Sep 16, 2022 | Change, Governance, Strategy
In an economy desperate for productivity, how often does stupid, mindless bureaucracy get in the way?
This is not an argument against bureaucracy, rather it is an argument for strategic common sense. It is a nonsense to apply one standard across a myriad of differing circumstances, allowing no margin for reasonable error, then penalising tiny acts of reasonable noncompliance that do no harm.
A tale of woe.
One of my mates runs a small freight company based in a town in the central west of NSW with his two sons. He carries a range of agricultural goods, from grain to fertilisers to live animals, and has built a successful business by skilfully providing specialised services requiring investment in customised trailers designed to meet these specialised needs.
I spoke to him on the phone yesterday as he fumed at yet another example of bureaucratic stupidity making his life a misery.
One of his sons had been pulled up earlier in the day and fined $600 for being 40kg overweight in a 68,000 kg load of grain, loaded from a farm silo without a weighbridge. This is an error margin of .059%, hardly earth-shattering, presenting no danger to anyone, and absolutely understandable given the lack of expensive public infrastructure at the loading dock. The monitors on his axles, properly calibrated and checked, showed no overweight at the time of loading. His assumption is that one axle was in a very slight depression not visible to the naked eye in the loading area.
This is the second time in a few weeks this has happened.
His solution: get out. He can retire, remove the stress of running a small capital intensive business, and his sons will make more money doing something else. Meanwhile, the grain, and live animals he transports either stay where they are, or the costs of moving them go up dramatically as the haulage contractors either charge more to cover the risk of such tiny errors, or simply take less on board.
These standards are set and enforced by the ‘National Heavy Vehicle Regulator’ which has operations in each state. In NSW, there are 310 admin staff and 250+ compliance inspectors, according to their website. I wonder if any will jump in a truck to move the freight when my mate closes his business?
Who knows how the standards are set.
My assumption is that the big operators, Linfox, Toll, and perhaps a few others sit around with a few bureaucrats, agree some stuff, and go to lunch. The big operators go from weighbridge to weighbridge, they are unlikely to ever go up a muddy track to a paddock to take on a load of cattle or sheep to go to the abattoir, or a load of grain in an isolated silo going to a processor.
Is it any wonder it is getting harder to keep the supply chains moving, when the experienced owner-drivers are being driven from the chain by bureaucratic short sighted stupidity imposed for no good reason. The undertrained and inexperienced drivers being pushed in to fill in the gaps are a greater danger to themselves and everyone else on the road than a truck 0.059% overloaded, driven by an experienced driver with skin in the game.
Update: September 23, 2022. This ABC article dramatically underscores the point made in the post.
Sep 14, 2022 | Change, Management, Strategy
Scaling is the objective of every SME I have ever dealt with; they all want to get bigger. In every case they have the same three challenges.
Which activities do they Eliminate?
Which ones do they Delegate?
Which ones do they Automate?
EDA: the challenge of every SME.
The common challenge in them all is that they require change, and human beings, particularly busy ones, avoid change. This is the case even when they recognise that in the longer term, the change is necessary. The problem is finding the time to invest in figuring out what that the change must be, as that is an investment of time that is at a premium, without an immediate return. Besides, change makes us all uncomfortable.
Elimination.
This should be easy, but is often hard. The test is to define the value of the action, and if it is less than the cost, eliminate it. Before desktops, managers relied on regular printouts from mainframes to give us the information needed. Those under fifty may not remember the big dot matrix printed files that emerged in continuous sheets, often for further analysis by hand. These reports tended to multiply like rabbits on heat. One report responding to a once off information request resulted in that report being produced every time the report cycle ran, weather it was needed or not. In an effort to reduce this tree killing activity, I once put a line through most of the list of reports produced weekly for my department, not telling anyone, waiting for the screams. They did not come, nobody noticed. Eliminated. A simple example of what often needs to be done.
Delegation.
If it cannot be eliminated, can it be delegated? Someone who costs 150/hour doing a task that can be done by someone costing $50 is simply a non-productive use of resources. Again, delegating is easy to say but often hard to do. Everyone has established routines and delegating requires trust and change.
Automation.
When a task is necessary, cannot be delegated, and is done more than once or twice, it should be automated. The opportunity for automating tasks is limited only by imagination, the determination to do it, the time to specify it, and usually a modest investment of time and money. Automation of what used to come to me in huge printed blocks from a mainframe has been done by the advent of personal devices and ‘apps’. Information can easily be consolidated and tailored for the specific needs for which it is required. While the goalposts are continually moving as to what can be done, there is no task in an SME I have seen that cannot be at least partially automated.
EDA should be a standard item on every management improvement agenda.
Sep 2, 2022 | Marketing, Strategy
Some hard lessons will need to be learnt by the new crop of marketing managers who have never faced the evil of a recession, and even worse, one that has inflation as its bed-fellow.
Stagflation.
This is not supposed to happen, but it is, and we are seeing the first hints of it currently. Inflation growing rapidly, full employment, low interest rates lifting rapidly, we are facing an economic jigsaw that is defying conventional thinking.
Gone are the days when marketing could believe that failure was good, it was a learning opportunity for leveraging in the next round of potential failure. Increasingly the built in tolerance to failure will be tested, with an increased focus on pre experiment due diligence to reduce its incidence.
At last, we will revert to the core of business sustainability: Profit.
The absence of profit means that eventually, depending on the depth of your pockets, you will go broke. Nonetheless, marketing wankers for the last decade have been seduced by the comforting idea of ‘Purpose’. Often this seems to have overridden the old fashioned idea of delivering value to customers that leads to making a profit.
Every brand has a purpose they say. Heavens, I just want my washing soap to be an effective cleaner, my toothpaste to clean my teeth and leave a nice taste, my internet connection to work, and my car to start on cold mornings.
Having an explicit, relevant, and well understood Purpose is great. It provides a focus for the strategic choices that need to be made, and acts as an aligning ‘North Star’ for all stakeholders. However, purpose over profit is stupid, and the price of stupid is extinction.
Header cartoon credit: Thanks again to Scott Adams and Dilbert for clarifying and simplifying a complex question.
Aug 29, 2022 | Change, Innovation, Strategy
For some years academics have been mumbling to themselves about an observed phenomena they generally called ‘Flattening‘. The discussions have been centred around technology, but the impact can be seen in a much wider context.
The idea is that technology acts as the rising tide in the old saying that a rising tide lifts all boats. By rising the average level of the ‘water’ the differences between individual companies and industries are removed, that the offering becomes increasingly homogeneous until a new technology arrives, lifting the owner clear of the competitive debris.
There are numerous examples.
The emergence of the Internal combustion engine wiped out long established industries and companies in the horse drawn wagon, whip, and horse breeding and breaking industries of the time. As they disappeared the automobile industry and its supply chains emerged, now in the early stages of being ‘flattened’ in turn by electric vehicles.
Before the internet, information existed in small silos and did not move much, and then only slowly. Industries that relied on those characteristics were ‘flattened’ out of existence. Yellow pages, classified newspaper ads, and in their place emerged new industries. Google, Facebook, and the plethora of other communication and search platforms.
Let’s consider energy production.
For thousands of years people used wood or coal to heat their houses and water. In 1698 Thomas Savery patented a machine that drew water out of flooded mines by using steam pressure, then in 1784 James Watt patented the steam engine, which for the next 150 years powered most industrial development. In 1831 James Faraday created the first very simple electrical generator that converted mechanical energy to electrical energy.
So what you ask.
Look at the current environment with the concept of ‘Flattening’ in mind.
Internal combustion automobiles are in the early stages of being ‘flattened’. This has been initiated by Tesla, in parallel with the batteries required to run the cars, but which will have huge implications across the energy sector.
Coal, the dominant world source of energy has suddenly become a pariah. It is polluting the atmosphere with the attendant changes in climate, leading to rapid growth of renewables, both personal and commercial scale. New fossil fuel projects, especially coal, are now being locked out of capital markets as they see their investments being stranded. Only idiot governments with an eye to donors is keeping them alive via subsidy and barriers to entry of renewables.
The tide however is inexorable, and fossil fuel will be redundant soon. As Hemingway noted in the Sun also Rises, when one of his characters was asked how they went bankrupt: “Gradually, then suddenly’ was the response.
That is what is happening in power generation.
Renewables have been around for 25 years, slowly evolving as the technology improved. It seems to me we are at, or almost at, the ‘Suddenly’ point. In the absence of being in front of the wave of changes, we will be left behind in the technical race to build the new industries that will emerge, again.
Flattening is also happening in some way in your domain, it is the normal course of development. the challenge is to see the elephant and react to it in time.
Aug 15, 2022 | Leadership, Strategy
Strategy is an exercise of informed fortune telling.
What will happen if we do this? Is that better than if we do that? How will others react, do the ducks really all align the way they seem to?
A thousand questions we set out to answer to allocate our resources to best leverage the outcomes we plan/hope will emerge.
It is a messy business, full of uncertainty, mistakes, dead ends, and outright failures, most of which we hear little about. Instead, we hear a lot about the few successful exercises in strategy, the few that work as hoped, or as is usually the case, not as planned, but great outcomes.
We read about the success because people can analyse them with the benefit of hindsight, which delivers to those developing the strategy, some level of prescient certainty that they almost never deserve. Fact is, your strategy will never be spot on, the magic is in the ability to adjust on the run, while achieving the outcome for which you planned.
The strategic process benefits from being subjected to informed and critical thinking being applied to the inputs, both quantitative and qualitative. The greater the level of critical thought and diverse thinking that can be brought to bear on a strategic challenge the better.
The context of strategy implementation is always different to the context in which you do the planning, simply because it is the future, and things evolve in unpredictable ways.
I expect that in about 12 months there will be a rush of erudite papers and articles reporting on successful Corona instigated transformations. These will make the protagonists look like they had great foresight others lacked, when in fact, while they ended up with the lollies, they were as confused and muddled as the rest of us during the lolly fight.
They had the benefit of hindsight to clean up their bedrooms before anyone came along for a look.
Strategy is messy because it lacks hindsight
Aug 10, 2022 | Innovation, Leadership, Strategy
When are the funds for an innovation initiative generally available?
At the beginning of a project.
When are the funds for an innovation project generally needed?
Increasingly towards the commercialisation, or completion of a project.
To me, this usual pattern of financial resource availability is arse about.
At the initiation of a project, the resource needs are peoples time, lab space, and the commitment from senior management., The need for financial resources is usually limited. However, it is this time that projects need to gather momentum, which means financial resources and forecast outcomes are included in budgets, and formal planning processes. The best way to ensure a project is supported is to ‘boost’ the promised returns and shorten the lead times.
Unfortunately, this locks in expectations that have impacts on the way projects proceed.
A project that promises 25% IRR in 18 months will almost always win the resources race over a project that forecasts 30% IRR in 5 years. This sort of financial analysis is how choices are usually made, ignoring the strategic implications of the differing projects. This is because we have not found a way yet to reliably tell the future, and immediacy is a powerful motivator.
On top of that you have the favouring of evolutionary ‘innovation’ over ‘revolutionary’ innovation.
Most successful businesses become successful by incrementally improving products and processes over time, and are prepared to spend money to keep the evolution going. The challenge of this is that it crowds out the revolutionary innovation, the ones that have the potential to change markets, rather than just do more of the same but just a bit better.
The examples of these abound.
When I was working for Cerebos in the early 80’s, we marketed a muesli under the brand ‘Cerola’. It was in the days when there were only a few breakfast cereals on the market, unlike today. Similarly, confectionary was less fragmented. We came up with the notion of a muesli bar, a ‘healthier’ snack than anything then available, with the convenience and taste of confectionary for kids lunch boxes. We did extensive product development, several pilot plant trials, and a little market research. In the early stages I had done a forecast profit and loss, timeline, and we had established the capital costs necessary for the changes to the existing muesli line. These were included in the Cerebos budgets as project ‘M’. The numbers were modest, but at the time, pushed as far as I felt comfortable. When it came to the final go/no go decision, the project was binned, as the forecast IRR based on my modest sales forecasts did not meet the hurdle. A year later, Uncle Toby’s came out with pretty much the same product and positioning, and did my annual sales forecast in the first month. Opportunity missed, and lesson learnt.
Kodak, that well known exemplar of the missed opportunity, not only invented the digital camera in 1975, they brought out the first viable digital SLR, the Kodak DCS-100 in 1991. While it was bulky, and expensive, it was the first. In 1994 Kodak supplied Apple with the ‘Apple QuickTake’ manufactured in China to a Kodak design. Also in 1994, Kodak brought out the NC2000 designed for photo-journalists.
So, Kodak did not miss the digital camera revolution, they led it, but simply failed to see beyond the boundaries of the photography business model as it had evolved over the previous century. They saw innovation as an evolutionary process, not revolutionary, as that carried the risk that their existing hugely profitable model would become redundant. None of the senior management over that time wanted to fund the risk of shooting the cash cow upon which they all depended.
Cerebos by contrast were shackled by a short-term focus on an unrealistic financial expectation that ignored the strategic value of the opportunity to generate sales, and also to open a new market that carried and solidified the Cerola brand.
In both cases, a huge opportunity that emerged from the fringes of their markets were subjected to a muddle headed and front-loaded financial calculation, ignoring the strategic implications of the opportunity.
Header source: The extensive StrategyAudit ‘slide bank’ built up over 30 years.
