May 4, 2022 | Leadership, Operations
Any company that has grown bigger than about twenty or so employees has developed functional silos as a necessity. The bigger the company, the more focussed and powerful drivers of behaviour of functional employees those functional silos become.
At some point, they risk becoming self-preserving organisms, which seek survival and growth in an internal environment that competes for scarce resources to be allocated.
This is always a huge problem when seeking to generate change.
Water runs downhill, it finds the easiest way down, it builds momentum, continuously making minor adjustments, carving out a modified route as necessary.
Individuals in an organisation have a choice. Metaphorically, they can just ‘go with the flow’, or they can create friction and try and redirect the water. Few attempt to redirect the flow, and fewer still have the power to mandate it.
At some point, someone comes in and says we want some water back at the top of the hill, so someone gets some buckets, fills them, and starts back up the hill.
Almost always the journey is too tough, and they give up.
The momentum of the water still flowing down the known tracks beats them.
The task of leadership is to make that journey easier, to enable the individual to redirect their piece of the water flow, not to where it is easiest, which is the way it went last time, but to a new way, forging minor changes that cumulatively create the new best route to the end point.
Customers do not care about your internal structures, rules, and priorities. They want their product as ordered, at the agreed price, on time, no defects. This is inherently cross functional.
We have organised businesses for our own convenience, when in fact they should be organised for the convenience of customers.
Header photo credit: Lunayuna via flikr.
Apr 27, 2022 | Leadership, Management, Marketing, Small business
The inflation figures released this morning put the annualised inflation rate at 5.1%, up from 3.5% at the end of the December quarter last year. While it may bounce around given the volatility of fuel and food prices, the trend is very clear, and the current election driven lucky dip of spending promises will not help. This increase in a single quarter is the largest I can remember since the mid eighties.
Australia is in for a rocky ride, and it will not matter who wins on May 21, the impact will be felt in every corner of the economy, and by every Australian.
For SME’s who have weathered the challenges of covid and are now experiencing the added burdens of broken supply chains, and lack of labour, while trying to re-establish some level of certainty in their businesses in an environment where demand has ramped up, the prospects are daunting.
Irrespective of the decision made by the Reserve next Tuesday, to raise the cash rate from the current 0.1% to 0.4% or 0.5% which seem to be the prediction of the majority of economists, the squeeze is on. Raising the rate during an election campaign will test the independence of the reserve bank. I bet there are some phone calls being made!
How will this impact your business?
Those impacts will vary enormously depending on the industry circumstances. The rate that gets all the attention is a weighted average, with the actual sector numbers varying from a slight reduction in communication costs, to a 13.7% increase for transport costs.
- Labour costs will soar, as the demand for labour continues to grow, while immigration is still constricted, and the cost of living blows out.
- Transport costs, which most just see in the petrol prices at the local station, which impact everything that moves in the economy will quickly feed into cost of goods sold in every product category.
- Businesses will see a sudden increase in their accounts receivable days, their cash conversion cycles will become longer.
- There will be pressure on margins from multiple fronts. Volumes will be constrained as supply chain failures impact, and competitors scrambling for volume will be more likely to reduce prices to grab that extra sale. At the same time, costs are increasing, and price increases will be harder to get, as buyers exercise their buying power and shop around.
- You will be pressured by your suppliers for quick payments, as they are being squeezed for margin, just as you are.
- General overheads will increase. We have seen significant increases in lease costs for small factory spaces, insurance costs will be turbo-charged after the floods, fires, and pestilence of the last 2 years, down to the little things like costs of coffee for the lunchroom. All these individually manageable cost increases cumulatively add up to substantial and hard to control increases.
So, what should the SME’s that wish to remain successful be doing?
- Customers shopping around for a deal in greater numbers can present an opportunity for those who understand the drivers of Value for customers in their specific market.
- Resist the temptation to cut marketing and selling expenses. History demonstrates with absolute certainty that those that keep marketing when their competitors shut down in tough times not only do better during the tough times but retain their positions after the worm has turned. Optimising your marketing expenditure is not the same as cutting it.
- Actively engage employees and stakeholders in ways to maintain profitability. This should always be a priority, but is more pressing and visible in tough times.
- Focus on the 10 tactics outlined in the Inflation Busting Roadmap published previously
- Consider from the perspective of necessity the five types of cost in your business, with particular attention being given to the last three, as that is usually where the opportunities hide.
Many have not experienced a spurt of inflation before, the last serious spurt was in the mid-eighties while Paul Keating was treasurer. In management terms, this was over a generation ago. If the experience of those times would be of benefit, give me a call.
The header graph is from the ABS website updated as the announcement of the scary 5.1% heqadline inflation rate was announced.
Apr 25, 2022 | Leadership, Strategy
It is Anzac Day 2022, a day we remember those who fought to give us the choices we now have to shape the lives we lead.
In homage to the sacrifices they made, we need to be thinking seriously about the choices we are making that will impact on those who follow us.
Significant in those thoughts should be to think differently about the term ‘climate change’.
It is too narrow a term, implying we just need to be concerned about the immediate impact of CO2 on weather, and the human and capital impacts of those changes.
Instead, we need to be thinking about the challenges more holistically.
The planet we live on is an ecosystem, of which we humans are just a small but enormously influential part. For millennia, the impact we had on the eco system was inconsequential, but that changed with the industrial revolution, and have continued to change at a geometric rate. We suddenly are taking more out of the ecosystem than previously, impacting on the ability of the system to replace what we have taken, to the point where currently we are taking more than can be replaced.
An ecosystem is a bit like an investment portfolio. It benefits from diversity. When the diversity of any portfolio reduces, it makes that portfolio less resilient to outside shocks.
The planets ecosystem is being stripped of diversity, and as it is with an investment portfolio, it has become less resilient, less able to sustain itself. As a result, we are seeing those radical changes in weather patterns, and the consequential changes in climate.
There is nothing we do that does not come from nature. The oxygen we breathe, the water we drink, the foods we eat, the materials we use, all come from nature. We are part of the planets ecosystem, whether we like it or not, and we are consuming the resources of the ecosystem at an unsustainable rate.
Think of it as you would a balance sheet. On one side you have assets, on the other liabilities and equity. When your assets grow faster than your liabilities, you add to the store of equity. When it is the reverse, you deplete equity. The tipping point is when your equity is gone, and you can no longer sustain the difference between the rate in increase of liabilities over the production of assets. At that point you are bankrupt.
We humans have been depleting the assets of the planet unsustainably since the beginning of the industrial revolution, and the rate at which the depletion is happening is increasing. At some point, the music will stop, and subsequent generations will face the sort of dystopian future we see in sci-fi movies.
I think we have reached, or almost reached that point.
On this Anzac Day, as we have a BBQ in the back yard with friends, sink a few beers and stand in circles and throw a few pennies in the air, we should also be considering the legacy of our time in this place, and what we should collectively be doing about it.
It also happens to be my beautiful, educated and talented daughters birthday. Perhaps it is the thoughts of her children, yet to make an entry, that have made me consider the sort of world that my generation is leaving to them.
Apr 20, 2022 | Governance, Leadership
People want to do what they are good at, and it makes sense to let them do that. However, doing well on an individual basis is not enough to succeed. You need to do well at the micro, as well as ensuring that your bit is making a positive contribution to the macro, the efforts of others.
Alignment in the jargon, but it is more than that.
Success in business requires that everyone understands the impact on the business of the decisions they take every day, like taking a ‘sickie. Taking a ‘sickie’ impacts on those around who are relying on the output you would normally deliver. To cover the shortfall entails the added cost of standby capacity, or ‘shorting’ a customer. Therefore, the more everyone understands about the numbers that reflect the performance of the business, the better.
This is not to make everyone accountants, which is the conclusion many jump to, it is just about understanding.
We often use sporting analogies in business, they are easy to see.
This is because business shares four common characteristics with sport.
- There is a goal, in its simplest terms, to win.
- There are rules.
- There is a scoreboard, which in business is normally kept hidden, sometimes deliberately, but most often by default,
- There are rewards for winning.
In our sporting team, every member of the team ‘owns’ part of the result. If we extend the analogy, for a business to be successful, we need the stakeholders to think and act like owners, they have a stake in the overall success of the business.
This goes way past picking up the pay check on a Friday. The things an employee typically wants from an employer, in addition to the pay check to keep the kids fed and housed, are job security, time off, promotion prospects, the opportunity to learn, to be appreciated, and to be able to see the job as way more than a daily grind. They worry about these things.
By contrast, owners and senior management while having all those same worries, are also concerned with all the things that deliver to all stakeholders: satisfied customers, revenue growth, cash, cost control, growth, ROI, which are all necessary if the employees are to be rewarded.
Their goals are the same, it is the language and context that are different.
However, we do have a common language, easy to learn to a sufficient level of understanding to be useful.
That language is the income statement, balance sheet and cash flow statement.
I hear groans: understandable.
Accountants have made these three simple ideas incomprehensible to most people. In unwitting collaboration with the regulators, they have complicated the simple ideas to suit their own purposes.
Broken down to the simplest form, these three reports provide the rules of the game, and the critical numbers that enable everyone to understand the score, while they provide the means to ensure everyone in the game understands their role and stake in the outcome.
To answer the question in the header: to build a successful culture you need to ensure everyone in the game understands the rules, and the way they apply in a volatile environment.
Header cartoon: Courtesy Hugh MacLeod at Gapingvoid.com
Apr 18, 2022 | Governance, Leadership
Words are important, crucial to the effective communication and intent of an idea being articulated. Without the right words, well delivered, the idea will not have any oxygen, so be still-born.
This notion is applicable to every type of situation, from the casual conversation at a social gathering, to the articulation of major strategic choices.
There is a sequence that seems to be successful when making everything from a cold call to a full-blown strategic proposal. I have observed this sequence being successful over many years in many situations.
- Identify the big change that creates the opportunity you are intending to address.
- Demonstrate how the change will create winners and losers. Nobody wants to be on the losing side
- Envision the promised outcome post the project implementation
- Introduce the positive features of the idea as the catalyst to overcome the obstacles and deliver on the promise
- Present the hypothesis/evidence that delivery on the promise will follow naturally from effective implementation.
In addition, there are two ‘secrets’ to the delivery that while obvious, most seem to miss.
The first is in the manner of the delivery.
A flat, wooden delivery and the words will carry limited weight, will not elicit any emotion in the listener. By contrast, words delivered with passion, and obvious commitment to the outcome will be met with a more emotional response, which will either engage or turn off the listener.
The second is in the choice of words.
There are always many ways to articulate a message. Therefore, choosing the right words, the ones that build the attention and emotional response in the audience is fundamental.
Read the words of the great speeches, without conjuring up the mental image of the original speaker, and some of the power is lost. Churchill’s ‘we will never surrender’ speech, Martin Luther kings ‘I have a dream’ speech are great examples. Now read them again with the image in your mind, and the power returns.
One further thing that can make magic, is the power of the moment.
Churchill, newly installed as Britain’s PM as France surrendered, facing a catastrophic defeat, and King in front of 250,000 people on the steps of the Lincoln memorial in 1963. In the moment, King changed the text he had written adding the immortal words: “I have a dream’ to the list of changes he wished to see for his fellow Americans. Both used the moment to conjure emotional magic from the ether with words and passion.
Compare those to Albo’s 5-point plans, and Scomo’s blizzard of pithy sound bites, and know why we are so desperate for some genuine leadership.
Header credit: Courtesy ‘First dog on the moon’ cartoon frame.
Apr 13, 2022 | Leadership, Management
Asking questions is the best way to build empathy, while collecting information and helping others reach a conclusion. This assumes that you are listening closely and reacting appropriately to the answers.
It follows that being disciplined and planned in the manner in which you ask questions, all of which are context sensitive, is essential.
It makes little difference if you are engaging in a sales process, or seeking information from the factory floor, planning your questions, and using the right form at the right time drives the outcome.
There are six types of question, they overlap, intersect, and build on one another, and each has a situation where they deliver the best results. Whichever question types you use in any situation, always remember that asking with a genuine interest in the answer will deliver better results than if those being questioned see it as a proforma. Asking such pro forma questions demonstrates you are not interested in the answers, or alternatively, are laying some sort of trap for them to fall into.
Closed questions. These do not invite discussion or opinion, just a ‘Yes’ or ‘No’ answer. They can often feel like an interrogation, particularly if there are several in a row.
Open ended questions. These encourage discussion, opinion, and maximise the opportunity for new or unexpected information to enter the conversation.
Limiting questions. These fall between the open and closed questions. You want more than a simple Yes or No, but also want to limit the discussion to a specific area. For example, you might ask: How often…. Or: What were the operating conditions when……..
Leading questions. A leading question is designed to give you the predetermined answer you are seeking. Generally, they are used to confirm a fact or situation, which may have been surfaced with an open or limiting question. Lawyers use leading questions as a core tactic often seeking inconsistencies in a narrative. For example. You might ask: How overdue was the maintenance when the machine crashed? In this case, you are assuming the maintenance was in fact overdue, and that oversight caused the machine to crash.
Questions seeking examples. Discussing an example is a good way of clarifying a situation, while collecting information. It also is a handy tool if you do not understand something, asking for an example will usually clarify it.
Theme based questions. These would usually be used to influence or reinforce a theme. For example, the best way to ensure that everyone in a business understands the overall objective is to consistently communicate that objective. You then might ask of a stakeholder how their job contributes to the achievement of the overall objective, and then an open and productive conversation that leads to greater understanding and productivity.
There is an old saying: ‘We have two ears and one mouth for a reason’. Remember it.
