The formula for trust, and how to lose it.

The formula for trust, and how to lose it.

Mar 26, 2018 | Governance, Leadership

Building trust is a process, long term, incremental, and very fragile.

Trust given has always been earned, it is never just ‘given’. Sometimes trust applies to institutions.  We expect anyone holding office in an institution to act in particular ways that reflect the trust earned by those who have gone before.

This is why we no longer trust politicians, and many others in various forms of public life. Individuals have tainted the trust we have in the institution by their individual actions, and it affects all who are associated.

Reflecting yesterday on the disgraceful efforts of the so called leadership group of the Australian test team,  I felt personally let down, even somewhat soiled. Cricket seemed to be one of the last bastions of the  Australian ethos of tough, competitive fairness, and looking after your mates.

No longer. It is just another bunch of overpaid, self-interested ego driven dopes who do not deserve to wear the ‘baggy green,’ a symbol of what has gone before.

There is a formula for trust that I have applied to those with whom I work, encouraging them to think deeply about the components, then behave as the formula demands, every day.

Trust = credibility + reliability +Authenticity     divided by perceptions of self-interest.

Apply that formula to the current bunch and they fail, badly.

It is reasonable to think that the pressure of the moment got the better of their judgement, that deep down they are better than that, but then apply the formula, and the result tells a different story.

Steve Smith, perhaps the best batsman in a generation, will forever be remembered for this piece of stupidity, no matter what he has done, or will do, the decision to cheat will forever be an indelible stain on his reputation and credibility.

How can we trust him to lead an Australian icon.

Does he even deserve to remain in the team, irrespective of his prowess at the crease.

He is no longer a leader who we can trust, therefore he is no longer a leader, at best, just an incumbent.

The Kiwis, still smarting after the underarm bowling incident in 1981 will be laughing at us, and muttering ‘Told you so’

Cambridge Analytica and Facebook stretch the boundaries of digital privacy.. Further…Again

Cambridge Analytica and Facebook stretch the boundaries of digital privacy.. Further…Again

Mar 22, 2018 | Change, Governance, Strategy

The Channel 4 expose of Cambridge Analytica last week has started a firestorm of commentary.

Rightly so, but  is it not ironic that the tools CA used to swing the US presidential election are now being used against them after the tactics were revealed?

Facebook, and all the other digital platforms are just wholesalers of eyeballs, in business to collect then monetise their access to personal information, freely given. This how they make their money, exchanging access to the very detailed personal information they collect on their platform users, to advertisers for money.

I wonder if any of us should be surprised at the revelations? This is what they do with our cooperation. The problem in this case is that 50 million of the people whose data was skimmed did not know it was happening and had not given permission for it to happen.The tensions inside Facebook, and the other platforms, between those whose job it is to generate the revenue, and those charged with the responsibility for data security must make for some pretty lively conversations!

The access to the a wider set of eyeballs, via the downloading Apps, games, surveys, and the rest with ‘Friends permission‘ such as the popular game ‘Farmville’ enables access to the personal data of friends of those who are engaged. This Friends access allows ‘thousands of layers of personal information on millions of accounts‘ to be collected. That data was then analysed by Dr. Aleksandr Kogan using the principles developed by  the Psychometrics Centre at Cambridge University. Dr Kogan analysed the data collected for Cambridge Analytica, that had the objective of developing and delivering messages specifically targeted at an individual in order to move their voting behaviour.

Truly scary stuff, science fiction just a few years ago.

Facebook has since suspended Cambridge Analytica and associate SCL (Strategic Communication Laboratories) from facebook, while defending their own actions claiming ‘Protecting peoples information is at the heart of everything we do‘. Suspension is apparently, the ultimate sanction. I guess that we should all be grateful they are looking after our privacy so well, and not going out hawking it in the local bar.

Facebook is really under the regulatory gun in all this, coming as it does on top of the revelations about Russian troll farms and the possible influence they had on the US Presidential election results. However, they should not be the only ones under scrutiny for the use of personal data for profit. That is simply the business model that has evolved in front of us as we all use social platforms of all types and names. Facebook just happens to be the biggest, and best suited to electoral ‘management’ if not fraud.

While the personal information zealots cry about making potentially life saving medical records available on line, and politicians of all colours bleat about how important information privacy is, a hard argument to beat, we all continue to give it away happily for access to ‘cat porn’ and the menu of the local pizza shop.

The debate should be a wider one.

How much power do we want concentrated in the hands of so few providers of digital tools, and how will we  regulate them to ensure they play a constructive role in the development of our communities and society. The follow up question is I suppose, do we have the political machinery with the skills and balls to do anything about the obvious answer.

 

Header cartoon credit: Partial ‘First dog on the moon’  cartoon The Guardian 21/3/18.

Update: March 23

Mark Zuckerberg has released a statement that acknowledges the problem, gives a timeline of what Facebook has done to secure information, but goes nowhere near an apology. I suspect there will be some flurries meant to make Facebook look better, and as a salve to those calling for regulatory action, but little if anything of any consequence will change.

Second update March 24.

I just stumbled across this editorial by Mitch Joel, to my mind one of the interesting and informed thinkers in this space, that really gives some added context to the conversation. It supports the view that none of us should be surprised, we have willingly participated in the end of privacy, and besides, use of social data to manage (code for swing) electoral outcomes in this way is well known.

 

Third update April 16. 

I was sent this very useful explanatory video produced by the NY Times, describing the sequence of events. Thanks Geoff!

Fourth update May 24.

Aleksandr Kogan, the data scientist behind SCL has his say in an interview with Buzzfeed.

Why Wesfarmers is taking Coles through the checkout

Why Wesfarmers is taking Coles through the checkout

Mar 21, 2018 | Governance, Management, Strategy

It is no great surprise to me that Wesfarmers are spinning off the Coles supermarket business, and associated liquor and variety businesses. It also makes sense that they are keeping Officeworks and Bunnings, both stunningly successful businesses in Australia. Bunnings However, has failed miserably in the UK expansion, consuming capital and morale like a starving gypsy. It seems ironic that Coles thought they could beat the odds in the UK, just as Woolworths thought they could beat the odds with Masters here at home.

I do not think it is just being smart with hindsight to have foreseen the spin-off. Wesfarmers always seemed to me to be an owner that had adopted a culturally different and troubled although talented child, and was not too sure what to do with it. Despite pumping a lot of capital (around 8 billion) into the business and successfully turning it around beating the incumbent FMCG thug, Woolworths at their own game for a number of years, it still seemed to be an odd adoption.

A new Managing Director will always be keen to take the opportunity to ‘clear the decks’ of underperforming assets freeing up capital to deploy elsewhere in the hope of better returns.

New Wesfarmers MD Rob Scott is no different. Coles was a weight on the Wesfarmers balance sheet, accounting for 60% of capital employed, but returning only 30% of EBIT. Coles while a strongly cash positive business, is also the second player in a very mature market that faces a volatile future. However, it has played a role in the impressive increase in Wesfarmers value despite the nightmares that must have engulfed then MD Richard Goyder when the 2008 market crash occurred just after the $22 billion Coles acquisition in July 2007.

The FMCG market is entering a volatile period.

The channels to the consumer continue to fragment and enable the entry of innovative business models, and cashed up innovators. Aldi continues to make significant market share headway, Costco while a minnow is continuing to invest, Kaufland appears committed, and the shadow over everything is what Amazon may, or may not do.   Meanwhile, online shopping is increasing, while at the extreme other end of the spectrum, farmers markets, and even ‘pick your own‘ schemes are growing like mushrooms after rain.

Sounds like a good time for Wesfarmers to sell out of what may become a ‘legacy’ business over the next 10 years, and to put shareholders capital to work elsewhere.

 

 

Header credit: David Rowe Via Australian Financial Review.

 

 

A marketers explanation of Internal Rate of Return.

A marketers explanation of Internal Rate of Return.

Mar 19, 2018 | Governance, Management

 

This post should be read by marketers in conjunction with the earlier one that explains Net Present Value.

IRR partners with NPV as another tool in the investment choice toolbox. Both use as their basis, the forecasting of cashflow to make choices between investment options. While there are potentially a whole menu of influences over making decisions about investment options, cash as we know is the lifeblood of any business, and the measure least open to ‘management manipulation’, so should be in the mix.

The Internal Rate of Return, is the discount rate that would result in the net present value of a project to be zero.  In effect, you are  ‘solving’ for the discount rate that is used in the Net present Value calculation.

The discount rate best used in the Net Present Value calculations can be uncertain, we live in volatile times, and IRR is a means of calculating the rate given a set of investment parameters.

Businesses should set out to understand the rate at which the project breaks even,  so the IRR is the interest rate at which the NPV of all cash flows from an investment equals zero. Your investment break even.

IRR enables a ranking of projects by their rates of return to be done, rather than just relying on the NPV of the cash required. However, relying on IRR in isolation has a downside: it does not measure the absolute size of the investment.  A small investment might deliver a very attractive IRR, but be not as strategically attractive as a larger one that positions the business for growth. These are judgements  made outside the straight financial calculations, which are just tools to compare.

As with any mathematical modelling tool, an IRR calculation it also suffers from the ‘garbage in garbage out’ syndrome. Therefore the the most important part of the investigation is to understand and critically analyse the assumptions made, rather than just relying on the numbers Excel spits out to make the decision for you.

 

How to apply logic to the development of KPI’s

How to apply logic to the development of KPI’s

Mar 12, 2018 | Governance, Leadership, Management

‘If it matters, measure it’

There are many variations in that old saying, but it holds true. How therefore do we end up with hundreds of measures that seem not to matter?

Fear.

Fear of missing a measure that does matter, so we create metrics for every-bloody-thing to ensure that we do not miss one.

That is crap management.

Let’s think about measuring stuff that does matter, and then measuring it at the point where the decisions and actions that influence the outcome are made. This is tying cause and effect together at the point where they intersect, not looking at a range of data and wondering what happened to cause that!

How do we define what matters?

To me it is simple, if it moves the performance indicator, it matters. Clearly, the converse is also true.

Ask yourself, does the number of Facebook likes you have impact your profitability? If it does not, and I would contend it never does, so why use it as a KPI? It is simply a readily available metric that has no relevance to performance. It is what those ‘likers’ do with your information that counts, much harder to define and measure, but if you understand that, and the cause/effect chains, it just might move the performance needle and become a KPI worth measuring.

In short, behaviour determines the outcomes, so set out to measure the behaviours you need to deliver the performance you are looking for, not the other way around.

How do we measure what matters?

A measure without a target is not of much value, as we cannot see if any movement is relevant to performance. A measure should articulate the performance against which we need to move the performance needle in a strategically significant manner. This setting of targets is challenging if we do it properly. Applying a 3% increase in last year’s performance is not doing it properly, it is just extrapolating, accepting that history will repeat itself.

To measure properly, we need to consider the factors at work that will influence performance, seeking the causes, and measuring them, not just glancing at the metrics and having no idea of whether or not any movement is significant. Holy cow Batman, we just got another 5,000 likes on the Facebook page. Wow! But so what?

A further caution. ‘Sandbagging’ so called KPI’s is common in situations where there is little strategic linkage, and analysis of flow on impact. Two examples. Sales people when incentivised only by a target will be tempted to keep the targets as low as possible in order to achieve their bonuses.  Who has not seen that? Purchasing people incentivised only by purchase price will not care too much about the performance of the cheaper version they opt for, which in the factory, may corrupt the efficiency numbers, and have a far greater financial impact than the saving of a few bob on the initial purchase price.

Do not focus on averages.

Too many times I see piles of measures, taken at a high level, so that they reflect the average of a whole lot of other factors. If I have one foot in an ice bucket, and the other in the fire, on average the temperature of my feet is about right.

Nonsense.

Measure the outliers, the things that are unseen in averages in order to better manage them. For a KPI to be meaningful, it has to influence the outcome. Removing one foot from the fire will influence the average, but if I have not realised that the effect is caused by the removal of the foot in fire, I will at some point put my foot back in the fire.

I do not remember much from the statistics I did 45 years ago at university, but one of the ideas I do remember is that of standard deviation.  I recall little of the mathematical gobbledy Gook and probably do not need to any longer, as the formula is in Excel, just fill in the boxes, but I do remember what it means. (Forgive the pun).

In the normal distribution curve we are all familiar with, 68% of outcomes are within one standard deviation of the mean. These can reasonably be classified as an ‘expected’ result, given that forecasting is not an exact science, it is just a best informed guess, and the level of ‘informed’ varies hugely, depending on who has their mouth open at any one time.  95% of outcomes fall in the range of 2 standard deviations, and 99.7% fall in the range of three standard deviations. This is commonly called the ‘Rule of 68’

A focus on the unexpected, the outliers, will give you far greater leverage on the outcomes than a focus on the averages, or expected. It might lead to taking one foot out of the fire, and understanding that this is what has caused the increase in the comfort level.

 

 

 

 

 

Defining the outliers, like most things in life, can be made easier by imagery. A core piece of process improvement is defining the levels of variability, and then seeking to understand the causes of that variability. A visual way of communicating this is a performance graph that includes what you define as the limits of the variability you would consider to be ‘normal’. Commonly this is called a ‘statistical control chart’, and includes the upper and lower limits of what can be expected. Anything outside these limits needs to be investigated.

Anything inside the control limits is by definition, ‘normal’ and therefore not necessary to spend a lot of time considering. What however is worth great consideration is determining what the control limits are, where the normal becomes abnormal, which is where action must be taken. Over time, in an improvement process, the control limits will be progressively tightened as the outliers are progressively understood, so they become part of the normal, or eliminated.

 Cascade the KPI responsibility

Having any more than 6 or 7 KPI’s to manage creates a situation where we skate over the top, not able to devote the time and energy to improving the things that matter, that move the performance needle. The things that really matter will be different at each level, and in each part of the enterprise.  Therefore, constructing KPI’s relevant to each role should be a core part of the process of managing the resources of the enterprise, and especially in encouraging the behaviour we want  that will collectively, move the performance needle. Within each functional area, there will be a cascade of KPI’s that together add up to the 6 or 7 KPI’s to which the functional manager is held accountable. This is not to forget that the processes we are measuring are very often cross functional, and ignoring those cause and effect chains leads to sub optimal performance as in the purchasing/operations example noted earlier. This can be addressed by ensuring that the purchasing manager has a KPI that involves operational efficiency in the measurement.

Use the narrative in reporting.

A dashboard of a few easily understood performance indicators is terrific, it tells you what has happened, but lacks two vital pieces of information: Why it is happening in this way, and what should be done about it.

Narrative is the best way to communicate these vital factors, the core of great management, indeed, leadership. Knowing clearly what is happening is step 1, steps 2 and 3 are what make the difference between the companies that struggle to survive and those that prosper and grow. Illustrating these narratives with graphical KPI movements over time is a powerful way to illustrate the impact of performance at any level.

 

Credit Wikipedia: Rule of 68-95-99.7.

Header credit: Hugh McLeod Gaping void

 

11 practises to build a performance culture.

11 practises to build a performance culture.

Mar 1, 2018 | Governance, Leadership

Managing personnel KPI’s, performance reviews by another name, are one of the most intimidating and easy to put off tasks most managers have.

Having recently written about behaviours delivering KPI’s rather than the other way around, it may be useful to do a quick audit of your own practises, and that of your employers.

If you want to shape behaviour, you need to communicate, and more importantly, display the behaviours before they will be taken up by others in the organisation.

This is a crucially important aspect of every person in a position to manage the output of others.

In  no particular order, following are some of the things I  have observed over the years that impact positively in behaviour, and clearly the converse is also true, their absence is telling.

Start from the beginning.

The first thing a new employee should understand is the behaviour that is required, and the connections these have to the KPI’s. Start as you want to continue, as someone who is willing and able to assist the new employee to learn, and contribute to the organisation. So often I see new employees disheartened by the reality of a new job not matching the rosy descriptions given during interviews. This is a bad mistake.

Feedback is a two way street.

Recognise that giving feedback is delicate, and is also a two way street. Positively managing the performance of other people requires a relationship, and no relationship can exist without some give and take. Every employee has expectations of their boss, so you should also ensure they have the opportunity in the conversations about performance to give you feedback. When this happens as a matter of course, as a part of natural conversation, it is a really healthy sign.

Responsibility and credit.

Taking responsibility for the failures around you, but giving credit where credit is due, publicly, is one of the most powerful motivators I have seen. It builds respect, and importantly also builds a well of goodwill amongst those around you, as well as from those reporting to you.

Feedback should be cultural.

Make performance feedback part of the culture. It should not be a once or twice a year conversation,  but an ongoing part of the discourse. This is not an easy part of being a manager, it means you need to be thinking of others all the time, rather than concentrating on yourself.  Have a look through the terrific Netflix culture doc, it is a very useful guide from a business that has managed exponential growth while disrupting established marketers, and building what appears to be a great place to work. Clearly, they know something about performance management and culture that the rest of us can learn from.

Remove emotion.

Keep emotion at bay, by concentrating on facts, and demonstrable cause and effect. This is a challenging task, but emotion is the killer of constructive and mutually beneficial conversations.

Be specific about expectations, exhortations to do better are of no value unless you are able to tell  them exactly how to do better, and the metrics by which that performance will be measured.

Context.

Help people to see their work, and place in the organisation from a broader perspective than just their own little part of it. Understanding the context of a role, and the impact the performance of it has on others is a very powerful motivator.

Educate for the next job

Recognise explicitly that most people move on at some point, and that you take it as a personal challenge to ensure that when someone does move on, it is to a better, more senior job, and that you have contributed to the success that gets them there. Helping them build a career path is a part of your job as a leader and manager, and they will be grateful. When you give something of value to someone else, reciprocity kicks in, and in some way, at some time, most will repay the ‘debt’, often with interest.

See the context of peoples working lives.

Understand the patterns and drivers of the lives of those for whom you are responsible. While keeping a distance is easy, and natural, unless you understand what is going on in someone’s life outside the time they  spend as an employee, you will not  be able to understand them as well as you might, and will therefore fall short of being the perfect boss. This can be a very fine and variable line. Some may not welcome what they see as intrusion, but to one what may be intrusion, to another is genuine interest in them as a an individual.

Address the molehills immediately.

Adverse behaviour does happen, and unless called out immediately, will quickly become  accepted as ‘normal’. When you see something great, immediate recognition will drive a repeat performance, and the opposite is also true, and corrosive. Once poor behaviour becomes the norm, it is very hard to change. Nip it in the bud!

Write it down.

There are regulatory requirements, as well as good governance that relies on things being written down and recorded. Some would  say without a written record, it did not happen. Agreeing a written record with the other party goes a long way towards cementing the  changes you need.

No threat no sweat.

‘Performance review’. Just the words elicit a sweat, an impending doom, that affects the conversation. Remove the implied threat, and the conversation can be mutually constructive. Of course, there are the odd occasions where threat is an intention, but it needs to be the exception, rather than the rule.

In these fractured post Weinstein days, ‘gender politics’ may also play a role, particularly if you are a middle aged, heterosexual white guy with the power. Enough said.

Remove with humanity.

Finally, when someone has to go, do it explicitly, but with humanity. Firing someone, particularly someone with whom you have worked closely, for whom you have had responsibility, and who you might like personally, is the hardest management job there is. Do not shirk it, and do  not leave any room for ambiguity. It is not about blame, it is about both parties moving on in their own best interests. You also need to consider those that remain in employment. They will see the termination,  and the manner of it, and come to their own conclusions about how it was handled, why it was necessary, and how it may impact them. Survivor syndrome is remarkably strong and often overlooked.

What have I missed from your experience?