Mary Meeker 2018 KPC&B Internet trends report

Mary Meeker 2018 KPC&B Internet trends report

 

The 2018 KPC&B report is now out, and gathering views on Slideshare like a runaway train.  The amount and speed of the attention given to this now annual report is evidence that it has become the benchmark for analysis of the digital communication trends that we live with every day, but do not necessarily see.

The report has become one of the most influential pieces of content published, and it is a monster!

While I have no intention of trying to summarise, a few  things just jump out.

  • While growth of the net may be slowing, at a reach now above 50% of the worlds population, what would you expect. Within that total reach, US platforms remain the global giants, but being hunted by the Chinese who are spreading out of home base where they utterly dominate to the rest of the world.
  • Buying via the net, so called ‘e-commerce’ is now so deeply entrenched, that it is now just another part of ‘commerce’. Amazon outside China dominates, and is also dominating in R&D spend, translating into an avalanch of innovation. Inside China, it is a very different picture. The Chinese platforms are all there is, and are in the early stages of going after an international presence. It seems that the Chinese have jumped the hard asset stage in the development of communication and payment systems, going straight to mobile.  No legacy questions of any type to be negotiated, which can only accelerate the potential rate of growth.
  • Ad spending on mobile is now more than half digital ad spending. The implication of this is the degree to which the ads will evolve rapidly towards highly personalised messages, when combined with AI and geo location.
  • Of particular interest to Australian FMCG retail, is slide 108 which shows the price and market share changes in the top 20 US grocery retailers. We have the top two gorillas here still retaining above 70% market share, not the 20% that Walmart holds in the US as the gorilla brand. If the US experience is mirrored here, and I see no reason why it will not, the message would be a ‘sell’ on Coles and Woolies shares. Not a happy thought for either as they must be contemplating large investments just to remain in the game, let alone retain their current position.
  • The nature of work continues to evolve way faster than our capacity to absorb the changes. I suspect the social dislocation that will result in this country are only just beginning to be felt.
  • There is plenty of data coming at us that tells us video is the new big guy in town. This report confirms it, again.

This report is required reading and deep consideration, for anyone thinking about digital, and the shape of the world we will be living in, and isn’t that all of us?

 

How do you measure culture?

How do you measure culture?

With an increasing regularity, ‘Culture’ emerges as an item to be ‘managed’. I fully expect it to be front and centre before the end of the current Royal Commission into the financial sector, as most of the poor practises we have seen , immoral, unethical, and some down-right illegal, stem from a poor culture, lack of leadership in the true sense of the word, and a failure of governance.

Culture pervades every organisation of more than  1 person. It is how we interact, behave, collaborate, and deal with other people in the pursuit of whatever objectives, personal, and commercial that are front of mind, but mostly is just about how the job gets done.

Mundane as that is, culture is the determining factor.

It truly bothers me that an outcome of the Royal Commission may be that a legislated  regime be put into place to regulate culture.  The boffins in Canberra have no idea what it is, and how to define it, but that may  not stop them regulating for it.

It is also a fact that ‘culture’ is an outcome, like a brand, of a host of small  behaviours, interactions, and processes over time that added together deliver an outcome we call ‘culture’. It is not an item to be managed as you would an expense item  in the P&L.

To my mind, culture is grown from the inside, but it responds to the outside environment. Growing a culture is not dissimilar to the Japanese art of ‘Bonsai’, the cultivation of dwarf plants, grown into all sorts of intricate shapes.

The bonsai gardener starts with the raw material of the plant, and the environment in which it will be growing, then over time, it encourages the characteristics they want, and cuts off those that do not want before they can take shape and become an integral part of the plants physiology, disfiguring the outcome. A leader who acts as a bonsai gardener for the growing evolving culture, will fertilise the behaviours that add to the development of the envisaged end result, while nipping in the bud those that do not add to the end result, all the time training others in the art of bonsai.

 

Making a commitment to the cultural style that suits the strategic and competitive choices being made is a first step.

What culture do you want? It seems to me that the starting point should be envisioning where you want to end up. No different from setting any other objective, as it provides a consistent framework for making those difficult trade-offs and compromises that become necessary. Therefore decide what sort of culture you want, one obsessed with customer service, innovation, operational productivity, attention to detail, whatever it may be, and behave accordingly. All will have elements of each of the others in them, but there should be an overriding objective.

Are you committed for the long term? Culture is not something you erect in a financial year, it is an incremental process, built over time and very dependent on the CEO. It is the boss who makes the running with the culture that prevails, and the boss must simply walk the talk, every single day, in every way. This can be painful, and the board of a business that has the wrong boss needs to make a choice about the culture it wants and recruit accordingly.

What measurement tools do you want to use? There are a lot of choices out there, a simple google search may lead you to the conclusion that this is a task that can be outsourced to a fancy consulting firm with pretty measurement tools. Those that in my experience try and either ignore or outsource ‘culture,’ end up with at best a neutral result, and usually a poor one. Most of the tools used are pretty simple when pared back to their essential elements.

However, the common element is that they are subjective, and only really relevant as a measure of change over time. Treating a measurement of ‘culture’ as an objective measure of performance at a point in time as you would with a P&L to measure profitability will be misleading. It is the trends that really count, not the quantum of any measurement you might take.

Measuring ‘Culture’ like most things can be, and should be, made as simple as possible. This is itself is a challenging notion. Much easier to have a series of complicated dashboards that measure all sorts of things, but are really there just to make those in authority feel better.

Employee referrals and sales leads.  An employee is hardly likely to refer their own networks to the business if they are unhappy.

Customer complaint responses. Timeliness and follow through are always good indications of a customer facing culture. Every business needs customers, and dealing with problems that arise should be a first order task.

Employee turnover, and rehires. A turnover of people is natural, and I would regard as healthy. The tipping point is around the point where they are leaving because they are tired, bored and not learning anything, and where they have acquired new skills and are keen to test them in new challenges. Similarly, capable people who wish to return is a good indicator. Large businesses can also track the internal movement of employees across functions and geographies for the same reasons.

Employee exit surveys. Understanding why employees leave can be a vital piece of information about the culture, and existing management. At exit, employees are often more likely to ‘tell all’ than under other circumstances. Such an interview should be routine, friendly and constructive, and not conducted by the exiting employees line manager, and certainly not  by the HR intern, but by someone of stature in the business.

Employee Survey.  Regular employee surveys  can deliver quantitative data across a range of cultural variables that makes measurement of changes over time possible. It is always better that they are anonymous and done by a third party.  It is usually the truth that you get when you engage with the operating level employees, those on the production line, the truckies, warehouse hands, they see and suffer from the impacts of poor practises every day.

Customer survey, as above.

Supplier survey, as above, and even more important that they be done by an external party, and certainly not by the sales force, or including only those recommended for interview by the sales force. Suppliers are often in a position to give great insights into cultural drivers.

Employee Net promoter Score. NPS is now an established measure amongst customers, there is  no reason  I can see  not to use it amongst employees. It is a more complicated version of employee surveys.

The ‘carpark’ test. If it is a race to get out at 5.00, it is a sign of employee disengagement, a poor cultural outcome, and easily assessed rather than measured simply by being there and watching.  The behaviour being exhibited by operational staff is the ultimate test of ‘culture’, and you can and should observe that in many ways.  How many smiles and greetings does the ‘Boss’ get during a factory walk-through, how happy are staff to interact with senior staff on matters trivial as well as important, how well do senior staff listen to and provide feedback to operational staff, and so on. While I call it the carpark test, it is really just being respectful  of others, building their their sense of personal value, irrespective of their role.

 

As a final point, we all talk about culture as if it was a ‘thing’. It is not, it is as noted, the gradual, incremental outcome of thousands of individual interactions. You can dictate culture all you like, but it will have no effect. It is only when you change the individual interactions, one by one, that the evolved culture will slowly emerge.

Photo credit: Dave Gammon via Flikr

6 essential questions from the devil

6 essential questions from the devil

Having a ‘devils advocate’ around you is one of the most productive relationships you can have in a complicated enterprise. Such a relationship enables the stripping of any position held back to its core, removing the bias, preconceptions, and power of the status quo, but leaving room for intuition born of domain knowledge, experience, and most importantly, data.

You should seek out and nurture such relationships.

The most successful commercial relationship I have had was with a bloke to whom I reported for a long time, in two different businesses. Vigorous ‘conversations’ took place as a natural part of determining the best course of action to take, the best allocation of limited resources, with each testing the positions taken by the other.

The eventual outcome was more often than not, one that would not have emerged without such a process, although we both knew who held the power of veto, and from time to time, it was used.

I was reminded of this relationship recently in a conversation with a client who had reached a conclusion I thought was absolutely wrong. It was based on flimsy information, the opinion of someone whose opinion in this matter was in my view skewed by some unfortunate and irrelevant bias, and a reverence for the status quo which appears to me to be destructive.

I went through my standard list of  ‘Devils questions’ to no avail. Tell me what questions I should have asked on top of those below in an effort to help him consider the real merits of the decision he was about to make.

  • What is the source of the data you are quoting? Without a reliable, robust and repeatable data source that stands up to scrutiny, an ‘insight’ based on it is just another opinion.
  • How did you get from the ‘data’ quoted to the ‘insight’ you appear committed to? I like to see logic chains, definable cause and effect, when gathering insights from data, and am wary of leaps of faith that do not have the authority of logic and experience.
  • What biases have you have built in from your background and experience? Nobody is immune from some level of built in bias, a good devils advocate holds up a mirror to them.
  • What other options could there be based on the same data? In most situations, there is more than one way to interpret and leverage data, opinion, experience, and outside knowledge. Playing the ‘options game’ as a part of a conversation is a very useful tool.
  • How do we test the insight without betting the farm? These days the ability to test has been multiplied a thousand fold by the digitisation of everything, it is no longer wise (if it ever was) to bet the farm. The scientific method rules!
  • What will you do if you are wrong? Learning from mistakes, and applying the learning is the basis of improvement, and without an inclination to learn from mistakes, you will be destined to repeat  them, usually for  the same reason they were made in the first place.  In addition, answering this question almost inevitably opens up other options for consideration that may not have been adequately considered, or completely missed in the conversation.

Devils can be very helpful when used well, but they also have the power to be destructive, so be careful with whom you dance.

 

The two crucial leading indicators of business performance.

The two crucial leading indicators of business performance.

Simplicity is the ultimate sophistication’. So said Steve Jobs and he was not only right, but just one of a long line of people saying similar things.

Aristotle, Marcus Aurelius, Mark Twain, and my personal favourite, a marketing guru of great stature, although known for other things, who said ‘Everything should be as simple as possible, no simpler’. Albert Einstein.

It is also very useful to have a few simple but reliable forecast measures that give you a ‘heads-up’ about rough waters ahead.

Therefore when doing a StrategyAudit of a business, I try to distil everything down to its most simple form. That way not only can most (including me) understand it, but there is less room for error, misunderstanding, evasion, finger pointing, and all  the rest that goes on.

Two words capture the essence of a successful business, irrespective of size, structure, location and market. Having done many StrategyAudits, using a whole range of tools, some simple, some pretty sophisticated, there are just two words that underpin everything.

‘Cash’ and ‘Flow’.

Let me explain.

Cash.

Cash is the lifeblood of every business. Every activity, in one way or another is connected to the consumption or generation of cash. When you are doing something that is not contributing in a positive way to cash generation, even if it costs cash (such as advertising), stop. It does not matter how grand the vision, how well meaning the mission, how creative the advertising, how innovative the products, unless it generates cash in excess of its cost, stop.

So, I look at the cash. How it is managed, committed, deployed, forecast, leveraged, and disbursed.

The three fundamental parts of an accounting system are the cash flow statements, Profit and Loss statement, and Balance Sheet.  Both the P&L and Balance Sheet can be ‘managed,’ just look at Enron, Dick Smith, FAI insurance, State Bank of SA, One-Tel, and a host of others for proof. However, look closely at the Cash Flow, and without sophisticated fraud, it cannot be ‘managed’, and if there is fraud, a close look will reveal it fairly quickly to an experienced eye.

Probably the easiest way of judging the health of a business is to look at free cash flow. Cash coming in – cash going out, excluding capital expenditure. If positive, at least there is some hope, negative, start resuscitation immediately, or run for the lifeboats. This assumes a reasonable period of time. My recommendation to most clients is a rolling 13 weeks. Long enough to be somewhat immune from the day to day stuff, but short enough to give a fair indication of the overall health of the place quickly while giving enough time for any necessary corrective action.

Every business I work with is strongly encouraged to do a weekly rolling 13 week cash flow forecast. Those that resist strongly usually end up former clients for one reason or another. Once set up, the routine makes it easy, takes little time, and removes a whole lot of stress.

Flow.

This is probably a bit unexpected, but when you think about it, every business is made up of many processes, sub processes, and sub, sub processes. Draw a ‘map’ of your sale to cash process, and there are a number of steps, preparation and dispatch of the order, proof of delivery, invoicing, supporting book-keeping steps, and debt collection. Similarly, all the processes in your business have stages, points at which there are necessary interventions, potential changes, interruptions, delays, mistakes, rework, and a myriad of admin things and performance measures that need to be completed.

Keep drawing process maps and see how they become entangled, are dependent and interdependent, and can create uncertainty, opacity, and opportunity for error, as well as being necessary to get the work done.

I think about flow as you would a river. Water flows smoothly and predictably while there is no interference, but insert a rock, or bend, or shallow bits, and there is interruption to the flow. The greater the interruption, the more unpredictable the flow, and the more energy is required to move the water through. The velocity of the water through a part of the river is a measure of the productivity of that part, and again, the greater the interruption, the less the productivity.

I therefore look at the ‘flow’ of processes through the business, and seek to simplify, and accelerate all of them by removing the ‘rapids’. It is an incremental and never ending task, but one that delivers great financial and emotional rewards. In most cases, there has been little process mapping done, so that becomes a priority in any improvement project, but the current state of the ‘Flow’ is a very good indicator of the health of the business.

When you need a bit of help considering these two crucial performance indicators, give me a call.

Why Wesfarmers is taking Coles through the checkout

Why Wesfarmers is taking Coles through the checkout

It is no great surprise to me that Wesfarmers are spinning off the Coles supermarket business, and associated liquor and variety businesses. It also makes sense that they are keeping Officeworks and Bunnings, both stunningly successful businesses in Australia. Bunnings However, has failed miserably in the UK expansion, consuming capital and morale like a starving gypsy. It seems ironic that Coles thought they could beat the odds in the UK, just as Woolworths thought they could beat the odds with Masters here at home.

I do not think it is just being smart with hindsight to have foreseen the spin-off. Wesfarmers always seemed to me to be an owner that had adopted a culturally different and troubled although talented child, and was not too sure what to do with it. Despite pumping a lot of capital (around 8 billion) into the business and successfully turning it around beating the incumbent FMCG thug, Woolworths at their own game for a number of years, it still seemed to be an odd adoption.

A new Managing Director will always be keen to take the opportunity to ‘clear the decks’ of underperforming assets freeing up capital to deploy elsewhere in the hope of better returns.

New Wesfarmers MD Rob Scott is no different. Coles was a weight on the Wesfarmers balance sheet, accounting for 60% of capital employed, but returning only 30% of EBIT. Coles while a strongly cash positive business, is also the second player in a very mature market that faces a volatile future. However, it has played a role in the impressive increase in Wesfarmers value despite the nightmares that must have engulfed then MD Richard Goyder when the 2008 market crash occurred just after the $22 billion Coles acquisition in July 2007.

The FMCG market is entering a volatile period.

The channels to the consumer continue to fragment and enable the entry of innovative business models, and cashed up innovators. Aldi continues to make significant market share headway, Costco while a minnow is continuing to invest, Kaufland appears committed, and the shadow over everything is what Amazon may, or may not do.   Meanwhile, online shopping is increasing, while at the extreme other end of the spectrum, farmers markets, and even ‘pick your own‘ schemes are growing like mushrooms after rain.

Sounds like a good time for Wesfarmers to sell out of what may become a ‘legacy’ business over the next 10 years, and to put shareholders capital to work elsewhere.

 

 

Header credit: David Rowe Via Australian Financial Review.

 

 

A marketers explanation of Internal Rate of Return.

A marketers explanation of Internal Rate of Return.

 

This post should be read by marketers in conjunction with the earlier one that explains Net Present Value.

IRR partners with NPV as another tool in the investment choice toolbox. Both use as their basis, the forecasting of cashflow to make choices between investment options. While there are potentially a whole menu of influences over making decisions about investment options, cash as we know is the lifeblood of any business, and the measure least open to ‘management manipulation’, so should be in the mix.

The Internal Rate of Return, is the discount rate that would result in the net present value of a project to be zero.  In effect, you are  ‘solving’ for the discount rate that is used in the Net present Value calculation.

The discount rate best used in the Net Present Value calculations can be uncertain, we live in volatile times, and IRR is a means of calculating the rate given a set of investment parameters.

Businesses should set out to understand the rate at which the project breaks even,  so the IRR is the interest rate at which the NPV of all cash flows from an investment equals zero. Your investment break even.

IRR enables a ranking of projects by their rates of return to be done, rather than just relying on the NPV of the cash required. However, relying on IRR in isolation has a downside: it does not measure the absolute size of the investment.  A small investment might deliver a very attractive IRR, but be not as strategically attractive as a larger one that positions the business for growth. These are judgements  made outside the straight financial calculations, which are just tools to compare.

As with any mathematical modelling tool, an IRR calculation it also suffers from the ‘garbage in garbage out’ syndrome. Therefore the the most important part of the investigation is to understand and critically analyse the assumptions made, rather than just relying on the numbers Excel spits out to make the decision for you.