Aug 30, 2021 | Leadership, Management, Operations
What do we have to do to scale successfully?
That is a question that I often find myself answering in conversations with SME manufacturing businesses run by people who are seeking to map out in their mind, ‘where to from here?’
Generally, they know some of the answers, but they are hidden amongst all the other stuff going on, and the distractions of being all things to all people who walk through the door.
It is little different to building a house. You need solid foundations, upon which you build your house, brick by brick, designed to meet the needs of your family.
Before anything else, there are three foundational strategic questions to be asked, and answered:
What is the current status?
Every journey has a starting point. Doing the work to define that point clearly is the first step in any journey.
What are the trends, barriers, and competitive forces in their industry, and how does the existing capability set you have leverage those factors in a differentiated manner?
What is the objective?
It is important to understand what it is that they want to achieve. Articulating the objective in measurable terms is fundamental to being able to build the plans to get there. Often it is more than financial success, and unless that is clear from the outset, you can waste a lot of effort further down the track. I use a process I call ‘Hindsight planning‘ in which you imagine the objective has been achieved. You are therefore thinking in the present tense, from which you can look back and observe the mistakes, opportunities missed, and what went as expected with some level of imaginative hindsight.
What are the foundations of the business?
Every business requires a foundation, like anything you build, without which it is no more sustainable than a house of cards. The foundations of every business differ, but are made up of a variety of qualitative and quantitative bricks. The balance will vary depending on the nature of the industry. Childcare for instance will have more regulatory bricks in the foundation than life coaching.
Having answered the three essential foundation questions, you then add the frame that determines how the house appears publicly and shapes the way the activities in the house flow. The activities in the house never cease to evolve in the operational detail, but remain inside the framework determined in the design. Later, you can always add extensions, which are often ugly in the absence of creative thought, or you can build another house.
In no particular order, following are the 12 components of your framework.
Business Purpose. The expression of ‘Why’ they want to do whatever it is, a sentence that distills their motivation. This seems easy, but is in fact a very tough question, and is often not answered without considerable soul searching over some time, and often not before the building process is well begun. The caveat is that it must have something to do with the way value is added, and to whom. ‘To make money’ is not a purpose, it is an outcome of success.
Value proposition. What is it they can offer their customers that will make them want to do business with you rather than someone else? The benefits that they will gather by doing business with you. Often people I speak to are tangled up in the features they can offer, and struggle to get past them to understand customers are not interested in the features of your offering in the absence of any direct benefit to them.
Identify your ‘ideal customer’. The better the description of the ideal customer the better, not only can you target them better in connecting and communicating, but it also enables you to focus your efforts where they have the best chance of delivering.
Differentiation. What makes your offer different to that of any competitors? Differentiation goes hand in hand with the profile of your ideal customer. The differentiators you have must correlate to the specific pain points you are seeking to address with your ideal customer.
Branding. What are the brand characteristics you are building, the personality traits, messaging styles, what stories does the brand tell, and how do they relate to the ideal customer? In effect, it is what you would like those with whom you encounter to say about you when you are no longer in the room.
Strategy. How do you plan to go to market, which market, which channels, which customers, and how you are you going to execute on the strategy? All these questions need an answer, the absence of which will at best cost you money that could be saved, at worst, lead to your demise.
Business model. Your business model is how you turn your value proposition into revenue. Understanding, and making deliberate decisions about how your business model should work is a vital step.
Record keeping and reporting. This starts with the regulatory accounts, compliance reports and returns, but goes much deeper into the management of the enterprise. Producing and disseminating the relevant performance and progress reports to each level of the organisation in as close to real time as possible, is a challenge, but crucial to scaling. The old cliché ‘what gets counted gets managed’, applies.
Regulatory compliance. We live in a community, and there are always rules and regulations that must be followed on top of the moral obligations we have. Often these are seemingly pointless exercises in bureaucracy and politically correct box ticking, but they are nevertheless vital ingredients in the foundation of your enterprise.
The plan. Nothing happens without a plan, a goal without a plan is just a daydream. You must articulate how you turn all the above into a plan that is workable, realistic, funded, and with a clear path towards clear objectives, with activity priorities, review points and feedback loops built in.
People. Scaling is an intensely resource hungry activity that requires the right people. No business is anything more than an idea without people to make it happen. Having the ‘right’ people, irrespective of the size of the business is essential tom successful scaling. Indeed, it is essential for success at any level, but scaling is particularly people sensitive. The obvious challenge is to identify the profile of the ‘right people’ and even more complex, ensure that the mix of skills and thinking styles blend, and compound each other.
Cash. Cash is the enabler of all the above, without which, you will go nowhere. However, cash is readily available from all sorts of sources; the key is to get just sufficient working capital to match the rate of scaling, while ensuring that those around you have confidence in your leadership.
Image credit: Wikipedia
Aug 16, 2021 | Lean, Management, Operations
Anyone who has read ‘The Goal’ by Eli Goldratt, the original brain behind the theory of constraints, will remember the story in the book about Herbie, the slowest walker in a scout group in a cross-country walk. Herbie was the bottleneck, in that he set the pace of the others, as the group did not want to leave Herbie behind in the woods.
One solution would have been to just get Herbie to walk faster, but that would have moved the ‘bottleneck’ position previously held by Herbie to the next slowest walker.
Whatever they did, the line of walking scouts would spread out, particularly going uphill, and then squeeze back in, going downhill. A walking accordion.
How do you prevent such a hard to manage outcome?
You get everybody to walk at the same cadence, with the same step length.
Standardisation of all aspects of the stride of each scout and the distance between each, would ensure that they stayed exactly together, in unison.
Armies call it ‘marching’.
I call it ‘Standardisation’ when applied to any context other than ‘walking’.
Marching enables groups of soldiers to arrive at a destination at the same time, in unison, that both gives the soldiers a sense of ‘belonging’ and looks intimidating to any opposition who might turn up to fight. Remember the opening scenes of the movie ‘Gladiator’? The Romans were in their ‘Centuria’ operating as one, but in coordination with the Centuria around them. The ‘barbarians’ who substantially outnumbered the Romans fought as individuals. You know who won. (I know it was a movie, but the lesson remains)
Standardisation to a cadence is the best way to finish the most work in any given time, as the variation and resulting shortages and backlogs are eliminated. ‘Flow’ through the system is optimised.
When you want to evaluate something new, you have a standardised system to test it on, and can therefore see the results of the change of one variable to the outcome. If favourable, you can then apply the single change to the entire system to improve it.
Going back to marching. The US army marching cadence is a standardised 30 inches for each step. Every soldier steps 30 inches every time. If the standard step was 31 inches, and the cadence of the march remained unchanged, it would represent a 3.3% increase in the distance marched in any given time.
Standardisation and continuous improvement, an essential element in optimising the performance of your business.
PS. 24 hours after publishing, I stumbled across this article by Brian Potter which goes into a heap of detail on exactly the topic of this post. For those who want a deep dive, I recommend it.
Jul 28, 2021 | Analytics, Management
Many if not most marketers, approach metrics that seek to increase their accountability with about the same enthusiasm they would approach a snake of unknown species in their backyard.
Warily.
The default has become a range of numbers that might look useful, are ‘saleable’ in the corner office, but usually do little to hold marketers genuinely accountable for the outcomes of the decisions they make.
The most common I have seen are:
- Vanity metrics. Typified by ‘likes’ or number of ‘friends’ on Facebook.
- Measuring what is easy to measure instead of measuring what is important, the drivers of outcomes.
- Measuring activity rather than results. This is endemic in publicly funded organisations.
- Measuring for efficiency rather than effectiveness. You can be highly efficient at doing exactly the wrong thing.
- Concentrating on cost rather than the return that the investment generates. This measure, as does the following one, infests organisations of all types.
- Measuring budget compliance.
Charles Goodhart, a professor at the London School of economics proposed what has become known as Goodhart’s law: ‘When a measure becomes a target, it ceases to be a good measure’
The implication is that you need two opposing measures that drive the outcome you are looking for to use as KPI’s.
For example: We all know that the best lead is one we get from a satisfied customer, a referral. Therefore, it is easy to set as an objective the number of referrals given. Unfortunately, this is very easy to ‘game’.
Sales people are able to just extract any old name from customers, to reach the number. Therefore, it follows that the KPI should be referrals that are converted into a sale. Better, that ensures that the referrals given are genuine. However, it is also flawed, by the simple fact that a conversion can happen for a number of reasons, including a below cost deal.
Therefore, the related KPI should be around the margin, or perhaps customer cash flow, something that reflects the profitability of converted referrals. This will ensure that the referrals are in fact worth having.
Developing KPI’s that are held across functions will improve the flow of information and resulting functional performance.
I refer to these as Tandem and Opposing KPI’s. For example:
- Sales people responsible for revenue should also be responsible for margin, but not for setting the prices beyond a proscribed band. Those who set the prices should also have margin as a KPI.
- Operations people responsible for efficient manufacturing should also be responsible for inventory levels and stock turn. This should connect manufacturing to market demand, and ensure some level of collaboration with sales to ensure stock availability.
- Those responsible for management accounting reporting and implementation, should also be responsible for reducing operational transaction costs.
Marketing is often accused of using garbage maths, fancy but meaningless clichés, and often they do. For credibility this must change.
It is not only marketing that overuses garbage metrics. It is just that marketing is an easier target than the accountants and engineers who have some numerical street cred and get away with it more often.
Having a simple set of cross functional metrics that go to the drivers of performance at any level, that are openly displayed, will be a huge step towards performance improvement.
Header cartoon credit: xkcd. https://xkcd.com/2295/
Jul 14, 2021 | Analytics, Management
The ‘Standard Error’ is another of those confusing statistical terms marketers need to understand. It is often confused with, and is as misunderstood as ‘Standard Deviation’. While they are related, and the Standard Deviation calculation is used in the calculation of the Standard Error, they tell entirely different stories.
The standard error calculates how accurate the mean of any sample from a population is likely to be, compared to the true mean of the total population.
An increase in the standard error means that the means of varying samples of data are spread out, so it becomes more unlikely that any mean of a sample will be an accurate reflection of the true population mean. The higher the standard error, the more spread out will be the population around the mean. Conversely, a low standard error indicates a closely distributed data set, and so is more likely to be representative of the population.
To continue the example in the earlier post explaining Standard Deviation. If you were planning to improve Sydney’s terrible road congestion, it would be valuable to know how representative of the total commuting population of Sydney the mean of your trips from Artarmon to the CBD of 30 minutes was.
To do that, you would do a wider study of the whole population, and calculate the mean, and standard deviation. You would then apply the Standard Error formula to calculate the standard error of the Artarmon sample, compared to the mean of the whole Sydney population.
The standard error is the standard deviation divided by the square root of the sample size. It therefore tells you the accuracy of a sample mean by measuring its variability from the known mean of the total sample.
Header illustration courtesy Wikipedia.
PS. I guess the government could have done such a exercise in parking lots, swimming pools, women’s change rooms, and all the rest. Perhaps they do not understand real statistics when disconnected from political statistics?
