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.
Sep 14, 2020 | Change, Governance, Management
‘5 why’ is a tool often used to understand the real cause of a problem. Finding those real causes is often like peeling an onion: one apparent problem or more often symptom of a problem, leads to another, to another, until the root cause is clear.
Often however, we make changes in the absence of a compelling problem, usually to take advantage of an opportunity, or simplify/optimise some sort of process. In those cases, I have often seen the onion reverse itself.
You end up with unintended consequences.
A pack change that confuses existing customers, a change of supplier for a better price that has consequences for operational efficiency; a product feature added that customers said they wanted that added to unanticipated production complexity, and so on. I have suffered from several of these unintended consequences of seemingly sensible, well considered and pro-active changes.
Before any change, exercise a ‘Reverse 5 why’. Look for the wider consequences that may be caused by the change, and take the impacts into consideration.
Move a few steps back, and ask yourself; are there any impacts from this change? How will other functional responsibilities, customers, supply chain partners, be affected? What unintended consequences may occur?
It is very easy to become close to a project, and proceed to implementation without taking a ‘helicopter’ view of the potential impact beyond the immediate context of the change. Once you start doing it, taking that extra moment, which is usually all it takes, it becomes an integral part of an automatic due diligence process undertaken before making a change.
Building an automatic ‘Reverse 5 why’ into your planning processes will identify risk, and build the confidence of others with a veto in the projections you will have done to support the change.
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Sep 7, 2020 | Analytics, Management, Marketing
As a marketer, I want data to better understand the risks and impact of investments in marketing. I am a true believer in data, which also means that the limitations of data are factored into my thinking.
The nonsense pushed around for decades that by default, human beings respond to stimuli in a binary way is increasingly being recognised for the bunkum it is. Marketing effectiveness is not as easily subject to risk analysis and probability based reasoning as most, including myself, would like to be the case.
Data that represents what has happened in the past might be objectively true, but as we see every day, can easily be interpreted and presented differently to deliver the message the carrier wants to be heard.
If we can do it with real data collected from past activities, imagine the vagaries that can be built into the data that is supposed to be telling us what will happen!
The selling point of all the digital data around is that it is both accurate and actionable. Tactically this is partly true, strategically it ranks with the fortune teller in the local fete as a base from which to make long term choices.
The two fundamental drivers of calculating an objective assessment of the impact of a marketing investment are:
Attribution.
Attribution is a particularly difficult and often overlooked problem. Is that purchase because of the anonymous display ads on Google, the annoying branded email that follows you around for weeks after a casual search, the fact that the truck that went past your door delivering was clean, the TV advertising, or that the packaging looked good on a supermarket shelf? All these factors play a role in creating a successful marketing investment, but how do you sort out the relative weights of the impact with one dimensional data?
The unpredictability of human behaviour.
Then you have the fact that people simply do not act rationally, or always in their own best interests, the two foundations of econometrics. They act on a range of impulses and learned behaviours that have little to do with rational economics, and everything to do with psychology. We are only just beginning to understand the impact of psychology on an individuals decision making.
Between them, these two factors make assessment of marketing effectiveness an elusive target. It is best served with the combination of data, and intelligent hindsight, mixed with a high degree of qualitative sensitivity to the drivers in the market, and instinct. These characteristics are only gathered with deep experience, years down in the marketing weeds, learning by doing. It does not come from a textbook, online course, or a few years following instructions.
Aug 31, 2020 | Change, Management, Marketing
We are in uncertain times, and under those circumstances, perhaps counter intuitively, there are many opportunities for all forms of M&A activity.
For many owners of SME’s, this Covid crisis is the last straw.
You have worked hard for years to build a business, survived and prospered as technology has changed the competitive landscape, avoided the trap of not managing your cash well enough to cover the unanticipated, and survived the various financial meltdowns that have occurred.
Now you are ready to sell, as there is no way the kids want to work as hard, and thanklessly as they have seen you work, and the current uncertainty makes an easier life seem very attractive.
Following are 10 of the traps I have seen over the years, which have resulted in a seller obtaining less than a business may have been worth to a buyer.
Never forget the role that psychology plays in the process.
There are many financial and strategic due diligence boxes that will need to be ticked over the course of a successful transaction. However, the psychological drivers on both sides of the transaction will have a profound and often unrecognised role. From beginning to end, it is an all in negotiation, where skill and experience will play a huge role. This is a double edged sword, and can be made to work for you by judicious planning and execution of the sale process.
Appearing too keen to sell.
Once you appear really keen to sell, that influences the context of negotiations. Nothing is as obvious to a buyer as the desperation of a seller.
Not marketing and managing the selling process.
Marketing plays a decisive role in setting the context for a transaction. How many buyers you can interest, how you go about identifying and generating that interest, how you communicate with interested parties, what information you provide, and when, and how you conduct yourself. It will consume a lot of time and effort when done well, done poorly; you will ‘get done over’. Selling a business is no different to selling a piece of capital equipment, or a tub of yogurt, it is a process to which there is more than one party, with ranges of interests, drivers, motivations and resources available. Pretty obviously, the more keen and genuine buyers the better.
Having unrealistic price expectations.
Few will see the business as you do, and most owners of SME’s consider their emotional commitment over the years has a value. It may do, so long as it is reflected in the financial and strategic value to a buyer, but in itself, it has no value to a buyer. The manner in which the price is structured can vary enormously, from a ‘cash on the barrel’ agreement to swaps of shares, delayed payments, and work-outs dependent on future earnings. Each has their own set of challenges which need to be anticipated and factored into the calculations in a realistic manner. However, going into the process with unrealistic expectations can sour the well.
Poor anticipatory Due Diligence.
Any serious buyer will undertake a DD process, the depth and investment in this will be driven by the size of the transaction more than anything else. Making it simple for the buyer will be appreciated, and add to the trust they have in the forecasts you may make. Anticipating questions that may emerge during the process, and answering them before they are asked defuses them as a potential issue. Removing potential negatives before they become objections is sales 101. Never forget the rules of sales apply, so leverage them.
Ignoring the qualitative elements.
Can you work with these people? Are you prepared to have them take over the business, and its relationships you have nurtured? Do the emerging conditions of purchase cause you to lose sleep?. It may be that none of these apply, so you do not care. However, I have seen transactions turn sour at the last moment after considerable effort, just on the basis of personality, so consider it early and avoid the pain.
Risk assessments.
Every transaction has risks, covering them in an anticipatory DD process so you have the answers before the question is asked, is extraordinarily useful. A buyer will make their own assessments, but the better yours are, the more likely that any difficulties in the negotiation will be papered over. Selling any business is based on the assumptions that a buyer will make of the value that business will add to them. I.e, it is all about revenue and margins over time. The temptation of the seller will always be to beef up the forecasts, which is usually a mistake. Be realistic, but break the revenues down into its components and make assumptions at the more granular level. For example, costumer margins, the trends over time and the influences that adverse events have had. Any comprehensive buyer DD will ask the questions, so have the answers in a robust defensible form.
Understand the strategic value to every potential buyer.
Every buyer will be different, understanding the drivers of each is critical to maximising the price. Make your own assessment of what strategic value your business can add to theirs. This analysis is always way more than just a calculation of future cash flows, although that will always be the starting point. Items such as an assessment of the value of your brand to a buyer, the rate of customer churn, longevity of customer relationships based on barriers to entry and exit, recurring revenue vs ad hoc sales, and many others, will all add to the strategic value to a buyer. Each potential buyer will value these items differently, so developing a nuanced understanding of their business is an essential element of the sale process.
Avoiding the cost of good advice.
Professional advice can be expensive, and for an SME owner keen to maximise the dollars in their pocket, a seemingly avoidable expense. The problem is that selling a business can be a complex exercise, and is always more complex than it first seems. Having good accounting, legal and strategic advice is like any investment, it is made to either make or save money. In the case of the sale of a business, the objective is to maximise the sale price, and minimise the risk to the seller. Experienced buyers will often overwhelm a potential seller with documentation, questions, and promises which conceal the gaps and traps into which the unwary and poorly advised can easily fall.
No plan B.
Selling a business can be a lengthy and difficult process. Many spend time on the process that would be better spent managing the business they are setting out to sell, optimising the value that someone might pay for it. As a flip side of the same coin, many invest themselves in the sale process in the absence of a plan B. When a sale falls through, not only to they have to get back the running the business, they have to deal with the unfulfilled expectations of customers, employees, and yourself.
As a final point, when you get the unsolicited offers, do not invest too much time in considering them in the absence of a real demonstration of the intent of the hopeful buyer. There are many reasons for an unsolicited approach, and none have anything to do with maximising the value for you, as the seller.
Aug 28, 2020 | Leadership, Management
Have you ever noticed that problems are rarely solved by those who have not seen them first hand?
Core to ‘Lean’ philosophy is the Japanese term ‘Genchi Genbutsu’ which carries the meaning ‘go and see’.
In other words, when you have a problem, do not pore over spreadsheets, seek counsel from a friend, or check in with your boss. Instead, go to the source of the problem and see for yourself.
Few do this, and as management becomes increasingly isolated from the processes that support them, we become ever more creative with the reason why we do not down tools, and go and see.
Some of the usual excuses I have heard.
I am too busy.
If you are accountable for the smooth running of a process or person, you have no greater responsibility than to ensure the problem is solved. If it is not your problem, but it is no one else’s either, then take the initiative and go and see, take responsibility. You should never be too busy.
I do not know the source of the problem.
Often this is a legitimate concern, but it is not an excuse to do nothing. By contrast, it should be the best catalyst to set about determining the cause of the problem. Go and see, apply some critical thinking, peel back the layers of symptoms to properly understand the causes of the problem, and eliminate them.
It is not my problem.
Functional siloes and the mismanagement of KPI’s in bureaucracies of all types, are commonly the cause of this common refrain. We have complicated management structures and accountabilities so much in the past decades that everyone has the ability to point somewhere else, or simply walk away. Leadership and culture are the only antidotes. Built into the management culture must be the recognition that a problem somewhere in the organisation, ultimately impacts on everyone. Therefore, everyone has a responsibility, if not accountability, to call it out.
I cannot get there.
Again, often a legitimate barrier, especially in the corporate world where the location to be seen is distant, and there are travel approval processes to be navigated. Sometimes, you might be able to visit via the great video conference technology now available. However, technology is never a perfect substitute for a set of eyes, and the impact of someone coming from a remote location to examine the problem, and help find and implement solutions.
It is uncomfortable.
Yes, often it is, especially when dealing with a person. However, avoiding the conversation, embarrassment, confrontation, anxiety, or whatever it is that is stopping you, still does not address the problem. You just have to go and see.
It is not a problem, it is an opportunity.
The flip side of every problem is opportunity, for those who are able to see it. Where do you go to see an opportunity? The place may not exist. This should not stop you going to where it may exist and looking, perhaps building a ‘minimal viable product’ and testing it in the market. Some of the most successful products I have conceived and launched had their origins in conversations with consumers in supermarkets. Watching what they did, and asking why they did it is a source of ideas about all sorts of things, including identifying things that may not have been noticed as a problem to be solved.
None of these excuses hold any water, they are a cop-out, and are actively avoided in enterprises that have the potential to be great.
Aug 24, 2020 | Leadership, Management
There is rich wisdom to be found in fiction, although you might have to look hard to find it. There are some writers who have used fiction to deliver timeless messages.
For example, Sir Arthur Conan Doyle had his protagonist Sherlock Holmes utter some really meaningful lines. Amongst these is the classic: ‘it is a capital mistake to theorise before one has data. Instinctively one begins to twist facts to suit theories instead of theories to suit facts.’
This is confirmation bias at work. We see things that confirm what we already believe much more often and clearly than we see things that may erode or contravene our existing beliefs.
In digging for facts, data, you need to be able to ask smart questions, in some sort of order, to give some ‘shape’ to the way a problem is perceived.
- How and why is this issue a problem? Assembling observations, some informal information, input from customers, line workers, wherever the problem may be seen, to define that there really is a problem, not just someone having a moan.
- When does the problem show itself? Under what circumstances is the problem to be seen, are there patterns of behaviour or circumstances that seem to be correlated? Is there any foundation to see causation?
- Where is the problem showing up? This goes a step deeper to start defining the location of the problem, and the impact it may have.
- What are the impacts of the problem? What are the financial, cultural, value chain, and customer impacts of the problem?
- What is the priority in allocating resources to solve the problem? There are always more problems than there are resources to address them, and as a result, only a few get the attention they deserve. Make sure those limited resources are allocated in the best possible way.
- What return is delivered by solving? This is way more than a financial calculation, it needs to include an assessment of how the transaction costs may be moved around. What is the impact on workflow and stakeholder engagement as they see problems being identified and removed?.
- What other problems are uncovered by the consideration of the first one? Looking at a problem always uncovers others. Often in the process of understanding the problem, others that are the root causes show themselves for the first time. The ‘5 why’ tool is invaluable in understanding the root causes of problems, and should be in every managers toolbox.
Going back to Sherlock, one of the extremely useful observations captured the essence of Occam’s razor, when he said ‘ When you have eliminated the impossible, whatever remains, however improbable, must be the truth’
It is our job as leaders, to get at the truth, and communicate that truth widely, in a manner that it is clearly understood, and able to be acted on. So, the essential lesson, is to ask good questions.
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