Oct 26, 2020 | Management, Marketing, Small business
Cash when it is working for you, is king.
However, cash sitting idle in a bank account fritters itself away, slowly, and over time.
Inflation, small purchases, fees, all eat away at the cash like mice in a wheat silo. A bit at a time.
Cash does not generate cash flow without being put to work. It is like going to the gym, it takes time, effort and commitment, but the result will show. Even when there are short term setbacks, interruptions, and periods of despondency acting as a brake, keeping working works.
We are in a time of unprecedented change.
This is more than just the Covid hangover starting to evolve, all that has done is greatly accelerate the changes that were emerging on the fringes.
The status quo in many areas has been thrown out the window. While that is deeply unsettling, and creates challenges most of us have not seen before, the flip side is that it also throws up opportunities not seen before.
Opportunities to fill the merging market niches, to pivot to different business models, serve new customers in different ways, or just grab assets and market share from less nimble competitors.
All of this consumes resources. The management time and inclination to make the necessary changes, and the cash to make it happen.
Successful businesses understand in detail how, and how much cash their enterprises generate. They keep borrowings to a minimum, giving them the ability to grab opportunities as they emerge, but they also keep their cash working, hard.
Header carton again courtesy of Scott Adams and his alter ego Dilbert.
Oct 16, 2020 | Analytics, Management, Operations
Certainty in forecasting is the holy grail, being certain of the future means success. However, as we know the only thing we know for certain about the future, is that it will not be the same as the past, or present.
Quantifying uncertainty appears to be an oxymoron, but reducing the degree of uncertainty would be a really useful competitive outcome.
When you explicitly set about quantifying the degree of uncertainty, risk, in a decision, you create a culture where people look for numbers not just supporting their position, but those that may lead to an alternative conclusion. This transparency of forecasts that underpin resource allocation decisions is enormously valuable.
How do you go about this?
- Start at the top. Like everything, behaviour in an enterprise is modelled on behaviour at the top. If you want those in an enterprise to take data seriously, those at the top need to not just take it seriously, but be seen to be doing just that.
- Make data widely available, and subject to detailed examination and analysis. In other words, ‘Democratise’ it, and ensure that all voices with a view based on the numbers are heard.
- Ensure data is used to show all sides of a question. In the absence of data showing every side of a proposition, the presence of data that emphasises one part of a debate at the expense of another will lead to bias. Data is not biased, but people usually are. In the absence of an explicit determination to find data and opinion that runs counter to an existing position, bias will intrude.
- Educate stakeholders in their understanding of the sources and relative value of data.
- Build models with care, and ensure they are tested against outcomes forecast, and continuously improved.
- Choose performance measures with care, make sure there are no vanity or one sided measures included, and that they reflect outcomes rather than activities.
- Explicit review of the causes of variances between a forecast and the actual outcomes is essential. This review process, and the understanding that will evolve will lead to improvement in the accuracy of forecasts over time.
Data is agnostic, the process of turning it into knowledge is not. Ensure that the knowledge that you use to inform the forecasts of the future are based on agnostic analysis, uninfluenced by biases of any sort. This is a really tough cultural objective, as human beings are inherently biased; it is a cognitive tool that enables us to function by freeing up ‘head space’ reducing the risk of being overwhelmed.
Consistent forecast accuracy is virtually impossible, but being consistently more accurate than your competition, while very tough, is not. Forecast accuracy is therefore a source of significant competitive advantage.
Header cartoon courtesy Scott Adams and his side-kick, Dilbert.
Forecast in cartoons
Oct 14, 2020 | Governance, Leadership, Management
A key part of managing activity is to record it as necessary to be done, check it off when done, and make any observation necessary for next time.
This holds true from the development of a strategy down to the daily activities on the shop floor, and everything in between. The only difference is the scale of the things that are being recorded, discussed, and allocated to a responsible person, and perhaps the time between reconciliations.
Years ago I obtained a private pilots licence. An essential part of the training was to have a list of items to be checked off prior to take-off. In that case, it was not a written checklist, as when you are filling in a written checklist yourself, it is too easy to just run down the list and tick all the items as done. In that case the list was physical: my hand went to the item being checked off in the plane ‘walk-around’, and then in the cockpit, touching the item concerned. This addition of the physical to the memorised and written list ensured it was done. In the cockpit of a commercial airliner, where there is a co-pilot, the co-pilot has the written checklist, which he reads out to the captain, who checks the status and reports back for recording by the co-pilot.
Checklists serve a number of purposes:
- They serve as a specific reminder, as our memories are faulty, and prone to taking the easy way out.
- Repeating a list builds memory and habit, and when a habit is broken, we become uncomfortable, our ‘survival’ 6th sense kicks in.
- It provides assurance that the item has been done in an accountable manner.
- It provides the opportunity for specific feedback and immediate remedial action. In a factory this may be to complete an unfinished run from the previous shift, deliver preventative maintenance to a piece of machinery, and a thousand other things.
- It acts as a training profile to be followed by newcomers. Theoretically this should enable someone with no knowledge of the specific process to be able to complete it, simply by following the checklist.
- It allocates responsibility for actions to be done. During the resurrection of Ford by Alan Mulally, he had a daily meeting with his direct reports, in which they reported on the activities they had been allocated from the previous day. Clearly this process is not just for the factory floor.
- During those meetings Mulally also had the daily Ford cash balance calculated and shown, which underlined the importance of cash to the business during a time when they were losing money at a huge rate.
- Lists enable the allocation of priorities, so that resources can be allocated in the most impactful manner.
- Lists act as ‘grease’ for collaboration
Have you ever noticed that those who have the discipline to do daily and weekly checklists for themselves, and stick to them, appear more productive than their peers?
That is generally because they are.
Header photo credit: NASA
Oct 9, 2020 | Customers, Management
I just had another of those moments that caused an unpleasant ‘tummy churn’.
A post from a so called ‘business coach’ that promised a ‘business turnaround in 90 days’.
Perhaps they know something I do not.
Having stumbled around in this arena for 35 years, I have not yet found anything like the template that can make any sort of promise like that.
Yes, there are sensible activities you can do that when done well will create the opportunities for significant change and improvement. Sometimes a complete revision of the business can be kicked off, but events rarely happen like that in the absence of an outside catalyst.
Every successful turnaround I have seen, or been involved with, has had four common characteristics:
- They have identified and taken immediate action that addresses the current activities that cost more than they generate in customer value. In other words, putting customer service and satisfaction at the centre of consideration.
- They have taken the immediate opportunities, often staring them in the face, to increase revenue
- They have removed the usually obvious wasted effort and activity which when eliminated delivers incremental cost free capacity.
- They have ensured that the actions taken are scalable.
In that 4 part formula is a host of improvement opportunity, and difficulty.
And, it is never completed in 90 days. It is a journey, with a first 90 days, followed by another, and another.
To promise a ‘90 day turn-around’ is fantasy. It simply cannot be delivered; best you can do is to take a big first step along the road. However, taking that first step is often the hardest one to take.
Beware of the gold tooth brigade!
Sep 28, 2020 | Leadership, Management, Small business
Every business starts small. The biggest on the planet all started somewhere, in a garage, dorm room, lab, somewhere between the ears of the entrepreneur.
Most fail, or at best deliver a return that would have been dwarfed by the interest on the same investment in a bank account.
Some however, do succeed.
We all see the ones that do, they are shoved down our throats all the time as the heroes, the ones who made it, and we are asked the question, if they can, why can’t you?
There seems to me to be a pretty consistent sequence of growth, a sequence that holds true across all sorts of products and services, geographies, technologies, and circumstances.
Cheering.
This is the first stage, it seems to be all enthusiasm, cheering from the sidelines, jumping up and down, wishing for stuff to happen. What it is really about when you are in the midst of it all is hard grind, chaos, and cash.
At the beginning, you work your arse off, seemingly 24/7, with no letup. Everything that gets done depends on you doing it, you don’t do it, it does not get done. Simple. It is messy, usually chaotic, as pressures come from every direction, your attention is demanded by each, which is why the 24/7, and still there is little forward progress. Then there is cash. As you start, nothing is more important than cash. More start-ups go broke for lack of cash than every other reason combined. Managing your cash is simply the most important thing you must do.
Planning & doing.
Assuming you survive the cheering stage, you will have come to the point where you have a little more head time to be used considering: ‘what next’. You probably have a very small number of employees, and perhaps some outsourced services, like accounting and IT.
Answering the ‘what next’ question will be eating at your guts, as for sure, you do not want to continue as you have been. Your kids are growing up without you, your partner becoming a stranger, you have not had a weekend with your mates for ages, so you look forward to a different future. So, you stumble into some planning. It is never as easy as filling in some generic template, of which there are plenty making alluring promises, it is more about the graft of figuring out how to accumulate and allocate the resources necessary to grow. While the game is still about cash, it has also become about profit, what is left for reinvestment at the end of the month, quarter, and year.
You plan your products and services, the foundation stuff you need to get right, like the legal and regulatory things that must be done, understand the financial and strategic pressures that are present, and settle for the moment on a business model: the means by which you will turn your chaos into sustainable profitability.
However, a plan, no matter how good it may be at telling the future, envisioning new products, markets and customers, needs one further ingredient.
It needs to be implemented.
Plans that do not get implemented are usually called dreams. You will also recognise the reality of the muttering of generals throughout the ages that while planning is essential, nothing ever goes exactly to plan, so you must be ready to be agile tactically, while consistent strategically.
Building & growing.
The essential ingredients to building and growing an enterprise, on top of the financial resources that enable that growth are twofold.
You need people to do the work, and you need processes for them to follow, and over time, optimise.
The task of being the entrepreneur has changed from one of management, to one of leadership. You are no longer as engaged in tactical activity. Tactical implementation is being done by others in a manner that is transparent to overview, and with KPI’s based on outcomes. The task now is about the people doing the work, from the daily tactical stuff to the functional management. Your role is to lead all these people, and ensure that the processes being deployed deliver on the plan. It is all about the productivity of resources deployed, people and financial, delivered via the processes that evolve.
Anyone who thinks this is easy has never done it.
Anyone who stands on the sidelines and cheers for you might be a cheerleader, supporter, and beneficiary, but they are not a coach. A coach delivers the models and means by which the success is generated, which is much more than cheering, as it involves getting dirty from time to time, being challenging at all times, and ensuring you are looking beyond the tactical that threatens to consume you at all times.
At each point in this growth pattern, there is a single question that you can ask that will give you an answer to the question of growth potential contained in any tactical decision:
‘Does this scale?’
Many small business owners do not ask this question, so end up selling their time for money: and there is only a limited time in any day. Therefore, if you are about to invest in tactical activity of any type, ask that simple question: Does this scale?
If the answer is yes, fine. If it is no, think again.
When you are looking for a coach with the scars to prove experience, browse through the posts on the StrategyAudit site, and then you might want to give me a call.
Sep 23, 2020 | Analytics, Management, Operations
When you want superior performance, implement a number of key cross functional metrics.
Gaining agreement on a set of metrics that genuinely track a projects cross functional performance is not a simple task. KPI’s are usually focussed on functional performance, whereas optimal performance requires that cross functional dependencies are reflected in the KPI’s put in place.
The standard response of functional management to such an idea is that if they cannot control a process, how can they be held accountable for its performance?
To get over this reasonable question requires that there is agreement across three domains, and collaboration around the tactical implementation of a processes improvement.
Let us use a reduction of Working Capital requirements as an example, requiring 4 steps.
Agreement on strategic objectives, and accompanying KPI’s.
The strategic objective becomes making the enterprise more resilient, and therefore able to adjust to unforeseen shocks. One of the strategies agreed is the reduction of Working capital. There are many parts that make up working capital, inventory being a major one in a manufacturing environment. As the joint objective is to make the enterprise more resilient, it is agreed that Inventory levels must be reduced.
Agreement on what ‘success’ looks like.
The absence of an outcome that signals success means that any improvement will do. There are numerous measures that can be applied, how much, when, what outcomes, compliance to standards, variation from the mean, and many others. In this case, a reduction of inventory levels by 15% without compromising customer service, is the agreed metric of success. Agreement across functions that this is a sensible measure will deliver the opportunity for cross functional alignment, and will contribute to delivering the strategic objective of resilience.
Agreeing on tactical diagnostics.
Tactical diagnostics are aimed at tracking and optimising the short term performance detail of the components of the agreed objective. Which parts of a project are working as expected, and which are not. You can make the changes in these on the run, experiment, learn, adjust. It is usually not necessary to have these on the high level dashboard, they are for the teams and individuals responsible for the execution of a strategy to determine the best way of doing them. What is critical at the tactical level, is that those involved clearly understand the wider objective, and their role in achieving it.
Application of the diagnostics.
As the old saying goes, ‘what gets measured, gets done’. In this case, to reduce inventory without compromising customer service, requires the co-ordination of many moving parts, some of which will need some sort of a scoreboard to track progress on the tactical improvements. For example, transparency of raw materials inventory and incoming delivery schedules to those doing production planning, matching production to real demand, improving forecast accuracy, managing DIFOT levels, levelling production flow between work stations, and many others. These should be made visual to the teams engaged in the work, at the place where the work gets done.
For all this to work, the KPI’s need to be simple, visual, apparent to everyone, and as far as possible dependently cross functional. In other words, build mutual KPI’s that reflect both sides of a challenge.
For example, stock availability and inventory levels. Generally those responsible for selling do some of the forecasting, so they always want inventory, manufactured yesterday, to be available when a customer needs it. As a result of uncertainty, they tend to over forecast to ensure stock availability when an order arrives. By contrast, Operations tends to like to do long runs of products to satisfy productivity KPI’s, so you end up running out of stock of the fast movers, while having too much stock of the slow lines.
The solution is to make the sales people responsible for inventory levels, and the operations people responsible for stock availability. In that way, they collaborate to achieve the optimum mix of production and inventory. This mutuality ensures functional collaboration at the tactical level, leading to making decisions for which they are jointly accountable.
You are in effect, forcing cross functional collaboration where it does not naturally exist in a traditional top down management model.
None of this is easy. If it was, everybody would be doing it. That is the reason you should be on this journey, it is hard, and so delivers competitive sustainability.
