Sep 27, 2023 | Leadership, Strategy
Intuition is widely misunderstood, often it is seen as a ‘gift’, a rare ability to generate ‘insight’ into a situation.
Over my long commercial life, I have come to a different conclusion. Intuition can be generated and managed when it is recognised that it is the outcome of a process, like most things. This process may be qualitative, and cumulative over a long period, but it remains a process. Again, over that long life I have seen it as the result of ‘environmental research’.
This is the combination of directed qualitative and quantitative research, thinking, wide reading, and engagement with people from as wide a palette as you can find. About the best source of what most would call ‘wisdom’ will come from talking to customers and consumers. Why are they buying product X instead of product Y , understanding the usually automatic trade-offs made subconsciously. What are they buying it instead of, how will it be used, how do they measure the ‘value’ of the purchase. I call it ‘Environmental research’
Do the data thing first, which avoids, or at least moderates and minimises the confirmation bias, seeing only the things that conform what you already believe.
Do this well, and your intuition will improve, while you may not even be aware of the improvement. It is a process, data first, hypothesise, test, look again to reform the hypotheses, and test. Looks a lot like the scientific method!
Sep 11, 2023 | Change, Leadership, Lean
If there is a magic ingredient to success, it is captured in two words: ‘Leverage’ and ‘Compounding’.
We all understand the concept of leverage, using a small amount of force to generate a larger outcome.
Compounding is a little more difficult to understand, although if you currently have a mortgage, you are suffering the compounding results of higher interest rates eating away at your growth in equity as you pay the monthly piper.
Question is, how do you find and build on them to generate a sustainable level of profitability?
Our commercial entities are built on the correct assumption that you need leverage to scale. As you build scale, it becomes necessary to add management layers to leverage the capabilities of those the next level down. That is why our organisation structures are always pictured as pyramids, because they are, for the leverage they generate.
Leverage leads to compounding, and compounding leads to greater leverage: a self-sustaining cycle, until the system becomes gummed up with friction.
Friction in management terms ends up being hidden in the layers of authority necessary to act. The transaction costs, which are almost always hidden from easy view, can be commercially fatal.
Leverage also delivers power to those in a position to exercise it, and as we know, power is a drug with many side effects, some of them not so good.
Technology has changed the ratios between leverage and compounding, but not the basic arithmetic. They remain mutually reinforcing, but their management has become significantly more complex.
Aug 7, 2023 | Analytics, Leadership
We all need to become ‘knowledge workers’ say the pundits, who generally fail to define just what that term means, and how we achieve it.
Most would simply apply some added practical training and education, and bingo, knowledge, but I suspect it is more complicated than that.
Knowledge is way more than just education and training. It is also the wisdom of experience, domain familiarity, networks of people who can be called upon, and a capacity to make connections in non-obvious ways. It is intangible, as individuals, we have no physical stocks of knowledge, although we do now have relatively unlimited access to its sources.
The value of knowledge is also very hard to define, if not impossible, and it is not of much value when it stays in one place. Its value is highly contextual. It is of little obvious use having an expert in genetics when you are struggling with a problem of commercial governance. However, when you dig deep enough, you often find there are lessons to be learnt from other domains that can be applied, and in the process of digging, you learn.
The real value of knowledge is when it flows from one to another, and on to many, then, magically, it grows, evolves, and is put to uses not previously considered, creating even more value.
Therefore, the definition of a knowledge worker should be more like ‘Builds, shares, and leverages data for use beyond their domain’.
Improvements and alternatives encouraged.
Aug 2, 2023 | Change, Leadership
We live in a world of change, and the pace of change is accelerating.
Just think about the what has occurred over the last 50 years.
We have gone to the moon, created skyscraper cities, moved from manual labour to sitting punching computers, driving everywhere instead of walking, extracting multiples of productivity from mechanised farming, and polluting the planet in very creative ways.
Computer chips have changed us. Gordon Moore noted in ‘Electronics’ magazine in 1965 that the number of transistors in a silicon chip was doubling roughly every two years. This has held true for 60 years, becoming known as Moore’s Law. The smart money now is saying that after that geometric growth, we are reaching the end of the physical capabilities of the current technologies and materials, and something new is needed.
I keep hearing about quantum computing and neuromorphic chips. I have no real idea what these are, but it seems the experts are saying there are huge advances to be made, and the door is only just opening.
The impact ChatGPT has had since its public release in November 2022 is a case in point, proving Hemmingway’s notion that ‘the future comes slowly, then all at once’.
Genetic engineering has gone from a multi-billion multi-year effort to map the human genome, completed in 2003, to getting your own genome mapped in a week for a few dollars. The interaction of the genome, our biology and genetic engineering via another new technology, CRISPR, will change again not just us, but the manner in which we interact with the natural world around us. Early applications of this technology are fuels coming from algae, genomic vaccines for cancer and all sorts of human afflictions. Again, we are just at the door.
Material science is an emerging field compounding almost weekly. We have all sorts of carbon fibre composites in many applications, a range of durable, biocompatible materials for human parts replacement from joints to teeth and heart stents, and almost daily hear about advances in honeycombed graphene, ‘flow’ batteries, and flexible display materials.
I guess you just have to look at the drop in price of solar panels and the impact that has had on the generation of power to see the power of this branch of science. It takes a while to get started, to generate early economies of scale, then compounding really kicks in.
Wrights law at work.
While this is happening around us, the lesson is that it will change the world. Being prepared to accommodate the changes is way better than trying to adapt after the environment has changed, when you are chasing the ball, instead of being in front of it. The fact that change is uncomfortable for most is both a barrier and an opportunity.
Jul 17, 2023 | Change, Governance, Leadership
Executing a culture change in an organisation is the first port of call in most improvement projects. Sometimes it is a minor task, often it is the major one.
There have been libraries written on the challenges of culture change, from ‘The 10 best ways to’ blog posts to great books that point us to new ways of thinking and dealing with the challenges.
I have contributed my share.
The common feature of all these is that it is very easy to talk about, very hard to do.
However, having done this continually over many years as part of almost every project, changing culture is a task that can be broken down into its component parts, and done bit by bit.
Culture is the word we use to describe the collective ‘The way things are done around here’. The clue is in the word ‘Done’.
Getting things done requires a process.
That process can be as organised and repeatable as a written process that is always followed, to the seemingly random, chaotic scrambling to get the necessary activities completed that I see most often.
Either way, there is a set of activities that must be completed, one way or another, in a sequence that can deliver a product to a customer, for what they are prepared to pay.
Individual activities can be isolated and subjected to improvement techniques. Improving the processes, as a focus of activity of all people involved in them, with the support and engagement of management will over time improve performance, and ultimately culture.
Culture is an outcome of the performance of processes, and how those performing them feel about themselves, and their place on the hamster wheel.
Digitisation makes this a bit easier, as we can track process performance in real time, rather than as in the past, collecting data, doing some analysis and cause and effect thinking, then make another change to test the outcome. This used to take weeks, perhaps months, but in some cases can now be done almost on the fly.
Like almost everything, our view of the time frame necessary for effective culture change has been shortened in most peoples’ minds. However, it seems to me that the time necessary for a robust culture change is one of the few things that has not accelerated in this digitised world.
I wish the incoming Governor of the reserve bank good luck in her culture change challenge, the body politic will be watching with a gimlet eye for early and rapid signs.
Cartoon credit: My thanks to Scott Adams’s avatar Dilbert
Jul 14, 2023 | Communication, Leadership
Our corporate culture demands that we forecast outcomes in the early stages of almost any project.
Accountants feed on the IRR numbers, and these outcomes find themselves incorporated into all sorts of budgets for which people are held accountable. They change from being a forecast, an assessment of what might happen given a set of assumptions, to become a set of predictions, upon which people careers have become dependent.
Not a good outcome for building a culture that is supportive of innovation, which by its very nature is risky.
Prediction and forecast are often wrongly used as similes.
A prediction is a statement of what will happen.
The sun will rise tomorrow.
A forecast is a statement of what the forecaster believes will happen. It will be subject to all sorts of variables and new information, but it is the best guess given the circumstances.
I have written many business plans that included forecasts, my best guess at what the future would look like. Those best guess forecasts then tend to become the targets, against which performance was measured. This has usually resulted in a balancing act between the IRR numbers, and the forecasts being as low as possible to get a guernsey. Neither is a healthy way to make resource allocation choices.
If you want a prediction about the future, go to the local fair and pay somebody with a crystal ball to tell you. If you want a forecast, find someone who has records, and a routine that updates those records on a fixed timetable, adjusting as they go.
I strongly encourage all my clients to do a weekly 13 week rolling cash forecast. What always happens is that over time, the forecast of the weekly cash balances become increasingly accurate as the many variables become better defined and understood.
Often it is a matter of the choice of words.
Current governor of the Reserve Bank, Philip Lowe chose to set a specific time frame around his forecasts relating to interest rate rises when he said in March 2021 that ‘the cash rate is very likely to remain at its current level until at least 2024‘. This forecast became a prediction upon which people based their decision to buy a house. After all he is the Reserve bank governor so should know.
Had he just altered his words a little to be more specific about the caveat contained in the term ‘very likely’ to something like: ‘the odds are that interest rates will hold steady for some time‘ it would have remained a forecast, and he might have retained his job when it come to the end of his current contract in September.
For what it is worth, in my view, he should retain his job. He is a talented, experienced and highly qualified economist, not a political wordsmith.
Addendum. Within an hour of publishing this post, it was annpounced that Philip Lowe was to be gone. No extension, pick up your money and go. Nice words all round about how great he was, but piss off, here is the gold watch, go away.
The irony, at least it is to me, is that the current deputy has been appointed in his place. Irrespective of the qualities of the deputy, the job description calls for a culture change in the reserve. Appointing someone to lead that change who is now top cocky because they were able to leverage the existing culture to their benefit is an utter nonsence. A failure of any understanding of the basics of leadership and culture change.
For me, it evokes visions of deck-chairs and icebergs.
