What leaders must do to enable organisational change.

What leaders must do to enable organisational change.

Feb 16, 2017 | Governance, Management

Through processes of organisational change, there is a lot to do, a lot that can go wrong, and something always does.

The only way to handle it is to just keep going, making the necessary adjustments as you proceed. However, there are some ways I have seen that smooth the waters on the way through.

Communicate, communicate and then communicate some more. When you are sick to death of the message, it is probably just getting through, just starting to resonate, so long as your actions are consistent with the message.

Be transparent. You need the trust of the employees during a period of rapid and often unpleasant change, and you cannot hide anything. If you try, when it gets out, you will lose the trust so necessary to enable the changes. When people believe their views have been taken into account, even when they do not agree with the outcome, they are more likely to be prepared to accept it than when a decision they do not like is just foisted on them. Be prepared to share everything, particularly data, even if it is ambiguous or not necessarily as you would like, the fact that you are prepared to share will go far. Besides, you rarely win an argument by telling people what you think, you have to show them the data, and why the conclusions are based on the data.

Stories have an important place. True leaders are at heart storytellers. We all come to understand complex questions from narratives and metaphors, and the stories provide the platform from which we learn. However, there are also some traps here. You have to know when to shut up, when to let the audience absorb and process the stories you are telling them, and every word counts. Never be seen as anything other than 100% up front, and always ensure that your actions are consistent with the narrative.

Remove the trappings of position. Every person is equal, and has an equal right to have an opinion, and express it. Good leaders quietly ensure that the quiet ones get an equal chance to express their views. When a great leader expresses their views, it is as an equal in the conversation, not as the boss. It is also the leader’s responsibility to ensure that others in the organisation structure also follow this no trappings rule. It follows that in these circumstances, you may know the answer to a question being discussed, but it is often useful to keep it to yourself, and continue listening. When they come to the same conclusion, they will be more committed to it than if you had proclaimed it, and if the conversation comes to a different conclusion, as the boss at another time, you still has the power of the position, but due process has been observed.

Strategies and tactics work together. They are not mutually exclusive, and you do need both. People are all different, they think, act, and work differently, which is why teams are better at developing and implementing both strategies and their supporting tactics. Small teams are better than large ones, and the make-up of the teams is crucial to their success, so do not leave it to chance. Make sure you have diversity of styles and skills on the teams, ensure the team is collectively responsible for the outcomes, and the way things get done.

Respect Vilfredo Pareto and his rule. Always focus on the 20% that will deliver the 80%. When you have done those big things progressively, you can do the others, but letting the not so important but urgent crap that will not in the end make much difference consume time is not smart.

Decide and do. When there are difficult decisions to be made, make them, and implement quickly. The uncertainty of thinking something unpleasant may be about to happen is far worse than the sure knowledge that something unpleasant just happened. When it is organisational structural change, this is absolutely the case. When it involves redundancy, you have to be prepared to deal with the ‘survivor syndrome’ that can be challenging but is helped by the speed, fairness and transparency you have already exhibited.

Hire slowly, fire fast. Often we get this the wrong way around, and hire because we have an urgent need, then find ourselves with the wrong person, and a problem. Not only should you take your time, but you should when possible involve others in the hiring decision. This is not an abrogation of responsibility, but a recognition that the person being hired has to work harmoniously in a group. Taking the time to find the really best people, not just the most technically qualified, but the one that exhibits the passion and curiosity that are the foundation requirements in this challenging world will pay big dividends. Along the same lines, when an existing employee exhibits behaviour you do not want, irrespective of how superficially important they may be, get rid of them. The team when working well gets more done than any individual, and a toxic individual has the ability to destroy the performance of those around them.

Be prepared to be wrong. This is again a function of the due process, but the leader does not ever know all the answers, and if you think you do, you have just made the biggest mistake possible. Giving others the authority to be wrong, and learn from the mistakes is as important as learning yourself

Yes. This is a powerful word, spread it, have a culture of yes, getting things done, making decisions and being transparently accountable for them, without fear is a powerful culture to be developing. Recognise that many decisions are based on judgement as well as data, and judgement only comes with experience, which must be earned.

Never forget the customer. They are after all, why this us all happening. Jeff Bezos famously ensures that there is a spare chair in every meeting at Amazon, as a constant reminder that they are there to serve the needs of that invisible customer.

Encouraging and nurturing change is amongst the hardest things a leader has to do, and perhaps the easiest to put off, until the day it can be put off no longer. Then is it often too late, and is always harder than it would have been yesterday.

Can the government’s innovation initiative innovate us out of the funk?

Can the government’s innovation initiative innovate us out of the funk?

Feb 1, 2017 | Governance, Innovation, Personal Rant

Peter Drucker said something like “innovation is the only truly sustainable competitive advantage”.

Having just re-read his 1985 musings on Innovation and Entrepreneurship, after 20 or so years, the degree of his foresight is truly astonishing. It is great to have a Prime Minister who supposedly understands how to make a buck, and the strategic, commercial and competitive challenges of bringing new products to market. He may be one of the few in Canberra who do, but at least it is a fair start.

With much fanfare the Government on December 3 last year tabled in Parliament a Senate  report on ‘Australia’s innovation System.’  However, with the exception of Professor  Roy Greens valuable contribution as an appendix, I see little of real  value in the report beyond a few worthwhile observations and some useful changes to the tax treatment of entrepreneurial endeavours.

Our venerable Senators have had summarised for them documents (I wonder how much consideration these busy important people actually gave to the detail of the submissions) that may have started with some valuable ideas but which have been sanitised into a document long on rhetoric and disturbingly short on anything of value, which can only be delivered when someone asks the question “What now”?

As someone who has run an agency outsourced from the Federal bureaucracy charged with identifying and delivering innovation to a specific sector, I can attest from first hand just how powerful the cultural forces are against anything with even a hint of risk, change, or long term thinking in the public sector.

Successful innovation takes all three, plus a clear definition of the problems to be addressed.

There is little evidence of anything in the report that encourages me to think that the status quo will be truly challenged.

It is useful to look to successful models, and there are none more successful than the US since the second war. Most will now assume I am jumping to Google, Apple et al, but no. If you look deep enough you will see the hand of government at a deep level making very long term investments in basic science, building knowledge that the private sector then leverages with innovation.

A scientist named Vannevar Bush (no relation to the Bush pollies) was commissioned by President Roosevelt just before he died to report on what needed to be done to promote research and development and the commercial innovation it drives, just as this senate inquiry has done. Bush reported to president Truman in 1945, delivering his report, “Science, the Endless Frontier” which laid out the proposition:

“Basic research leads to new technology. It provides scientific capital. It creates a fund from which the practical application of knowledge must be drawn”.

Directly resulting from this report was the National Science Foundation. Defence Advanced Research Projects Agency DARPA  and several other institutes charged with the charter to do basic science, of discovering new knowledge.

When you look at all the products disrupting industries up to today, and changing our lives, many if not most of them have their roots in the various agencies spawned by Bush’s farsighted ideas, and the ability of the scientific agencies concerned to outlive the political cycle. (that longevity may be tested now with the new President Trump apparently running amok)

Now compare that to Australia’s situation.

CSIRO used to be a great agency, capable of developing technology like the wireless technology in the 70’s now in every mobile phone after 30 years on the shelf until a commercial use was found. Scientific Capital at work.

Now CSIRO is a politicised dysfunctional rump of its former self, with a little of the funding ripped out over each of the last 15 years of hubris, restored via this latest in a long line of Innovation “initiatives” to the sounds of grateful clapping. I see few practical remedies for the past 30 years of innovation vandalism being actually addressed, although at least a real start may have been made.

As I always say in workshops, “the best time to start an innovation initiative was 10 years ago, the second best time is now”.

Let’s hope it is not too late for Australian manufacturing, and being an optimist, I do believe that we will overcome the barriers built by inertia, lack of a clearly articulated Australian view of our place in the world, self interest, and short term political opportunism.

 

What return should I expect?

What return should I expect?

Jan 23, 2017 | Governance, Management, Small business

This is a common question I get from the owners of businesses with whom I interact.

There is  no right answer, but when you consider that putting your money in a bank term deposit at no risk will currently generate you about 3%, and a diversified share portfolio held over the long term will earn 7-10%, you have to consider the risk/reward you are prepared to accept.

The question should really be expanded into two:

  • What is the financial return on the capital needed in the business
  • What is the personal return that might accrue.

Dealing with the financial return, it is a simple equation:

EBIT/Net Assets = Return on Capital employed (ROCE)

EBIT, or Earnings Before Interest and Tax  is a good measure as it reflects the true costs of running the business. Definitions do vary a bit, but usually it includes depreciation, a cost of replacing productive assets, but before the externally imposed Tax and interest which have little to do with the operations of the business.

Net assets is simply the result of subtracting Liabilities excluding equity, from the total assets of the business.

Businesses that have even moderately sophisticated financial management have usually reflected on the rates they see as acceptable, but as a rule of thumb, most manufacturing businesses  should have an explicit minimum hurdle rate not less than 15% before new investments can be approved.

A business that has very few fixed assets, such as a consulting practice, could reasonably expect a far greater return on the assets employed, simply because there needs to be so few of them, the key asset is knowledge. The calculation here is more about the return on time spent rather than fixed assets, way harder to measure, but directly related to revenue.

Clearly the type of business has a profound impact on the numbers, so commercial context is important.

Dealing with the second perspective, the risk/return of being your own boss is a highly personal equation, resistant of any useful quantification, so my advice is always to do what ‘feels right‘ to you.

 

 

 

What do employees really want?

What do employees really want?

Jan 9, 2017 | Change, Governance, Leadership

 

If I asked that question of 50 randomly selected medium sized business owners, the first answer would be something like ‘More pay’.

That would be the wrong answer.

‘More pay’ is the default when other things more important to them are missing, and there is no other reason to go to work each day. This is in Australia of course, a place where the necessities of life are covered, nobody is going to starve.

Employees want to work for a successful business, one that offers them security and a chance to learn and develop their talents and interests, as well as supplying the means to  buy the necessities of life. Nobody likes turning up not knowing if the business will be open that day, or if the receivers will be waiting for them.

When was it ever a better feeling to be on a losing team, than it was to be a part of a winning team?

Giving employees this reassurance is more than telling them that the business is profitable, although that helps. It is about taking them into your confidence as you would a trusted friend. Funny thing about trust, it needs to be earned by performance, and once earned, it is returned.

Trust given begets trust received.

Creating the environment where that trust becomes automatic and mutual takes time and effort, but success will put ‘better pay’ way down the list of employee concerns.

Following is the pathway I advise those I work with to follow:

Articulate where we are going. It is difficult to get people to buy into a journey  without telling them the destination. Try getting your young kids in the car just by ordering ‘get in the car,’ but tell them they should jump in the car, we are going to Luna Park, and you will be killed in the rush.

Paint a picture of the destination. Your kids have a mental picture of Luna park, fun by the harbour,  but your employees have no such picture of what success looks like, so paint it for  them, recognising that it is not just about the success of the business, it is about what success means for them, their colleagues, friends, customers and families.

Show them the journey. The kids know the way to Luna park, sort of depending on age, but your employees have no real idea of the journey you will share on the way, so lay it out. What sort of operating targets there will be, describe the workplace, the type of customer necessary for the success, what skills and knowledge will need to be deployed , and which ones will need to be developed, Who are your competitors, what are the expected challenges that need to be overcome, and so on.

Describe why it is important to get there. This is  not about profits and personal success, it is about what difference you are making to the community and people’s lives, a description of  the higher purpose, or the ‘Why’ of the business. It can sound a bit ‘mushy’ and new age, but when there is something that people can relate to at a gut level, the power of that is immense. Profit is an outcome of a job well done, one of the many measures of success, it should not be the primary measure of success.

WIFM. (What’s in it for me) while the objective is to engage with a higher purpose, there will always be a time where this question needs to be answered. When you have succeeded in doing the above, the answer will be  about the satisfaction of doing something useful, being valued, having control over your workplace, being a part of a community, learning and growing, and when those are satisfied, they may ask how much will be in the pay packet.

Personalised feedback. All of the above points are general, things that a leader  could and should do for the whole group of employees. However, employees are also individuals, and managing direct reports one on one is a core responsibility of leadership.  A one on one conversation can be many things, feedback on performance both positive and pointing out areas for improvement, assistance with a problem being faced, collaboratively addressing difficult problems,  advice of a personal as well as commercial nature, professional development,  and an opportunity to build a relationship of trust and respect. The meetings can take many forms, but they should be regular and formal, which means agendas and meeting notes, as well as diarised meeting times.  As a general rule, you would have these meeting with your direct reports, and encourage them to have similar meetings with their reports, indeed, coach them to do so.

When you do all that, you will build a motivated and engaged workforce, and that is a competitive advantage that is really hard to replicate. I can help with all that, having done it several times, and so know how to avoid the most of the traps.

How to set a marketing budget that works

How to set a marketing budget that works

Nov 21, 2016 | Governance, Management, Marketing

Pretty obvious question, particularly at this time of the year when organisations are starting to think about the preparation of the 2017 budget.

In many  enterprises, the marketing budget is set by the boss and the finance people.

They see marketing as a cost, so typically it becomes a percentage of revenue. They agree a targeted revenue, then apply a percentage.

What absolute bollocks

If marketing is a driver of revenue, then the more you spend, the more productive you should be, and when well done with metrics and sensible discipline, the more money you get at the top line as a result.

Therefore the challenge is for marketers to come up with sensible marketing plans, that promise to deliver on the strategic objectives agreed by the enterprise.

Marketing then becomes  an investment, not a cost.

Zero based marketing will have its day, when the marketing planning  is done reflecting the strategic drivers and priorities of the enterprise, and answers the question ‘what are the best ways to deliver on the objectives?’.

Do that and you generate the revenue, and marketing becomes an investment, the effectiveness of which can be measured.

Thinking about marketing as an expense is about the most common stupid assumption in the corner office, but is well ingrained because marketing people have lacked the balls and organisational grunt to back their convictions that it is otherwise. When confronted by reasonable, but difficult questions marketers without the necessary experience, knowledge, or intellect,  break into generalisations, weasel words and fluff.

Use cascading S.M.A.R.T. goals to forecast and measure the impact of the tactics employed to achieve an outcome, any outcome, not just marketing.

Pretty sensible acronym.

Specific. Measureable. Agreed. Realistic. Time bound.

I know the BEHAG (Big Hairy Audacious Goal) crowd will trot out JFK’s BEHAG to reach the moon by 1969, that galvanised the space effort, but most of us do not have the resources of the US at our disposal, so lets just take a powder and be realistic.

Set realistic enterprise goals, then have them drive the allocation of resources to marketing, and indeed elsewhere, hold people accountable, and have continuous learning loops in place. Only a fool makes the same mistake twice.

I once had a very confronting shouting match with the MD of a business I worked for who drove the whole budgeting process from the bottom right hand corner of the P&L. Somehow, magically, a number appeared, and he drove budgets backwards through the business. It was a reverse auction between functions, who could promise to deliver the most for the least?

Problem was that the promises were extracted in a strategic vacuum, and meant little.

The shouting happened as the finance guy offered up a chunk of his budget that had been earmarked to integrate the reporting systems of several businesses we had taken over the previous year to deliver reliable and timely sales and margin numbers. At the time (it was over 20 years ago) I stated it was not worth spending marketing budgets if I could not track the outcomes, and the priority was therefore the sales information, not the promised revenue resulting from the marketing expenditure because it could not be reliably measured.

I smile now, but at the time, it was not fun, and was just another nail in my corporate coffin.

The essential 70/20/10 rule for business optimisation.

The essential 70/20/10 rule for business optimisation.

Nov 10, 2016 | Governance, Leadership, Management

Most of my time is devoted to improving SME manufacturing businesses. I do it for a living, mine and theirs, and I have an ulterior motive.

I want my grandchildren to have a better life than me, and while I have had a great life, the pace of  improvement has faltered noticeably over the last 25 years as the productivity of our economy has floundered, and the flow through benefit to living standards has reduced to a trickle.

I put it down to the decline of manufacturing.

We have taken the easy way out, as an economy and society, and taken the benefits before they were able to be sustained.

Short term gain, long term pain.

The evidence is everywhere, from the short termism of the stock market to the supposed microscopic attention span of millennials, self indulgence of baby boomers,  and the politics of who gets what of the tax take ripped out by the three levels of government and their acolytes.

I believe that without manufacturing, the process by which we gain leverage, the decline will continue. There are only so many baristas and hairdressers we need, and they offer no leverage, as you can only make one coffee at a time.

To the rule in the header.

Almost all small and medium sized manufacturers I work with, from those resilient few remaining who supply into FMCG markets, to those in engineering and service manufacturing (like printing) the formula for optimisation is reasonably consistent.

70/20/10.

70% of the time, effort and investment needs to be devoted to the foundations of the business. The numbers, financial and otherwise that deliver meaningful measurable and actionable planning and feedback loops on the allocation of their resources to their core business. In effect it is improving on the things that made you successful in the first place, but which have not evolved as quickly as the competitive  environment around them, so they are being squeezed.

20% of the effort and investment into adjacent areas. These are the places that will in all probability spawn the new product category, class of competitor,  demanding but value driven customer, and the emerging niche market that technology has enabled. This adjacency leverages some of the capability developed in your core market in a different way, stimulates capability development, and delivers you asset productivity.

10% of the effort is playtime. This is the messy, risky, scary, and significantly disconnected from your core, innovation and change initiatives. it is from this effort that the product and business model disruption that will change everything can emerge. Way better to be on top of the changes, anticipating and planning for them, rather than being taken by surprise and belted by them.

The numbers vary, and the nature of the resources allocated varies, but in rough form, 70/20/10 seems to hold across business sizes, models and market types.