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.
May 23, 2022 | Governance, Management
Bureaucracy evolved to enable operations to be scaled as mechanisation started to slowly take over from individual effort in the 1800’s.
It enabled tasks to be allocated, completed, and managed where the expertise resided, rather than one person doing everything. That role remains vitally important to the productivity of the resource investments we all make.
It does not matter if the bureaucracy is a private one, or a public one, they are equally potent at working in their own best interests.
The challenge faced by the bureaucracies that dominate our lives, both private and public, is the advance of digital, and the ability for data to make routine roles redundant. However, the people who lead bureaucracies have not evolved at the same rate. They use the technology as a means of control, and expansion, not as a means to reshape the operations of the bureaucracy and risk doing themselves out of a job.
Not unreasonable, but they miss the essential truth that technology is just a tool, and like all tools requires smart trained people to use them well.
The problem they need to solve is that the disruption that is occurring is making these hierarchies cost heavy, inflexible, and unable to change. As a result, they are being ‘cleaned up’ by the organisations that are evolving without the overhang.
Don’t let yourself be a part of the ‘overhang”
Header cartoon credit: Gapingvoid.com
May 11, 2022 | Leadership, Management, Marketing
There is an enormous difference between knowing the name of something, and truly understanding it.
Most move through school, university, and life by skimming, remembering bits about which questions are asked, and judiciously using jargon to get away with it.
Few take the time, and make the effort to truly understand.
The test is to explain that complex idea to a 12-year-old in such a way that they understand it. When you cannot do that, it is not the 12-year old’s fault, it is yours. You do not understand it fully enough to be able in simple words, metaphors, and similes to communicate the essential nature of the thing.
This is what I see from most calling themselves marketers.
Many marketers, particularly the younger ones, come up against a problem, and before doing any reasonable analysis, jump straight to some sort of digital conclusion that is often grossly sub-optimal.
Marketing is part science, part art.
It is a difficult balance, made more difficult by the simple fact that the art part of the equation only comes with experience, built upon the foundation of the science.
‘Anyone can make a subject complicated, but only someone who truly understands it can make it simple’. Richard Feynman
Apr 27, 2022 | Leadership, Management, Marketing, Small business
The inflation figures released this morning put the annualised inflation rate at 5.1%, up from 3.5% at the end of the December quarter last year. While it may bounce around given the volatility of fuel and food prices, the trend is very clear, and the current election driven lucky dip of spending promises will not help. This increase in a single quarter is the largest I can remember since the mid eighties.
Australia is in for a rocky ride, and it will not matter who wins on May 21, the impact will be felt in every corner of the economy, and by every Australian.
For SME’s who have weathered the challenges of covid and are now experiencing the added burdens of broken supply chains, and lack of labour, while trying to re-establish some level of certainty in their businesses in an environment where demand has ramped up, the prospects are daunting.
Irrespective of the decision made by the Reserve next Tuesday, to raise the cash rate from the current 0.1% to 0.4% or 0.5% which seem to be the prediction of the majority of economists, the squeeze is on. Raising the rate during an election campaign will test the independence of the reserve bank. I bet there are some phone calls being made!
How will this impact your business?
Those impacts will vary enormously depending on the industry circumstances. The rate that gets all the attention is a weighted average, with the actual sector numbers varying from a slight reduction in communication costs, to a 13.7% increase for transport costs.
- Labour costs will soar, as the demand for labour continues to grow, while immigration is still constricted, and the cost of living blows out.
- Transport costs, which most just see in the petrol prices at the local station, which impact everything that moves in the economy will quickly feed into cost of goods sold in every product category.
- Businesses will see a sudden increase in their accounts receivable days, their cash conversion cycles will become longer.
- There will be pressure on margins from multiple fronts. Volumes will be constrained as supply chain failures impact, and competitors scrambling for volume will be more likely to reduce prices to grab that extra sale. At the same time, costs are increasing, and price increases will be harder to get, as buyers exercise their buying power and shop around.
- You will be pressured by your suppliers for quick payments, as they are being squeezed for margin, just as you are.
- General overheads will increase. We have seen significant increases in lease costs for small factory spaces, insurance costs will be turbo-charged after the floods, fires, and pestilence of the last 2 years, down to the little things like costs of coffee for the lunchroom. All these individually manageable cost increases cumulatively add up to substantial and hard to control increases.
So, what should the SME’s that wish to remain successful be doing?
- Customers shopping around for a deal in greater numbers can present an opportunity for those who understand the drivers of Value for customers in their specific market.
- Resist the temptation to cut marketing and selling expenses. History demonstrates with absolute certainty that those that keep marketing when their competitors shut down in tough times not only do better during the tough times but retain their positions after the worm has turned. Optimising your marketing expenditure is not the same as cutting it.
- Actively engage employees and stakeholders in ways to maintain profitability. This should always be a priority, but is more pressing and visible in tough times.
- Focus on the 10 tactics outlined in the Inflation Busting Roadmap published previously
- Consider from the perspective of necessity the five types of cost in your business, with particular attention being given to the last three, as that is usually where the opportunities hide.
Many have not experienced a spurt of inflation before, the last serious spurt was in the mid-eighties while Paul Keating was treasurer. In management terms, this was over a generation ago. If the experience of those times would be of benefit, give me a call.
The header graph is from the ABS website updated as the announcement of the scary 5.1% heqadline inflation rate was announced.
Apr 13, 2022 | Leadership, Management
Asking questions is the best way to build empathy, while collecting information and helping others reach a conclusion. This assumes that you are listening closely and reacting appropriately to the answers.
It follows that being disciplined and planned in the manner in which you ask questions, all of which are context sensitive, is essential.
It makes little difference if you are engaging in a sales process, or seeking information from the factory floor, planning your questions, and using the right form at the right time drives the outcome.
There are six types of question, they overlap, intersect, and build on one another, and each has a situation where they deliver the best results. Whichever question types you use in any situation, always remember that asking with a genuine interest in the answer will deliver better results than if those being questioned see it as a proforma. Asking such pro forma questions demonstrates you are not interested in the answers, or alternatively, are laying some sort of trap for them to fall into.
Closed questions. These do not invite discussion or opinion, just a ‘Yes’ or ‘No’ answer. They can often feel like an interrogation, particularly if there are several in a row.
Open ended questions. These encourage discussion, opinion, and maximise the opportunity for new or unexpected information to enter the conversation.
Limiting questions. These fall between the open and closed questions. You want more than a simple Yes or No, but also want to limit the discussion to a specific area. For example, you might ask: How often…. Or: What were the operating conditions when……..
Leading questions. A leading question is designed to give you the predetermined answer you are seeking. Generally, they are used to confirm a fact or situation, which may have been surfaced with an open or limiting question. Lawyers use leading questions as a core tactic often seeking inconsistencies in a narrative. For example. You might ask: How overdue was the maintenance when the machine crashed? In this case, you are assuming the maintenance was in fact overdue, and that oversight caused the machine to crash.
Questions seeking examples. Discussing an example is a good way of clarifying a situation, while collecting information. It also is a handy tool if you do not understand something, asking for an example will usually clarify it.
Theme based questions. These would usually be used to influence or reinforce a theme. For example, the best way to ensure that everyone in a business understands the overall objective is to consistently communicate that objective. You then might ask of a stakeholder how their job contributes to the achievement of the overall objective, and then an open and productive conversation that leads to greater understanding and productivity.
There is an old saying: ‘We have two ears and one mouth for a reason’. Remember it.
