Feb 28, 2022 | Leadership, Management, Strategy
History is littered with examples that convincingly make the case that a battle on two fronts can never be won.
Our business literature is similarly littered with examples of business failure brought on by the competing demands of too many markets calling on a common set of resources. The metaphor of war is routinely used in business literature, I have used it myself many times. Phrases like ‘the high ground’, ‘resource mobilisation and concentration’, ‘overwhelming force” and so on.
How odd then to find myself saying that success absolutely relies on being effective on two fronts at the same time.
Those fronts are not different enemies, or geographic locations, distribution channels, customer groups, or any of the other regularly used differentiators, but they can be all of them.
The two fronts are ‘attack’ and ‘defence’.
The disciplines used to assemble and deploy scarce resources to take advantage of opportunities, look for new products, and outflank the opposition whilst defending your home ground are common to all situations.
Resources are limited, opportunities to use them are not.
How many successful football teams have you seen that cannot both attack and defend? The really good ones swing from one to the other, and back again seamlessly, without a loss of position or momentum. Each player knowing their role in any given situation, understanding how that role contributes to the overall outcome of the play in progress, and ultimately to the score at the end of the game.
The best I have seen at this in recent times is the Melbourne Storm rugby league team. Irrespective of personnel on the field, every player knows his role in both attack and defence, and swings seamlessly between them in concert with every other player on the field.
It is the same in commercial life.
The imperative to grow also means that the home base, the source of the cash today, is effectively defended even as it evolves to deliver cash tomorrow.
I am constantly reminded of Charles Darwin’s observation that ‘it is not the strongest of the species that survives, nor the most intelligent, it is the one most adaptable to change’
How good is your organisation in this tug of war operating on two fronts?
Feb 14, 2022 | Change, Leadership
When you do something over and over, you get better at it, the actions become automatic.
Remember the first time you drove to that new job? You looked up the route, probably put the address into the GPS (if you are under 30) and concentrated all the way, ensuring you were in the right lane to turn, and did not arrive at that annoying one way street the wrong way. After a short time, the drive became almost automatic, and you were sufficiently familiar with it to experiment with alternatives at divergent times to avoid bottlenecks and difficult spots.
Rather than contempt, familiarity builds competence.
Processes in a business are the same.
Do them over and over, and they tend to become automatic. This means you can spend the cognitive energy thinking about other things. It is the way we evolved, to preserve cognitive energy to be available when it was really needed, rather than being wasted on the routine.
However, the downside is that once something has become routine, carried out time after time in a relatively automatic manner, it becomes very hard to change.
Feb 2, 2022 | Governance, Leadership, Management
The Reserve Bank released the latest inflation figures a week or so ago. The year-end number was 3.5%, significantly influenced by a few highly volatile items like petrol. Stripping those out, the underlaying rate was 2.6%. These numbers do not bode well for the RBA target rate of 2-3 percent average over time.
It would appear that despite the denials, the reserve will be forced into increasing the official rate well before their earlier undertaking not to do so until 2024.
From the graph in the header, should we sneak back to official rates above 6%, last seen in the late 80’s, we will have a cohort of managers making strategic decision in an environment they have never experienced.
That is not a good omen.
I well remember paying 17.5% rate on my first mortgage around 1983, an experience that will never be forgotten. The little equity I had built up in the previous 2 years since borrowing the money to buy that first house, was swallowed up while my very young family ate a lot of potatoes and sausage.
Managing a business in a period of inflation puts a lot of pressure on things the cohort of younger senior managers have not ever had to worry much about to still deliver acceptable returns. Now they will be faced with some nasty choices:
- Increase prices, annoying customers, and risking volume loss, and the associated relative increase in overheads.
- Annoying stakeholders by holding prices resulting in decreasing margins as inflation driven costs increase.
- Cutting costs which in a crisis normally means cutting ‘heads’, which rarely makes you popular in the lunchroom.
- Reducing investment in everything from advertising to R&D and new product introductions, which has the compounding impact of making tomorrow’s cash flow and profitability that much harder to generate.
The most usual course for the inexperienced is to generate lots of words, but take no or only ‘fence-sitting’ action until their options have closed in. They then stir into action with emphasis on the last two options, leaving it to the following leadership to pick up the pieces.
The much harder work of refining product portfolios, brand development, generating operational ‘flow’, ensuring strategic alignment, building resilient supply chains, process flow optimisation, business model innovation, and all the rest, should not be activities stimulated by some sort of crisis. They are the responsibility of managers always, but often lost, obscured in the better times when getting a bit fatter is the most common characteristic.
Header Image credit:. Source World bank.
Jan 26, 2022 | Change, Governance, Leadership
I am sitting here on January 26, 2022, contemplating another year gone, with the new one coming at us, wondering if anyone in power has ever heard Henry Ford’s quote: “If you always do what you have always done, you’ll get what you’ve always got’
Such was 2021, except we seem to have doubled down on the stuff that generated a negative outcome in the past, mistakenly betting on a better outcome this time. I looked back to the Australia Day post for 2021, and almost all of the issues aired remain valid.
Little has changed, apart from the date, and the conga line of politicians has evolved a bit. There have been a few political scalps have been taken, and a few resurrections in the national party that surely rival any spoken of in the good book!
New South Wales’s god-fearing Premier who took over in unusual circumstances in October 2021, said at the time: ‘I will take NSW to the next level‘ has been proved correct, at least in relation to Covid cases. He has put all our eggs in the almighty’s basket, and the almighty seems to be on holiday, or is perhaps isolated, as infection levels skyrocket.
Clearly the only way to reduce the reported cases is to reduce testing, while playing with the definitions of what constitutes a ‘contact’.
Monty Python would be proud!
In November, the report of the review into the parliamentary workplaces landed on the federal governments desk. This is in contrast to the yet to be seen report commissioned by the PM to be conducted by the head of his department on the specifics surrounding the alleged rape in the office of the defence minister in February. Clearly the stench coming from the big house is not what anyone should expect in the place that is supposed to be governing the rest of us, making laws about how we will behave, and the penalties for not doing so.
As we go into an election campaign, we will see a lot of the PM in high vis. being the daggy bloke from next door, telling outrageous porkies while looking everyone directly in the eye. Must be a learned skill, honed with extensive practice, as few are as good. Meanwhile, the opposition leader, despite a bit of cosmetic work with the glasses, hides from just about everyone. Probably a good strategy.
I can smell the baking pork from the coming election BBQ from here!
The trading relationship with China still resembles a pygmy kicking a giant in the foot trying to get his attention. The reality is that we have affronted the Chinese leadership, they have reacted, will not forget, and we can do nothing about it, beyond swallow the medicine and stop being stupid. A big ask, especially for some of the conservatives in the government who, perhaps rightly based on its sad history, believe there are votes in being belligerent. The narrative that Australia must ‘pick a side’ between the US and China assumes a binary world, when it is in fact way more nuanced and complex than that. It seems crazy to me that this is not obvious to those who find themselves in positions of political power.
I guess it is lucky we might have a few nuclear subs to use as a deterrent in about 30 years. Pity they require very deep oceans to operate effectively, and our area is surrounded by largely shallow ones. Sadly, they also require deep and practical nuclear engineering expertise to keep them operational, which we do not have, and are unlikely to ever develop to the level required. This is before we consider either the time before these mirages emerge from the deep, and there is any consideration of the anti-submarine technology that might emerge over those 30 years, making our subs very expensive coffins. Knowing a few very senior navy officers over the years, I am sure they pointed out these obvious facts to the politicians, who seemed not to be listening. Ah well, it must have seemed like a good press release at the time.
Climate change. What can you say about the triumph that was Glasgow?
Our dear leader speaking to a packed house at midnight, explained the ‘Australian way’ of tackling this global problem. It amounts to subsidising fossil fuel emissions and funding research into technology that has as much potential to capture meaningful CO2 emissions, as medieval alchemy had of turning copper into gold. Never mind: our supporters want, and are paying for the effort via party donations, just don’t let on to the taxpayers, which does not include the aforementioned political donors.
Some of this nonsense might be excised if there was a version of a federal ICAC. Clearly nobody in the big house wants such a body to examine the entrails of their shenanigans, it might be embarrassing. The first effort by the then Attorney general, later to be pushed towards the exit kicking and screaming after a nasty scandal involving, wait for it, a woman now deceased, was laughed out of the place. The simple fact that it was so obviously a piece of window dressing was made clear by the fact that the opposition was laughing at it as well. This is despite knowing they might have to live with the consequences of a beefed-up version, if they ever regained power.
The two-laned economy we are building where the benefits go to those in a position to charge economic rent, is continuing to significantly distort the choices made in the allocation of resources. As the gap continues to widen between the ‘Haves’ and ‘have nots’, as it will if nothing changes, it will at some point become toxic, as it did on January 6 last year in Washington.
As an illustration of our challenge as a competitive economy that will serve Australians more equally, we should consider the asymmetrical picture painted by the ASX top 10 in Australia compared to the S&P top 10 In the US. Our top 10 are all traditional hard asset companies, all from mining or financial services, with the single exception of CSL. By contrast, the US top 10 are all, with the single exception of Berkshire Hathaway, ‘soft’ asset, technology-based companies.
The rate of capital growth of soft assets is far greater than those of hard assets. Will 2022 be the year that it hits home that Australian industry is dominated by yesterday’s businesses, and we start to adjust? Fortescue (number 10 on the list) has just started to make those adjustments into areas that rely more on intellectual rather than financial capital.
Making any effort to bridge that gap between ‘New’ and ‘Old’ industries enormously more challenging, is the simple fact that Australian public spending on R&D has over an extended period been dropping. The total spend is being propped up by spending by business in specific areas of digital engineering, almost compensating for the drop in public spending. The total spending amounts to 1.8% of GDP, a number way below some of our international competitors. The OECD average is 3.4% of GDP. Our spending on education, the economy’s investment in the future, in the 2019/20 fiscal was 114 billion, around 1.8% of GDP, before the positive impact of $20 billion of ‘export’ sales to now excluded overseas students is removed. At the same time, the ‘quality’ of education has been dropping consistently. From the gutting of trade and technical education over the last 30 years, to the removal of teaching resources from universities as they are mandated to turn a short-term profit. The latest nonsense is to penalise the humanities, and favour STEM. While we do desperately need greater STEM education resources, it is insane to fund them by reducing our creative and behavioural education that enables the STEM output to be leveraged. While it is not just the amount of money we spend that is important, quality does count, when both are going in the wrong direction, there is unlikely to be a soft landing.
I cannot finish without acknowledging the continuing impact of the Covid pandemic. 2022 will no more be the end of it than was December 2021, and worse, we seem to have given up. Omicron is of less mortal concern than Delta, so we seem to assume that the next variant, emerging from the unvaccinated half of the world’s population will be less virulent again. Let’s hope it is so. However, if we look at very recent history, Aids, Ebola, Mers, Sars, none of them evolved to be less severe at each outbreak, they evolved to avoid the barriers we built.
Covid has been a catalyst for many other seemingly unconnected things happening.
For example, the disruption of our supply chains, firstly the international ones, and more recently the domestic ones. A month ago, a shortage of AdBlue looked like it was going to be a game stopper, and it still may be. However, more of a long-term threat is the closing of a number of (that I know of) significant regional transport companies. These companies, long established in places like Bathurst, Dubbo, and Tamworth, employ hundreds of people in support roles as well as their drivers, and service providers. They contribute significantly to local economies. The drivers are mostly blokes older than 50, who have never done anything else, but now will be lost to the industry. Difficult jobs like moving cattle, machinery, smaller multi-stop loads, will not be taken by the giants in the industry, who are just interested in moving pallets in bulk from point A to point B. In NSW the RMS has a lot to answer for. Dyslectic drivers who have difficulty filling in a totally unnecessary logbook, as trucks now all have GPS locators, without spelling mistakes cop a fine of $400 a time. This stupidity is just driving them out of the industry. In terms of supply chain disruption, we ain’t seen nothing yet!
In order to address the challenges of Covid and Climate change, politics has privatised the development and distribution of vaccines, and kicked responsibility for acting on climate change down the road. Stick the means to fight the problems in the hands of a few billionaires, and magically, the problem will be resolved. Meanwhile, half the worlds population remains unvaccinated, so the new variants have plenty of opportunity to find the weaknesses in our defences. The polarisation of the populations continues. Politics encourages this polarisation as it suits the coming election in this country, as it has in other developed countries. Politicians tell bigger and bigger porkies, each trying to outdo the other. Sadly, it seems the bigger the lie, the more likely there will be a vocal minority that believes and goes on to proselytise it, compounding the divisions, and compounding the erosion of trust and the concept of mutual benefit and accountability. Two weeks ago, a big bloke in a supermarket shopping centre lift very aggressively abused me for being stupid, brainwashed, and ignorant of facts because I was wearing a mask. Had I been a 70-year-old woman instead of a relatively large and fit 70-year-old man, it would have been terrifying.
I really need to finish and get the Barbie lit.
However, before I go, have you seen the photos of the former, as of today, Australian of the year Grace Tame giving the eye to the PM yesterday? I sense that she does not think highly of our dear leader. I suspect that photo, along with the one in which the PM displayed a lump of coal in the parliament, will get a lot of coverage over the next couple of months.
Have a great Australia Day, however you choose to see and celebrate it.
Jan 24, 2022 | Leadership, Management, Strategy
As I observe the better performing manufacturing businesses around, I see some components not spoken about in any of the verbiage that comes from the various interest and political groups.
These common themes are:
They are close to customers.
This means they are less price sensitive than competitors and are focussed on building a bigger pie in collaboration with their customers. As a result, they always outperform those trying to grab a bigger part of an existing pie using price as the primary driver.
They have high level trade skills.
They have a higher rate of apprentices and tradesmen in their ranks. In the absence of publicly available vocational training, they find ways to deliver it to employees internally. This determination often extends to their key suppliers, adding glue to the supply relationships and enabling innovation through their supply chains. Skilled tradesmen are valued not only for the skills they have, but as people who have combined trade skills with experience, and are therefore tertiary qualified by an alternative route to a university degree. They are often better able to get stuff done as a result. Their deep respect for trade skills results in less turnover of personnel, delivering a substantial competitive advantage.
They seek tertiary educated employees.
The education does not have to be specific to the businesses, they are seeking people who have demonstrated a capacity to apply themselves, learn, and who are curious about what is going on around them. This looks expensive on the surface, but it gives them an ‘intellectual edge’ in the competitive game.
There is a continuity of leadership, and leadership style.
While the individual leaders might change over time, the style remains consistently participative and flexible. This leadership culture comes with a very clear set of performance expectations for individuals and the operations, which evolve in parallel with the strategic and competitive demands of the market.
Optimised and messy live together.
While there is a very strong focus on optimising operations, there is also a recognition that innovation, which is expensive, risky and messy, is fundamental to future competitiveness. They find ways to live with the ambiguity that comes from focussing on optimisation for the existing major part of the business, and exploration at the ‘sharp end’ where they are building the base for tomorrow’s cash flow.
They have big ambitions.
Their strategic planning sessions are not just extrapolations of the current in a nice location with a few beers for bonding. They deeply question the assumptions that shape the business, and allow many voices to be heard, and they reach for the ‘big’ outcome.
This is all effectively anecdotal, coming from observation rather than published data, so it may be a bit flimsy, but it does pass my ‘pub test’.
Header cartoon Credit: Hugh McLeod at www.gapingvoid.com
