Aug 24, 2022 | Governance, Leadership, Management
There has been an awful lot of trees cut down to accommodate the blather about the new world of post covid work. In an effort to condense the ‘debate’ and save a few trees, the following is what I have gleaned.
Humanity.
We humans are social animals, we need other people around us for our own psychological health and creative productivity. Therefore, the idea of general remote work becomes a potential mental health time bomb. We will adjust to it by mostly going back to the office. it is very unlikely to be 9 to 5, there will probably be more satellite offices, short term but regular meeting schedules, but back we will go in some form.
Proximity.
Physical proximity enables deeper communication than any other form. Even the distance apart in the office makes a difference to the nature of the communication we have with each other. Not just about work, but the tiny things that we do not notice until they are not there, and even then, often with hindsight only.
Trust.
Trust enables teams to work together. The less face to face contact, the harder it is the generate that trust, making teams harder to assemble, generate productive outcomes, then disassemble and reform for another project or purpose.
Belonging.
We are sustained by a sense of ‘belonging’. We are drawn to ‘people like me’ but when we do not see them, or see them only occasionally or over Zoom, the sense of belonging frays, leading to eroding productivity and sense of community.
WFH.
Working from home for many has been great, not having that commute every day. It is convenient for many. However, convenient is not always good for us. Going to the gym every day may not be convenient, but it is good for our health.
Leadership.
Leadership and the nature of that leadership has never been more important. In the past we had a few leaders, and a lot of managers. In a world where remote work is a consistent part of the output, just being a manager will not cut the mustard. We need more leaders, and have not trained them, which indicates problems for many, and opportunity for the few in the coming few years.
Alignment.
The alignment of priorities and performance measurement and the place each individual has in the scheme of this is critical. When an individual cannot see how their efforts contributes, to both those in their immediate vicinity and to the overall objective, the effort will become diluted. Working remotely in the absence of that focus on priorities and outcomes will lead to real productivity challenges for the enterprises, and personal ones for the individuals.
Culture.
Culture is a function of the leadership, and how the leadership permeates the organisation. Building a culture in a remote workforce is more challenging than when face to face is the norm. Some have done it well, but mostly they are the enterprises that have started life as remote enterprises, so those who join, and remain, have the right ‘remote work DNA’ from day 1. The holding company of website builder WordPress, Automattic springs to mind. Founder Matt Mullenweg set out to make the company completely remote from day one, but even he has co-working spaces in places where employees are concentrated.
Technology.
Technology is what has made this remote working possible, but it is also planting the seeds of our own disassociation with those we need around us for our own well-being. Like most things, too much of anything good becomes a problem.
Clearly, we are not yet ‘Post covid’. However, the workplace has changed over the last 2 years, and while the jury is still out, when it comes back the status quo will not be the same as pre covid.
There has also been a lot written about the great resignation, and its relationship to covid. My suspicion is that it is not covid specifically that has driven the change, although covid was the catalyst. The model we have been using to get the work done was over a century old, and getting pretty creaky. Covid acted as the catalyst for many to simply reconsider their working lives in the light of the tools that have emerged in the last 10 years, and they chose to make a change. Enterprises must adapt to these new models of work. Those that can’t will become rapidly extinct.
What have I missed?
Header cartoon credit: Tom Gauld
Aug 3, 2022 | Governance, Leadership, Management
We are in a climate of uncertainty. The next twist in the Corona pandemic, war in Europe, confrontation with China, and the daily scrambling at all levels of government, stacked onto the usual challenges of making decisions in a business, all make the current situation especially difficult.
The instinct is to wait a bit and see how it evolves.
However, having a bias to action, being prepared to do the groundwork, consider options that take a calculated risk, being prepared to back away with the learning of being wrong and having another go, is a key leadership characteristic in uncertainty.
Essential to leadership is taking decisions with less than complete information. You must then be prepared to adjust on the run, or even retreat when the planning assumptions are proven to be off target. However, there is a danger in being too aggressive. Sometimes delaying a decision is the best strategy. It is a critical balance.
Following are some ways you can bring some order to the decision-making process.
- Gather as much data as you can, but in uncertainty, it is the ‘gut’ of deeply experienced people who have ‘been there done that’ which often makes a critical difference to the quality of the outcomes from the decision. By definition, in highly uncertain times, there may not be much relevant data available.
- Ensure those experienced people are heard in the decision-making process. Ensure ‘due process’ is observed
- As part of the consideration exercise, undertake a ‘reverse 5 why‘ exercise.
- Ensure you have what I call an ‘Andon‘ system in place. This term comes from Toyota, where there is an ‘Andon chord’ which anyone on the production line can pull to stop production in order to prevent a fault progressing to the next stage, and being hidden as a result. It works for Toyota, and has been adopted widely elsewhere as a means to deliver consistent quality
- Gather as many ‘metaphors’ and similar situations in other industries as you can, there will be lessons there. For example, disc brakes were developed first to stop trains in the 30’s, and aeroplanes during WW11, as drum brakes were woefully inadequate. Citroen introduced the first successful mass production of discs on their ground-breaking DS in 1955, and now they are on every car made.
- Leverage ‘reverse planning’ and ‘What if’ questions. Every decision is based on both data and some level of instinct. When considering the future, few questions are as powerful as ‘What if….’ Being prepared by asking a wide range of questions that subject the assumptions often made automatically, often without consideration, will prepare for the unexpected.
- Be very clear about the problem being solved. Any decision can have second and third order impacts, so consider them beforehand as far as possible.
- Never move away from being customer centric. When this becomes a slogan, or ‘core value’ whose only role is a place in the reception of head office, beware!
- Don’t be a wimp. Make the tough calls while being transparent that not all the information you may like is available, but that the very least it will be a learning experience.
As a final note, good decisions can sometimes deliver poor outcomes, and the reverse is also true, bad decisions can lead to good outcomes for all the wrong reasons. Do not confuse the two.
Header cartoon credit: Gapingvoid.com
Jul 22, 2022 | Governance, Management
EBITDA is one of those acronyms that often appears in the accounts and narrative supposed to explain the financial outcomes of an enterprise. The meaning is often unclear to those unfamiliar with accounting jargon.
It stands for: Earnings Before Interest, Taxes, Depreciation, and Amortisation.
It is always a number near the bottom of the profit and loss statement, often confusingly also called the Income Statement.
Earnings. This appears at the bottom of the income statement, often called net profit. It reflects the outcome of all trading activity of the business. Sales revenue, minus the costs of doing business.
Before: Before, is before…. Who would have guessed? The items that follow are non-trading items that nevertheless impact on the cash of the business. They are all items that are further deductions from what the owners of the business will see in their pockets, but not directly attributable to trading activity.
Interest: We all know what interest is, we borrow money, and the cost of that borrowing is the interest we pay to the lender. A business is no different, it borrows money, it pays interest. However, the source of the funds used to operate the business has no impact on the trading activities, and is therefore excluded from the trading results.
Tax. When you make a profit, you pay tax. Simple, unless you are a multinational with a head office somewhere tropical. However, the payment of tax on profit has no impact on the operations of the business, so has also been excluded.
Depreciation. Assets wear out with use and need to be replaced from time to time. Including a number reflecting the depreciation of assets is again a non-cash item that has no impact on the trading activity, but can have a very big impact on the cash flow when assets are replaced.
Amortisation. This is similar to depreciation but applies to intangible assets. Assume the business purchased a competitor, paying an amount above the net asset value of the purchased business, but whose trading results are included in the numbers. You may want to write down that nominal overpayment over time to bring the value of the business, as reflected in the balance sheet back to closer to the net realisable asset value of the combined businesses.
The benefit of an EBITDA number is that it enables comparisons over time, and between businesses, even across industries. The downside is that there is no regulated formula for calculating it, there is discretion allowed, so beware of the weight you put on the final EBITDA number.
Header credit: Scott Adams and Dilbert, never confused by a good acronym.
Jun 24, 2022 | Customers, Leadership, Management, Marketing, Sales
In the past, for the orderly management and convenience of organisations, Sales and Marketing have been kept by management in separate functional silos.
In a time of flattened organisation structures and the ease of communication and data sharing, this no longer makes any sense at all.
The evolution of the silos to one functional area of responsibility will remove substantial opportunity for the transaction costs incurred by turf wars, miscommunication, and unaligned objectives, to be eliminated.
From a customer’s perspective, how you are organised internally is irrelevant, they are looking for the products and services that solve their problems or address their opportunities in the most cost-effective way.
The vast majority of interactions a customer will have with a supplier will be cross functional. Over the course of a transaction, they will interact with sales, technical service, after sales service, and logistics, probably sequentially.
The power in the sales relationship has moved from the seller, who had control of the information necessary for a customer to make a purchase decision, to the buyer. In past days, the sellers only delivered the information that benefitted them, but those days are almost gone. This process has been gathering speed since the mid-nineties, and now dominates every transaction beyond small scale consumer purchases like groceries, and even there, the need to be clear about the ingredients, their sources and provenance is pervasive.
Both sales and marketing silos have the same ultimate objective: to generate a sale, and preferably a relationship that leads to a continuing flow of orders. The combination of the silos into one, Revenue Generation, makes logical organisational sense in this new environment, as well as better reflecting the way customers interact.
Sources of revenue.
Isolating the sources of revenue is a crucial component in effectively managing the revenue generation function. Luckily, the sources can be summarised into three areas.
- Customers. Which customers buy what products, in what volumes, how often?,
- Markets. There are many ways you can dissect a market. Geographically, customer type, customer purchase model, product type, depth of competitive activity, lifecycle stage, and others.
- Product. Product type, mix, price points, lifecycle stage, margin, potential, and others.
Together these three axes form a three dimensional matrix from which your revenue is derived. The task of the RevGen personnel is to maximise the revenue today, and into the future, while minimising or at least optimising the cost of generating that revenue.
Type of Revenue.
Considering not only the source of the revenue, but also the type is a crucial part of the equation that will lead to long term profitability. Again, there are three broad categories into which all revenue can fall.
- Transactional. One off sales that require little else at the point of the transaction beyond a mechanism to execute the exchange of goods for money.
- Packaged. This category is by far the biggest, as it contains all sales that come with a ‘ticket’ of some sort. That ticket may be a guarantee of service, warranty period, assurance of quality via a brand, bundled pricing, promotional support, and many others.
- Subscription. With the emergence of the internet, subscription sales are growing rapidly at the expense of the packaged sales. This exchanges the upfront revenue of a sale for an ongoing revenue stream based on use, time, or both product and service. The emergence of the ‘cloud’ has spawned a host of new business models that use subscription as their base, but it is not new. Xerox used subscription for decades by leasing their equipment, then charging for usage on top. Similarly, Goodyear moved their sales of tyres to the airline industry from a sale to a usage model in the 80’s to sidestep the simple fact that their tyres were more expensive, but lasted longer. This encapsulated the price sensitive nature of airline purchases, with the savings over time because their tyres lasted for more landings than did the opposition.
Thought about these variations all have resulted in an exploding range of business models over the last 20 years, making the task of managing the generation of revenue way more complex, and therefore also opening opportunities for those who can think creatively about the task.
When you need some creative outside experience in this complex menagerie, give me a call.
Jun 22, 2022 | Governance, Management
Often, we hear the claim that government should manage the budget better, after all it is just like a hugely complex household budget.
The last election was full of the Liberals claiming to be better managers of money than Labour, despite the ample evidence to the contrary. Irrespective of who won a few weeks ago, we currently have a great big shit sandwich to deal with.
The basic difference between our households and the country is that as a household we look at the investments we make, from the new house to a cup of coffee down the road. Each is a simple and discretionary choice. When things are Ok and we have a bit extra, we have that coffee, and perhaps some avocado on toast for breakfast. When times are tough, we stay at home and have Nescafe and Wheat Bix. We judge what we spend by how much extra we have, and the return we get from making the investment. The more productive the investments we make the better in the long run we do, while suffering some squeeze in the short term to enable those productive investments to be made.
When we make a mistake and find ourselves unable to meet the debt repayments, nasty people with court orders come and take our stuff.
By contrast the government is making huge investments, increasingly as a proportion of the total government expenditure, on items with a very uncertain return beyond the moral one, such as aged pensions. Many others have a very long and hard to calculate payback, such as education and health care. Others such as defence, are a bit like insurance. When they are needed you are glad you paid the price, but if not needed, the payments have just been a waste.
When the government spends more than it collects by way of taxes and direct charges over the course of the economic cycle, nobody comes to take the furniture. In effect, the government just ‘creates’ more money by crediting the Reserve Bank account, which then enables the Reserve to release the funds publicly via the financial institutions. Commonly this is called ‘printing money’ or more confusingly, ‘quantitative easing’. The downside is that we then risk the corrosive impact of inflation that over time reduces the value of what we owe, while increasing the short-term costs of borrowing more, which is where we are right now.
The key is the ‘productivity’ of what is spent. Money circulating in the economy has a multiplier effect, the extent of which depends on whether the money is spent on consumption, or is reinvested in some way. The multiplier varies from very low, 1:1.5 or so, to 1:10, or 15 and up. We are spending way too big a proportion of the national tax revenue on items at the low end of the multiplier scale at the expense of investments at the higher end.
In addition of course, are the investments made in assets that are used by enterprises that make no profit to be taxed. No positive multiplier applies here, it is a negative number, dragging down the total productivity of the economy. Profits by multinational resources and technology companies spring to mind. It is like someone breaking into your house and stealing your wallet. You have worked for the contents of said wallet, but get no benefit from it. The robber sticks your money in an envelope and mails it (via the internet these days) to their friend in the tax-free zone of the Bahamas, Delaware, London, or some other exotic no tax on ‘foreign earnings’ regime to be spent on luxury homes, yachts, soccer teams, and more investments in the tax free cycle that depletes the productivity of their host economies.
That is why your household budget is different from the national one. Once burgled in our homes we tend to put up barriers to it happening again. Bars on the windows, alarms, and a big dog with teeth. We take no such measures in the economy. Indeed, we encourage more investment upon which we guarantee not to demand any return by way of tax from the investors.
How stupid are we?
Jun 8, 2022 | Leadership, Management, Strategy
Much of the volume of paper dedicated to pontificating about strategy these days seems to focus on ‘Purpose’. Sadly, we do not have a workable and agreed definition. What we do have is confusion about the meaning, particularly when you consider the other strategic pontification generators ‘Mission’ ‘Vision’ and ‘Values’
What are the differences, and how do they improve enterprise performance?
In my view, spending time worrying about the differences, and similarities is time wasted. All are words that should lead to four outcomes that will improve performance.
Strategy.
They all provide a framework against which strategic decision can be measured. ‘Does this decision enhance our performance in a way that assists to deliver whichever of the labels you choose to use.
Differentiation.
A well articulated statement of strategic intent, called by whatever labels you choose, supported by overt action can, and does offer the opportunity for a differentiated product offering that will be hard for competitors to copy. This generates incremental revenue, at enhanced margins when done well.
Human resources.
Most people would prefer to work for a company that makes a positive contribution to their community as well as offering competitive pay and opportunity. I have an acquaintance who used to recruit for a tobacco company. His experience was that they had to pay well over the odds, and accept a modest performer in order to keep bums in the seats to get the job done. BTW, I dislike the term ‘human resources’ but have yet to come up with a better one that does not sound confected.
Culture.
This often misused word gives a sense of direction, focus, behavioural norms, common ideals and risk management that enables the building of momentum. ‘Culture’ is the essential glue that holds enterprises together.
You do not need a strong purpose, or either of the other two to have a successful enterprise. Most have survived and prospered to date without one, but there is no doubt in my mind that it helps enormously, however you define it.
Header cartoon credit: Courtesy Scott Adams and Dilbert.
