Apr 8, 2022 | Leadership, Management
Culture as defined by Michael Porter is ‘The way we do things around here.’ Those words imply ‘Local.’ Immediate. In the vicinity.
I have seen differing cultures exist in the one business in separate locations. When most commentators refer to ‘Corporate culture’ it implies that it is across the whole enterprise, and often it is. However, local leadership, established practices and the history of that particular unit can also result in a culture that bears no relationship to the corporate version beyond the fine words on the foyer wall.
So, what are the building blocks of a successful culture?
It seems to me that you have four headline characteristics, many with behaviours that grouped together make up the headline.
Respectful.
Respect is a very general word, open to different definitions in differing contexts. In this context, to me it means that every stakeholder has the right to be given, and be expected to give, respect to others. To be given consideration, have common courtesy extended, and be treated with dignity, irrespective of the role in the organisation they occupy. The part time casual cleaner has as much right to be respected for the job they do as does the CEO.
Inclusive.
Enterprises are similar to natural eco-systems. They thrive on diversity, and conversely, underperform as a monoculture.
This means that all sorts of diversity is welcomed and absorbed into the enterprise, each playing a role in building a robust and resilient system. It has little to do with the current blathering about gender equality, although that is a part of it. Diversity is encouraged by the presence of ideas that emerge from diverse backgrounds, life experiences, education in its broadest sense, acceptance of difference. These differences may be racial, sexual, physical, and every other ‘difference’ you will find in a population. Including them in an enterprise provides the opportunity for superior outcomes.
Ethical.
Ethical behaviour implies honesty, integrity, and accountability coupled with regulatory compliance, as well as the acknowledgement of the place ‘common sense’ should have. I considered using the word ‘Integrity’ to describe the characteristics of successful cultures I have seen, and it still holds that personal integrity must be present, but that is the point, integrity is a more personal word than ‘ethical.’
Safe.
By ‘safe’ I do not mean just physically safe, as in not being assaulted at work. ‘Safety’ is a much wider concept than that when applied to an enterprise. It means an individual is psychologically safe to be themselves, to express an opinion, and not be one of the crowd. This requires an expectation of transparency, accountability, up, down, and across an enterprise.
To be safe, you are also safe from bullying, the political ‘backstabbing’ that often occurs, and ruthless competition that has flexible boundaries not always equally evident to all.
The size of the organisation does not matter. Whenever you have more than one person present on a continuing basis, there will be modes of behaviour that can be called ‘Culture’.
Should you be inclined, you could take the converse of these points, and when you see them, they represent the symptoms of a failing culture.
Apr 4, 2022 | Collaboration, Leadership
Ask them for their advice, rather than an opinion.
When you ask for advice, you are doing the right thing, you are getting people inside the tent.
When you ask for an opinion, you are often doing the wrong thing.
You are giving them the opportunity for them to go back inside themselves, weigh up their views, and then tell you what they think you should do. Once said, it becomes harder for them to accept when the action you take is different.
When you by contrast ask for their advice, one word only is changed, but you have them inside your tent, they are a part of the solution you then present.
It seems logical to use props to make your position clear before you asked for something, setting out to engage others before you ask. However, it does not work all that well.
If I was collecting for the wilderness society, I would not dress up in a koala suit and hang around corners with a bucket asking for donations.
Instead, I would ensure that I was neatly dressed, and approached people who looked similar to me, and ask if they felt that there was enough being done to save the environment. Most would say ‘no’, which is then the time to ask for a donation to do more.
When they agree with your proposition, you have them inside your tent, the one that is concerned about the degradation of the environment. Under that circumstance they will be more likely to give you a donation, than they would if you accost them on a corner in a koala suit.
Mar 28, 2022 | Leadership, Marketing
Our enterprises are organised vertically, by function. Accounting, IT, HR, and so on, all vertically arranged to accommodate the leverage of resources that scaling of the output of those functions delivers.
Customers do not give a toss about your internal processes. Their only concern is the degree to which you can deliver the value they have paid for, the solution to the problem, the salve to their irritant, the mechanism to enable them to grow.
‘General management’ is a term that implies cross functional knowledge and accountability. Often however, the reality is different.
Functional expertise does not necessarily translate into cross functional effectiveness. Almost all ‘general managers’ irrespective of their title, are in that role because of functional skill and success.
Successful marketing by contrast relies on being able to assemble cross functional expertise and capacity in the absence of the functional power to do so. Marketers are the internal representatives of customers and potential customers, as well as being the custodians of the future cash flow initiatives of an enterprise.
Why is it that so few marketers make it to the ‘GM’ role? Why is it the tenure of senior marketing individuals is far shorter than the tenure of their senior functional peers?
Marketing, being about the future, requires foresight, an ability to deal with ambiguity, and a willingness to make decisions with less than complete information. Surely these are useful leadership skills?
It normally takes a while for the future to arrive, so success is hard to measure except with hindsight. It also make more obvious the inevitable mistakes that occur when a marketing function is seeking competitive advantage. Being wrong as you often will be when predicting the future, is rarely an ingredient in successful corporate pole-climbing.
Successful marketing requires horizontal skills as well as deep vertical ones concentrated on the tools to be used on the levers to be pulled. Of all of them available, the most important are in the hands of their functional peers, so horizontal, collaborative skill is an absolute requirement of successful marketers.
Often it is just called ‘leadership’
Mar 18, 2022 | Change, Leadership, Strategy
Like it or not, official figures or not, inflation is back with us.
Inflation consumes cash like a ravening beast, but often goes unremarked until the 11th hour, by which time it is often too late.
Official figures always lag reality, and forecast models are only as good as the input data. My models are based on conversations with the owners and managers of SME manufacturers, very sensitive to rising input prices, and the ways they are responding.
Every input to manufacturing is in the beginning of an aggressive price surge that may see many go to the wall. Many SME manufacturers, those with whom I interact most frequently will see that wall close up for a number of obvious reasons, sadly mostly obvious only with hindsight.
- They use a standard cost model. Whether this be in a fancy enterprise tool, or excel, the product costs spat out are a function of the input costs. Typically, a standard cost system is reviewed and updated on a schedule, most often half yearly. When input costs are increasing rapidly, you quickly fall behind, and play catch up not only too ,late, but to the point where the input costs stood when the review started.
- Variances are insufficiently recorded and understood. A good standard cost model will throw variances from the standard. These may be reviewed monthly, but are they sufficiently well understood, and more importantly, does anyone take action to address the negative variances in input costs?
- Too few have visibility both forward and backwards into their own supply chains to understand the impact of rising inflation on both the supplier and customer side. In the absence of this insight, the forecasting tends to be both slow, and understate the impact.
- There is a strong resistance to increasing prices, not just from the sales force, generally over sensitive, but from senior management who do not get rewarded for rocking the boat. This results in price increases being too low, and too late. Do the maths and calculate the relative impact of losing a few sales by increasing prices, to keeping them low to retain sales at a lower margin. It almost always pays to increase the price.
Apart from addressing the 4 points above, what else should you be doing?
Act faster.
When you act faster than your competitors in a volatile environment, it leads to competitive advantage. The OODA loop at work. The enabler of speed has become digitisation, which requires investment in capability and takes time, but can deliver real time information, vital in a volatile environment.
Direct communication.
Direct and concise communication with others in the supply chain, and your own procurement people, dealing with supplier invoices every day, is essential. Being close to the action enables you to move quickly in response to changes and opportunities that emerge.
Reconsider your pricing model.
Most businesses have a price list that for ease is general, being the base from which various discounts and promotional opportunities flow. Being general means that you are probably leaving money on the table, as different customers will have unique needs and levels of price elasticity. Understanding these differences and pricing accordingly is both challenging and profitable. You might even take the opportunity to change completely your pricing model, usually extremely hard to change when things are predictable.
Change prices more frequently.
Find a way of enforcing some sort of dynamic pricing process. Developing the processes that will enable dynamic pricing will become a necessary competitive tool, impossible until recently, simply because the degree of data granularity was not available. Now it is, so there should be no excuse to at least embarking on the journey.
Understand the whole supply chain.
Develop a whole of supply chain understanding, knowing where the profit pools and points of stress hide to be able to anticipate and adjust to them, as the impact of inflation rolls through.
Operational Flow.
Removing choke points in all your processes releases capacity you have already paid for. This observation is as valid in the support and revenue generation processes as it is in manufacturing.
Apply Pareto
We all accept that 80% of your profit comes from 20% of your customers. In times of inflation, the need is for real growth of revenue and margin, not the inflated numbers, while holding costs. The most effective way to do this is to prune activities that fall in the tail of the Pareto. Double down on where the real margins are. The same logic applies to the products you supply. Weeding out those legacy products that no longer play a valuable role in the value proposition of the business will release capacity that can be used more productively.
The aggressive application of the Pareto principal always removes transaction costs that are hidden simply because they are hard to quantify. The choke points removed to enhance flow, will also remove transaction costs.
Strategic priorities
Focussing on strategic priories while managing a crisis is a very challenging double act. When time is not on your side, acting decisively is all that is left. Capex is one of the first things to be delayed when times get tough, along with advertising. While it is an understandable reaction, it is also the wrong one. History tells us that those that double down when others are pulling back benefit in the medium term. Do not let the organisation lose sight of the long term, this coming crisis will be over at some point, replaced by the next one.
Innovation.
Innovation is an investment in future cash flow. While it is usually expensed through the P&L, which is in my view a misleading treatment of an investment, it often suffers the same fate as marketing activity and capex. I break it out separately as it is even more often dismissed than either of the others, and is arguably at least as important.
Cash management.
All of the above are about the management of activities as they all impact on cash flow. This is critical at any time, but never more so than when there is a spurt of inflation coming at you. Managing by the P&L as many do, can be very misleading. Set aggressive targets for working capital, and aggressively apply them. Your suppliers and customers will be feeling the same pain. The risk of blowing out debtor days is real, as your customers will be looking to extend their payment terms, as you try and extend yours.
The risks associated with inflation are huge if you are too slow, or ignore it completely and hope it goes away. On the other hand, many opportunities will open up for the agile amongst us.
Header cartoon credit: Scott Adams and Dilbert. Again.
Mar 14, 2022 | Governance, Leadership
Integrity is something we all say we strive for. Most statements of company values plastered on the reception wall seem to have it included.
The dictionary definition is something like: ‘the quality of being honest, having strong and unchanging principles‘
Trust and integrity seem to me to be a continuum? At one end, is integrity, the personal determination to do the right things. At the other is trust, the belief of others that you will do the right thing.
Trust is something that must be continually renewed by performance to be retained. In most cases, there will be an automatic quotient of ‘trust’ given at a first meeting. The more similar two parties are, the greater will be that ‘auto-allocation’ of trust.
After that, it is retained and earned by the behaviour displayed over an extended period. Trust is easy to lose, very hard to earn back.
You build trust by always meeting commitments, or, when there is a commitment that will not or cannot be met, there is a clear acknowledgement of that outcome, and responsibility is taken.
What is to be done, by whom, and by when is clear, unambiguous, and fair.
When you meet all your commitments, by the due date, or alternatively when they are unable to be met, that fact is clearly communicated beforehand, and responsibility accepted, integrity will be built.
This is a vital component of leadership, and of the ‘Cultural glue’ that makes up a successful institution. Others need to be able to trust that to be cliched, ‘your word is your bond’.
It also has significant implications for those that are being led. The casual relatively thoughtless acceptance of some sort of task and/or deadline that you know you cannot or are unwilling to meet is no longer acceptable.
When you accept a task and deadline, you must meet that acceptance with completion.
Many times, I have seen people in a meeting accept tasks that everyone knows will not be adequately addressed by the deadline. This is both bowing to authority and making your short-term life in the meeting better at the expanse of the longer term, and your own integrity.
The same process applies to institutions. We tend to want to trust them, and the people running them. However, when the people fail the integrity test, we tend to lose faith not only in the people, but in the institution as well.
I wonder, do those in Canberra who seek to lead us, understand the idea and its foundations?
Header cartoon credit: Scott Adams and Dilbert, again, have my thanks for a cartoon that makes my point.
PS. to the cartoon. Integrity may not buy you a boat today, but it certainly will tomorrow.
Mar 9, 2022 | Leadership, Strategy
Consider what has been called: ‘The dichotomy of control’.
Is this thing I am considering in my control, or not?
In the words of Epictetus, a slave who lived early in the first millennium in the time of Nero, and a key figure in the evolution of stoic philosophy: ‘Some things are in our control, and others are not. Things in our control are opinion, pursuit, desire, aversion, in a word, our own actions. Things that are not in our control are body, property, reputation, command and in a word, whatever are not our own actions’
These words recognise we are powerless over the conditions that affect us, but have absolute power over how we choose to respond.
We can and should very deliberately choose which strategies we deploy.
In a way, a slave 2,000 years ago was also laying the foundation for Daniel Kahneman to win a Nobel prize in 2002. His work identifying the ‘Fast and Slow’ nature of our behaviour and the impact those human processes have on the choices we make reflects the way we consider and respond to choice.
Given that ‘Strategy’ is at its core about choice, this distinction should be amongst the first we make in the evolution of a strategic plan. The choices then continue as we move from the macro of strategy down to the micro of tactical implementation.
Game theory is also a core strategic foundation. The question: if I do A, what response will that draw from competitors? Will it bring in new competitors? Will I succeed? Will my bosses approve? and so on. These are things that in commercial life need to be considered. They do influence the decision you take, but in the end, they are out of your control, and the best you can do is to anticipate, and accommodate the possible responses. However, it should not be a barrier to make that tough choice, as in the end, you cannot control, what others do. Trying to anticipate and calculate all possible competitive responses to a choice you might make is a great way to ensure you never make the choice, as most of us do not like to be wrong.
In commercial life, those that are successful are regularly making uncomfortable choices with less than all the information they might like. Nevertheless, they make the choice, take the action, while being sensitive to the feedback they are getting. When the choice made turns out to be good, double down, when it is not so good, back up. Either way, you have learnt from the experience.
Such a bias for action enables you to get inside the ‘competitive loop’ of your opposition, and even when you make a miscalculation, you can adjust faster than they can, and will turn out on top in the end. This is the basis of John Boyd’s not so famous but competitively essential idea of the ‘OODA loop’.
As an aside, I find it fascinating that the teachings of a Roman slave 2,000 years ago could have so much relevance to the competitive environment in which we need to survive today. It is a sure indication that while the tools and competitive environment will change, human nature and the way we think is evolutionary, over a very long period, and will not change at anything like the same rate.
I will finish this post with another quote from Epictetus that we should all take note of as we set about ‘aligning’ our activities across functional silos, and engaging others in a mission of change.
‘It is impossible for a man to learn what he thinks he already knows’
Think about that the next time you fail to convince someone of the need for change.
If you wanted to take a dive into this ‘Stoic’ philosophy, a good place to start would be with the writing of Ryan Holiday.
