Nov 28, 2022 | Innovation, Strategy
‘The task is not to come up with better results, but to ask better questions.’
This is so true it has become a cliché.
The challenge is to find and ask those better questions.
Following are 12 ideas that may assist the thought processes you undertake to produce superior strategic outcomes required for sustained success.
Life is not binary. Just because there seems to be a right solution to a problem, does not mean there is not another equally as good, just different solution. The opposite to good is not always bad, in life, and in business, it is just ‘another’.
Average is not representative. Take a whole bunch of data points and average them, and you have, what? Something that will not appeal to anyone. If I have one foot in the fire and the other in a bucket of ice water, on average, my feet are the right temperature. Look at the outliers, find the things that appeal to the few on the fringes, and sooner or later, many of them will become mainstream.
Logic leads to predictable. If all you do is rely on logic, black and white, removing the creativity and that ‘other solution’ you will be just like everyone else who is logical. It is good for those who do not want to undertake any risk, but not a road to success. Differentiate by not being predictable and logical. Competitively, you can often figure out your competitors next move by looking at the same logic they will be using, then do something different, guaranteed to stuff up their meek and mild, risk-free plans.
Expectations set the agenda. When something exceeds your expectations, you see it as a great experience. Therefore, if you keep your expectations low, you will end up having a great time, all the time. In negotiation, this is called ‘Anchoring’, and anchoring ‘high’ is always a good starting point, so long as it is not obviously an ambit claim.
Efficient and effective are not the same thing. You can be very efficient at doing something entirely ineffective. To be effective, the solution you deploy must have some sort of value not conveyed by alternative means.
Context is everything. We see things and situations within a context. Change the context and you change the perceptions of the ‘thing’. For example, there is a much repeated psychology experiment using beer. Respondents are asked ‘how much would a cold beer cost from the 5-star hotel a kilometre down the beach’? The question is repeated, but the beer is bought from a shack. The expected price for the beer from the 5-star hotel is double the expected price of the same cold beer bought from a beachfront shack. This is entirely the result of context, our subjective expectations based not on logic, which would say the beer should cost the same, but on the context in which it is purchased.
The scientific method is not the only way, or even the best way to create. The scientific method is the best way to continuously improve an existing process, but it is less effective at dreaming up a disruptive new process.
Accidents, the random events must be induced somehow, or no non-linear progress will occur. Fleming discovered penicillin by a random accident that he did not even fully recognise at the time. The light bulb was not the result of continuous improvement of the candle.
Encourage ‘bonkers’. We need permission to be bonkers. When you do something bonkers that does not work, your job is on the line, do something that is entirely rational that does not work, and you will be fine. Therefore, you must have a small part of your business that encourages bonkers to test the weird and wonderful which are the things out on the fringes that might one day become mainstream.
Consider the irrational. Creativity is not rational, and rarely obvious. Whenever you allow a model that is entirely rational to dictate what will happen, or what you should do, that model will leave out many things, that may on the surface be mathematically irrational, but which might fit better the behaviour patterns of irrational people than the elaborate mathematical models. Next time you see a model coming out of the finance department in Canberra that predicts an outcome, all you know about that the outcome for sure is that it will be wrong. We are not rational beings, but are motivated by all sorts of things, not just the fining or bribing that is usually the only incentives being considered in most economic situations.
Remember the butterfly effect. Tiny things can be compounded to make huge impacts. Look for the tiny, trivial things that may impact in unintended ways that have the potential to compound.
Be open minded. If there was a logical answer to the questions in front of you, somebody would already be doing it. If a problem is persistent, the chances are that the solutions that have been considered are the rational ones, the ones dreamt up in the halls of logical thinking. Instead, look widely at the problem, seeking to see the alternatives that do not come up in a rational, logical conversation about the solutions to the problem.
Ask dumb questions. There should be accolades for those asking questions that might seem stupid, often when someone asks that question, others in the room sigh in relief as they were thinking the same thing.
If you can bring yourself to do some, or all of these things, it will often feel as if you are out of your depth, like suddenly stepping off a sandbank out in the surf. When that happens, and you are suddenly uncomfortable, you may just be in the right spot to see things others will not.
Header: The header is a still of Pablo Picasso taken from the great ‘Think Different’ Apple ads.
Nov 23, 2022 | Analytics, Strategy
Strategy is a bit like economics, go to 5 so called strategists, and you will get 6 opinions.
This is terminally annoying to our accounting and engineering friends who thrive on certainty. However, it is perfectly OK, as we are dealing with the future, and that rarely turns out to be what we think it should be.
The challenge is a Bayesian one.
Over time becoming incrementally less wrong.
Good strategy enables the pace of that Bayesian improvement to be accelerated, sometimes by a geometric proportion.
Strategy generation is a process, it is about creating the future. It has not happened yet, so cannot be ‘proved’ in any definitive manner, until you have the outcomes to count. By that time, it is too late to do anything but adjust and learn for the next time. This does not imply wholesale change, which only emerges from poor strategy in the first place. By contrast, good strategy enables subtle adjustments to be made over time while the direction holds firm.
This makes strategy generation a series of choices powered by an assessment of the relative odds of varying outcomes emerging.
Over the years I have whinged about the mediocre quality of many marketing people I have come across, intellectual dwarfs that fall into ‘marketing’ because they failed to make the grade at something useful.
It is ironic then that almost without exception, the best marketers I have worked with, and for, have found themselves in marketing after becoming tired of the restrictions placed on more externally disciplined professions: accountants (which is where I originated) lawyers, scientists, and medicine.
The combination of the automatic discipline of the scientific method with the creative thinking based on quality data required in marketing and strategy is a potent combination indeed.
Header cartoon: courtesy, again, of Dilbert and his mate Scott Adams.
Nov 21, 2022 | Communication, Governance, Strategy
The purpose of a brief is not to be brief.
A brief, for whatever purpose it is written should be a catalyst for creative thinking, examination of options, and father of a robust solution. This applies equally to an engineering brief as it does to an advertising brief, research brief, or brief given to a head-hunter searching for a new CEO.
Failure to write a good brief will lead to a sub-optimal outcome, or at best, considerable delay and false starts that consumes resources unnecessarily.
A comprehensive, well thought out brief is not a guarantee of success, but it certainly shortens the odds.
Following is a framework for the next time you have to write a brief, for whatever purpose.
Let strategy drive the brief.
Strategy should be the primary driver of every decision taken in an enterprise, down to the daily tactical decisions. It provides the framework for the choices that need to be made. Most briefs I have seen are disconnected from strategy. Sometimes this is just poor leadership, in others it reflects the lack of any strategy, which is evidence of poor management. In the absence of a clear strategy, the choices made as an outcome of a brief of any sort may as well have been taken in a vacuum.
Define the need.
A brief will be in response to some need to be addressed. It may be a competitive challenge, it may be seeking a solution for an internal problem, or it may be seeking information, or be focussed on an opportunity of some sort.
Ensuring the need the brief is seeking to address is clearly articulated is vital to the construction of an actionable brief to experts that will enable them to bring appropriate expertise to bear to deliver the planned outcome.
Define the objectives.
As noted above, the generation of a brief presupposes there is an investment of some sort being contemplated. No investment should be made in the absence of explicitly stated outcomes the investment is expected to deliver. These are usually stated as objectives.
The best objectives are always those against which performance can be measured, SMART objectives. In some circumstances, such as an advertising brief, such clarity is challenging to achieve. It requires deep thought to indentify the drivers of the outcome, the lead indicators, that can be reliably measured. However, the effort will deliver returns, whatever the arena for the brief.
Assemble all relevant facts and informed analysis.
It should go without saying, but no brief is complete unless there is a comprehensive collection and analysis of all facts, and information relevant to the choices that will be made. Objectivity is a blessing. Sometimes it is hard to know where to draw the line, particularly when constructing a creative brief. Average will rarely deliver results, and continuation of the status quo while often ‘safe’ in a corporate environment, is bound to deliver ordinary results at best. There is a warning here for marketers, who will take this to be a licence to change advertising execution. Marketers are often way too close to their advertising and get tired of it before the average participant in the market has seen the message sufficiently to absorb and act on it.
Execute with experts.
A great brief in the hands of the summer intern will not usually deliver a useful result. No matter how great the brief, expertise in coming to grips with the nuances and options presented, requires wisdom that only comes from experience.
Simplicity.
While this post opened with the observation that the purpose of a brief was not to be brief, it is also the case that the simpler, more concise, more focused on the drivers of success the brief is, the better. Simplicity will increase the ability of those responding to make the choices they need to in order to deliver the outcomes being sought. Steve Jobs said it best when he said: ‘Simplicity is the ultimate sophistication’ about 50 years after Einstein said: ‘everything should be made as simple as possible, but not simpler’
Note to the unwary. When what should be a ‘Brief’ is called a ‘Tender’ it is a sure sign that price is the dominating consideration, and you are not the only one being invited to the party.
Header cartoon credit: Tom Gauld in ‘New Scientist’
Nov 16, 2022 | Innovation, Marketing, Strategy
One of the standard assumptions about strategy is that it evolves from the top. Those at the top of the organisation have access to all the information and resources necessary to craft the strategy that will then be deployed through the organisation. Then, crucially, they have the power to make those critical resource allocation decisions that drive activity. Sometimes that strategic development process is assisted by people from a range of functions and levels, all given the opportunity to have their say, and be a part of the process.
When you think hard about it, this top-down dynamic, however it is constructed and communicated is a load of old cobblers.
It should never work that way if what you want is an optimised outcome.
The objective of strategy is to figure out how to outcompete the competition, current, emerging and potential. That implies that strategy should be born at the point of competition. This point is not the supermarket shelf, the procurement office of customers, or in the boardroom, but in the definition of the source of the competitive advantage you are creating.
Building competitive advantage is a long-term task that requires choices to be made about the way available resources are to be deployed. If the competitive arena is based on the outcomes of R&D, as it is a digital product, then you had better allocate the resources to ensuring you are at least amongst the best in the field. Similarly, if it is in the excellence of customer service, you had better build the infrastructure to ensure no customer is left waiting and wondering.
This sort of analysis consumes time and intellectual energy from a wide range of stakeholders, not just the few sitting around the senior management table.
Clearly there can be an internal conflict when a business has more than one offering that have different points of competition.
That challenge can only be managed by ensuring that there is a source of common leverage that can be applied to all the product portfolios. Usually this will prove to be a brand that has built the credibility necessary to be compelling in both arenas.
A current client has two competitive arenas with entirely different business models and sets of capabilities necessary to support them. However, the physical products are very similar, emerging from the same technology ‘home base’. The strategies being deployed are different, although there is some commonality in the value proposition, but tactically, they are entirely different. Two years ago, there was a third product range that seemed to be an obvious extension, but proved to be a major distraction, as the competitive coalface was focussed elsewhere. As we lacked the resources to accommodate three, the product category was exited. That has proved to be a good decision, albeit very tough at the time.
The moral is to craft your strategy around the competitive arena where you must win to be commercially successful. If you cannot win in a definitive manner, the better choice is to exit and deploy the released resources where the return for winning is higher.
This is challenging stuff, so call me whan a bit of wisdom from experience might help.
Oct 6, 2022 | Innovation, Marketing, Strategy
We all understand what a post-mortem is: an analysis of why something after the fact. It deals with history, then usually when something has failed. We review the drivers of success less often than examining the reasons for failure, then allocating responsibility.
Planning a marketing program is in effect a ‘pre-mortem’, a plan of action that will, with good management, robust analysis, and a bit of luck and timing, deliver the anticipated outcome.
Logically, it makes sense to ask the sorts of questions typically asked at a marketing post mortem, when a plan has failed, before the failure, as a means to anticipate and answer the questions, offering an opportunity to fix the problems before they happen.
Based on the many marketing pre and post-mortems I have done, following is a list of the 10 essential questions to ask yourself and your team before pushing that great big ‘Go’ button.
Where did the revenue come from?
Growth is not possible in the absence of revenue, where did the revenue come from, and almost every marketing plan I have ever seen calls for growth. Less often do they articulate where it will come from., and the consequential reactions of those who might be losing out.
Current customers, new customers, channels, business models, products, technical achievements, geographies, and so on. However, do not just list them, articulate in some detail how it has happened. Again, that past perspective adds real ‘grunt’ to the conversations.
I used to refer to ‘Share of Throat’ when planning for FMCG. It implies that competition is not just the alternative products in the category, but everything that is competing at the consumption occasions. For example, a hugely successful new product was Ski Double-Up, launched in the late eighties. It brought new consumers, older men, into the market. It did not compete for a place on the breakfast menu, it was a healthy, convenient, and tasty snack product that filled a need in older men that frankly we did not fully recognise before launch. It opened up an additional avenue into men’s throats replacing pies and sandwiches.
Where did the capital come from?
Growth is a veracious consumer of resources, particularly capital. How did you fund that growth? Reinvestment of retained earnings, capital raising from friends and family, or from the markets, public and private, debt finance considering the necessity for assets as collateral? What alternative uses for the capital consumed were considered, and why is the investment in marketing a superior choice?
What is the dominant business model?
Are you a middleman, retailer, on-line item sales, subscription sales, did you achieve a position to monetise arbitrage opportunities, and so on. Digital has delivered a host of new and emerging business models to us over the last decade, but one thing that has become clear, if it was not already, is that differing business models do not live comfortably in the same house. Therefore, if your revenue streams come from different business models, the structure of your resulting business needs to be decentralised by those differing business models.
What is the ideal corporate structure?
Have you remained private, are you publicly owned, a partnership, Joint venture, franchise system? There are many options, and as in the previous question, siblings rarely successfully live in the same house.
What capabilities were required to succeed, and where did you find them?
This is a question in two parts. Firstly, what capabilities were required from individuals, technical, strategic, financial, and all the other factors that make human beings able to contribute? Secondly, what were the organisational, leadership and cultural factors that enabled the organization to leverage the capabilities the individuals brought in each morning as they turned up to work.
Which customers, markets, products, technologies, relationships, were critical to the success? The answers to these questions are at a ‘must know’ level. Why did those customers come to you, choosing not to go to a competitor? What is the factor that differentiated you from the others?
Which competitors proved to be the most potent?
Anticipating competitive action, and planning to accommodate the impact is a necessary part of every plan, as noted previously. This is perhaps the most common failure amongst marketing plans I have seen, and to be fair, written.
A long time ago I was with Cerebos, one of the brands I managed was Cerola muesli, at that time a successful brand, and I was keen to expand the brand footprint. I saw a gap in the market between muesli and corn flakes, this was 35 years ago, and there was not the wide choice we have now. We developed a half way product we called ‘Cerola Light and Crunchy’ and launched a test market in Adelaide.
At first, we did remarkably well. The logic we employed was well accepted, the retailer sell in easily achieved targets, and consumer off-take was strong after the initial burst of advertising.Then in came Kellogg’s with a look-a-like product, ‘Just Right,’ and their resources just blew us away, Light &Crunchy never had a chance in the face of the weight of the competitive reaction by Kellogg’s.
That is a lesson I did not forget. With the benefit of hindsight, it was obvious, poke a bear in the arse and he is going to turn around and give you a whack, and I did not anticipate the power of it, and I should have. Never made that mistake again.
Where did the new competitors come from?
New competition almost always comes from the fringes, and often outside the normal scope of most extrapolative planning. Looking widely at what is happening in other markets, and other technologies may offer insights to where new, and probably more potent competition may come from. Honda started in motor bikes with the Honda 50, selling it to students in California as cheap local transport. None of the incumbents, Triumph, Norton, Harley, saw them coming, they thought they were toys, being bought by people who would never buy a big bike. Blockbuster ‘owned’ video, and could have bought Netflix for $50 million, but thought them irrelevant, not even an irritation. 5 years later Blockbuster was broke.
What is the emerging source of customer value in the market?
Nothing new will be bought in the absence of a strong reason to switch from the incumbents, which always means new value has been created, somehow. How did your create yours?
What did we do wrong, and what did we learn?
You learn more from your mistakes than you do from the things you got right. Make sure ‘learning is part of the cultural DNA of your business.
When you have the answers to all these questions, found with the benefit of the virtual hindsight, you will be in a very powerful marketing position, able to write the plans that double-down on the things that will deliver the objectives and success
In other words, execute the plan.
Header credit: Talisa Chang via Medium
Sep 30, 2022 | Governance, Leadership, Strategy
At a time when the market value of a business bears no relationship to the financial balance sheet, when PE ratios of market darlings are counted in geometric multiples, something is wrong.
Currently the PE ratio of stock market darlings: Apple at 33, Microsoft at 39, Alphabet (Google) at 34, Facebook at 30, and Amazon an eyewatering 68, are completely disconnected to the tangible assets of the businesses. By contrast, the PE ratio of some of the industrial stocks which built the economies we currently enjoy, GM 9, Ford 9, GE zero, (25 years ago the biggest company in the world is trading at a loss) still reflect tangible asset values.
The governance and operational reporting of business is often left in the hands of the CFO. They produce all the numbers and do most of the analysis of those numbers, as well as determining the investment choices other functional heads make by way of budgets, and the accounting for the spending of those budgets.
Several things have changed recently, on top of the rapid change that was proceeding up to 2020. The drivers of our economies took a dose of steroids from Covid, which not only accelerated the rate of change, but drove it in unpredicted directions.
- The accounting function deals with patterns and reporting that relies on history. This is a very poor guide to what happening around us now. The landscape has changed fundamentally, and that rate of change is not slowing down.
- Legacy systems now includes much of the stuff that was installed last year. Digital transformation has happened, redundancy is now counted in months, not years and decades.
- Business models have changed dramatically. Online ordering, and ‘no touch’ delivery of various types, previously struggling to get a foothold in many categories have taken off, while those that were already strong, have had their pedal to the metal. Legacy business models are dead. For accountants, trying to make sense of all of this while knee deep in the financial and governance accounting required, have run out of the gas necessary to accommodate it.
- Suddenly there are new power bases within an enterprise. All sorts of ‘Chiefs’ have emerged from hiding, and a few new ones have popped up. CDO (chief digital officer) CMO, CIO, and others that now have as much grunt at board level as the CFO, changing the nature of boardroom debates. ‘Traditional’ accounting is struggling, and largely failing, to keep up with the reporting and forecasting of increasingly fast cycle times and changing market and regulatory demands.
- How should the CFO deal with the accounting for innovation and change? The key for them is to learn much more quickly than they are used to doing, so they can recognise the demands, risks and costs of innovation, and think their way around the legacy accounting systems to deliver some sort of innovation and qualitative scorecard that fills the need for quantification.
- Sorting out Capex priorities, used to be done by business plans and discounted cash flow models driven by the often optimistic forecasts of marketing people. They usually relied on history to deliver an extrapolation, with allowances for the vagaries of new stuff. The time frames are now much shorter, the 10-year depreciation schedules allowed in financial accounting have become irrelevant when you are dealing with radically shorter equipment life and competitive needs.
- The significant move has been from a balance sheet that had little influence exerted by qualitative stuff, to a balance sheet structure that absolutely fails to reflect the real value of an enterprise, i.e.: what is in people’s heads. Those assets walk out the door every night and make choices about what to do tomorrow. This was previously a challenge, now it is a huge problem. The stock market calculations of start-ups with small if any revenues, but a few employees with a great idea can run to billions in the extreme case. They are backed by no hard, resalable assets at all, making valuation a nightmare for accountants.
What is a Strategic balance sheet?
Just as businesses undergo a regular financial audit, to ensure the appropriate governance and consumption of the enterprises resources, and account for the gains and losses of owners’ equity, so should it undergo a process of a Strategy Audit.
The financial balance sheet has a key role in articulating the ‘balance’ of assets and liabilities built up by the business, the difference between those totals is the owners’ equity, or what is left over to repay owners for the risks they have undertaken in lending the enterprise their money.
A standard balance sheet is a document assembled with historical data. It is subject to considerable ‘management’ by the valuation and classification methods employed in determining how an item will be treated.That is no longer even a fraction of what is requred to reflect the real competitive and strategic health of an enterprise.
Strategy drives the way resources will be deployed today in an effort to harness and maximise the potential for future returns.
This process of identifying the drivers of performance, and forecasting the optimised outcomes, is considerably harder than simply extrapolating the past. The only thing we know for sure about the future is that it will not be the same as the past, and even present.
Therefore, the strategy audit process is more qualitative. This does not mean that data and critical thinking should be thrown out the window as often happens, it makes it even more critically important.
Building a Strategic Balance Sheet is an iterative process. As you cycle through the expected costs and outcomes of strategy implementation, you will learn more and more about the relative weight, timing, cause and effect chains, and the trade-offs that exist between them. Being difficult to do means very few are doing it.
What an opportunity for those few who can get their heads around the drivers of strategic success and start to quantify them.
What do you think?
Send me your suggestions.
