.

•   The complexity of the system has led to confusion and opacity of an advanced order. It is within the power of governments to set about reversing the trend. It will take a long time, and needs some level of bi partisan support (there I go again, dreaming) as any change will necessarily create losers. Those who have made decisions based on current rules must not be disadvantaged. The current proposal of the Opposition to change the dividend imputation rules is both stupid and immoral, and they should be whacked for it. However, if they must, make the changes but grandfather the current arrangements, as they are proposing to do with negative gearing.

•   We can spend all the money we like on so called ‘Education’ without much return. Increasing the average level of financial literacy during school years is sensible, but not an antidote to the cause of the problem, system complexity. Public broadcasting perhaps has a role in producing ‘infotainment’ similar perhaps to the ‘Checkout’ program on the ABC, but unfortunately, those in the most need of the information delivered are too busy watching some cooking or renovation show, and increasingly avoiding the ads by paying for bingeable streaming services.

•   The rorts have largely originated with the obsession with revenue, rather than the longer term outcomes. This is a function of our fixation with short term returns as measured by stock prices. While the pressure for short term performance will not go away, it is the responsibility of boards to ensure the longevity of the assets they are managing on behalf of shareholders, so it is therefore also their responsibility to manage them despite the inevitable short term fluctuations. The AICD should be taking a lead role in this, by both being very noisy which will be uncomfortable for them, and by providing quality longitudinal research that demonstrates the value of a longer term perspective upon which boards can build strategy with the strength to withstand the prevailing ‘short-termism’.

Last week the Wentworth Group of concerned scientists released their damming (forgive the pun) report on the progress of the Murray-Darling Basin plan. Like most such fact based research this will be lost in the welter of press releases, appearances by ‘deeply concerned’ politicians, and hubris, while nothing changes. Similarly, The Henry Review, the major report into Australia’s future tax system chaired by the then head of Treasury, Dr. Ken Henry, released in 2010, has been largely ignored or grossly mishandled. No wonder Dr Henry took the money and ran to the NAB, from which he will now exit in the near future. The list of examples goes on.
My point being that the bleating, hand-wringing and pontificating following the Royal Commission about doing better will make little progress in the face of political partisanship. The only exception I can recall that breaks this mould is the investigation into Institutional Child abuse, a damming report on the collective morality of our institutions, which has been met with bi-partisan support.

As a community we must not let the Hayne report be shelved, or used as a political football. Intelligent, fact based consideration needs to be given not just to the contents of the report but to the wider questions of the causes of the problems, and development of strategies that will deliver continuing prosperity to our children.

 

Header cartoon courtesy David Rowe and the Financial review.

Who gets the blame when the Financial Services Royal Commission is distorted and ignored?

Who gets the blame when the Financial Services Royal Commission is distorted and ignored?

Feb 6, 2019 | Change, Governance, Leadership

The release of Royal Commissioner Haynes final report into the Financial Services industry has been instructive in many ways.

One that will not get much media coverage is the manner in which the various political and interest bodies respond and reflect on their own part in the mess. By contrast, every person watching the various commentary will immediately come to a conclusion about the trustworthiness of those in whose hands is the commentary on the report, and the formulation and implementation of the means by  which the eggs will be unscrambled.

The refusal of Royal Commissioner Hayne to be a part of the governments spin job by refusing the treasurer a handshake for the cameras is instructive. It could be passed off as a bit rude, the reflection of a personal relationship  that needs some repair, or simply a reflection of Justice Haynes absolute lack of  faith in the goodwill of the Treasurer and the Government.

It would be surprising if it was not the last one.

On being interviewed on the ABC later that night, the Treasurer refused to answer the simple question ‘Was the Government wrong in voting against the establishment of the Royal Commission 26 times?  Followed with the equally simple ‘was it the threat of a backbench revolt that finally led the Government to agree to conduct the Royal Commission?’ 

We live in a complex world, ruled by a voracious appetite for the product of an ‘always on’ media, which has responded not by reporting facts, but  by supplying more shallow, opinionated, uninformed and juicy grist for  the mill.

Added to which politicians of all shades pick and choose selectively the numbers and quotes that reflect their established positions, ignoring anything else that might get in the way of a press release.

It is not the media’s fault, it is ours.

We no longer value truth, facts, and a contrary fact based opinion, although we crave them all.

The outcome is that we assume when a public figures lips are moving, they are either lying or blaming someone else.

The only solution is the implementation of what Ray Dalio would call ‘radical transparency’. 

Photo credit: ABC news