How much should I spend on that winning that tender?

How much should I spend on that winning that tender?

Oct 2, 2018 | Customers, Governance, Strategy

 

That is a common question, which requires some rephrasing to be answered with anything other than ‘It depends’

‘How much should I invest to increase my chances of winning that tender’ is a better question.

Would you spend 20k to have a 50/50 chance of a $5 million contract?

How about if your chances of success were only 20%. Would you still spend the 20k?

There is a continuum here, one that should change with your circumstances, and your judgement of your chances in the tender process. The management challenge is quantifying the level of risk tolerance that exists at that time.

‘How much should I spend’ is a form of question that implies a short term is involved, ‘How much should I invest’ implies a longer term. It may only be a semantic difference, but  there is a great difference in the manner in which you approach the tenders preparation.

Quoting on tenders has two elements, the first is that now it is a tender, the implication is always that you are just one of several to tender, so it is an auction, of sorts.

The second is that there is never a sure fire thing, even when you have the inside running for any one of a large number of reasons, the most usual being incumbency of some sort. The fact that there has been a tender made public is an indication that the tenderer is not only looking for a price, they are looking for ideas.

To some questions you should be asking yourself:

  • How valuable is the tender to me? If the tenderer is your biggest customer, and you are an incumbent for this sort of job, the answer would probably be very valuable, not just for the job being tendered, but for the ongoing relationship and flow of further work.
  • What is the strategic value of the customer? This will often be a similar answer to the previous question, but your largest customers always started as a new, much smaller customer, and grew, so considering how ‘strategic’ they may be is important. An acquaintance of mine has what he calls a ‘green-keeping’ business that specialises in public spaces. He will do everything possible to win tenders put out by public bodies, councils, schools, and the like, as each one he wins is strategically important not just to the current cash flow, but to the position he holds in the competitive field.
  • How unique is my solution? When you can do something none of your tender competitors can do, price becomes less important. Following the above example of the green-keeping business, he owns a tractor towed machine that ‘cores’ a surface, an important factor for vigorous grass growth on areas like football fields. All of his competitors need to hire such a machine (sometimes from him) as the need arises which adds a significant cost to maintenance and a resulting reluctance, which often enables him to get a superior outcome.
  • How close is the strategic fit of the tenderer to the profile of my ideal customer? Every successful business has an idea of what their ideal customers look like, and the closer to the ideal profile a tenderer is, the more important it will be to win a tender that arises from them.
  • How does the job fit into the existing workflow? When you have a ‘hole’ in your work flow, filling it becomes more urgent, the alternative being to cover the overhead costs from reserves or remove them. When the latter course is taken, it can be hard to resource back up when the work flows in again.
  • How does the job fit my capability mix? A key part of having a profile of the ideal customer is that the mix of capabilities you can deliver exactly matches what is required by the tenderer. Having to buy in a capability you do not have is a strategic decision, and should be made carefully.
  • What is the net cash flow from the project over the life of the project? To do any sort of financial calculation, this forecast is an absolute necessity. It should be done in any case, as you are bidding for the contract, and therefore should have calculated your costs and the financial benefits and risks. This is all that is needed for a financial calculation.

 

Having determined how important the job may be to win, the task is to increase your chances and decide how much to invest in winning.

There are two variables, the amount you invest, and the chances of winning the tender. To do a financial calculation on the options, you could use a function called  ‘Net Present Value’  or NPV. We all recognise that a dollar today is worth more than a projected dollar tomorrow. The value of tomorrows dollar being reduced by  the amount of inflation, and the certainty of the projected cash flow from the project.

To do an NPV calculation, you need to have projected the cash flows to which you are applying the formula.

The NPV formula is simple in principal: Assume an amount of $20,000 is outlaid with the projection that in the following 3 years the project will deliver 100k/year positive cash flow in current dollars, and the discount rate is 5% to allow for 5% inflation.

The cash flow looks like:

$20,000 initial investment, followed by year 1 net cash flow of $100,000, plus year2  100,000 X .95 = $95,000 plus discounted year 3 of $90,250.

The net cash flow from the project is therefore $285,250.

Therefore the net present value of the initial investment at the end of the project is $285,525 – $20,000, or $265,525. In this case, it would seem that the investment of 20k in winning the tender would be a very good investment indeed.

The discount rate can be changed to reflect not just the future value of current dollars, but to also  reflect the risk of not winning. This can be a more complex calculation, but relatively easily done with a formula called Internal Rate of Return (IRR) available in every spreadsheet package.

These two calculations, NPV and IRR are routinely done in tandem by accountants to calculate a risk adjusted return from an investment.

When considering the question ‘how much should I spend on this tender‘ they will together be very handy tools.

Cartoon credit: Scott Adams and Dilbert.

Content quality trumps quantity, every time!

Content quality trumps quantity, every time!

Sep 28, 2018 | Communication, Strategy

Marketers have always created ‘Content’ as a means to  raise awareness, motivate an action, build a brand. It is what they do in an effort to hook into the behavioural patterns of their customers in order to build a relationship and generate revenue.

Human beings learned to tell stories as a means to communicate the things that are important to them way before they learned to record things on clay tablets.

So, ‘Content’ is not new, the form has just morphed over the last 20 years with the emergence of digital tools as a more efficient way to spread the ‘content’. We also know that the ubiquitous bullet points may simplify things, but they are easily forgotten, whereas a compelling narrative is remembered.

It is just the way our brains have evolved to work.

Content should be organised as stories, marketers should know this by now, and mostly do, but often fail to give us stores that are memorable and relevant, that touch an emotion.

The old story of the poet and the beggar makes the point.

The beggar asks the poet for money, but the poet having none himself offers to re-write the beggars sign, which just says ‘Blind. Please help.” to ‘Spring is coming, but I will not see it’. A week later, when the poet sees the blind man again, he is not surprised to hear the donations have soared. A simple change of word from a fact to a story that touches the emotions.

Our brains are wired to recognise and recall stories, details are remembered, so when you relate the story to others, all the colour, movement and emotion of the original remains.

Stories take a lot of development and telling, they are very hard work and are optimised over time. Attention to detail, selecting stories and story lines that really dig into the emotions are crucial.

Marketers are now required to measure everything, stories are no different. Generally the conversion rate that is relevant is the best measure. How many finished the story, how many then did what you wanted them to do.

Mediocrity rules, the 80:20 rule is really 95:5 in stories, as only the great ones  get read, create engagement and sharing, and to do this, it is all about quality, not quantity.

Ever wonder why some content goes viral?

Well for one reason or another it is in the 5% that is worthy of  the attention and sharing, aim to be in the 5%, which means that the effort has to be organic, you cannot outsource passion and commitment, it has to be in the DNA of the business.

(Sorry about the ickky  word in the headline, I have even stopped playing 500)

Cartoon credit. My thanks again to Tom Fishburne, the Marketoonist. Another marketing story told in a cartoon

P,S. This morning, in my inbox was this new ‘storybook’ by the great Hugh McLeod and Brian Solis, supported by Linkedin. It makes my point better than I ever could. I encourage you to download it and have a look. I love Hughs work, as any reader will know, I often have his cartoons as headers, as the say so much in a few lines.

 

 

 

 

The 7 foundations of a successful enterprise

The 7 foundations of a successful enterprise

Aug 31, 2018 | Governance, Leadership, Strategy

 

I was asked the question ‘what makes a truly successful enterprise’ at a workshop that had strategy development as its purpose. It is a regular question that I get in various forms, and a question that I ask myself from time to time.

The easy answer is the marketing responses:  know your customer, understand your markets, select the market niche in which  you compete in and dominate it in some way, all of which are correct, but are not the full answer.

The full answer lies in having the right foundations for the enterprise, foundations upon which everything else is built.

Like the foundations of a house, they are rarely visible, and almost never all visible at the same time.

It seems to me that they also create a virtuous circle, and the lack of one impacts on the others in a manner greater that you would expect.

None have anything to do with the tools that are used, particularly all the new digital tools and platforms.

Have a clear, well communicated strategy.

Strategy provides the framework within which enterprises make decisions at all levels that add to the value of the activities being undertaken. It is as much about what you will not do, always a harder choice than what you will do, as it requires the killing of someone’s ‘baby’ idea.

A strategy that is held in the c-suite, no matter how good it is, will be compromised by not being communicated throughout the business as the decision making foundation. Whether you set out to be the low cost supplier, supply only those  who fit a certain profile, deliver continuous innovations, whatever it is, make sure everyone understands it.

Execution.

No plan is of any real use until it is used. Execution of the plan is 9 tenths of the game. Relentless focus on the strategy, and execution with the appropriate feedback loops that enable tactical adjustments to be made as new information emerges makes a strategy successful. Without execution, strategy is just a set of potentially good ideas and vague promises.

Business model.

Many managers spend inordinate amounts of time thinking about the structures of their businesses, often missing the key component of the manner in which it delivers value to the key group of customers articulated in the strategy.

20 years ago, the number of potential business models was limited by the physical limits of communication and logistics. While this still applies, the flow of information facilitated by the net has changed the face of business, and has spawned a pile of new business models  and ways to reach customers and deliver value. It also seems that business models have trouble cohabiting. Therefore  choices need to be made that should be dictated by the strategic priorities.

Talent.

Businesses are just places where people gather to do the work, so the better the people the better the work. You need talented people to get the work done, a business is nothing without people. Taking this one step further, it is really the networks of people that deliver value.  ‘Joys law‘ named for Sun Microsystems co-founder Bill Joy holds that ‘no matter who you are, most of the smartest people work somewhere else’. The self-evidence of this statement should encourage management to find ways to include some of these people into their commercial ‘eco-systems’. In a small way, many Australian businesses are doing this already,  outsourcing increasingly complex tasks offshore. The initial push is usually cost, but many are finding that quality can be as good as or better than is available locally.

Behaviour.

The way people behave, collectively,  becomes labelled ‘culture’. Culture is usually described in the terms first used  by Michael Porter 30 years ago, as ‘The way we do things around here‘ which is also a description of the behaviour that prevails. Is it collaborative, congenial, non-discriminatory, a meritocracy? Again, the sort of behaviour you nurture is a key determinant of the culture that evolves, and should make up a key component of individual and group KPI’s.

Leadership.

The behaviour of people is driven by the leadership style of the ‘boss’ and senior group. Together they dictate the terms of the culture, select the appropriate talent for the tight reasons, select and deploy the KPI’s based on the behaviour required to execute the strategy. Falling back on the wisdom of Peter Drucker, again, who said ‘Management is doing things right, leadership is doing the right things‘. It is the leadership that extracts performance from an enterprise beyond the average, the willingness to be held accountable, inspire, and explore.

Timing.

The value of getting the timing right is a wildly underestimated contributor to success. From simple internal matters like making that key presentation to the directors when they have had a series of good results, to major external factors such as recognising the point at which a technology that may have lain dormant for years suddenly has a place. Penicillin, the computer mouse, digital camera, Wireless LAN, touch screen, and thousands of other innovations lay dormant, unused until something changed, creating an impetus for the innovation to be commercialised, often in ways unforeseen by the developers. They are in effect a solution to a problem not  yet identified, or sitting outside the sight of incumbents, or simply the wrong time wrong place in some trivial way. A personal example. In the very early eighties I worked for Cerebos in Australia, as a product manager for a number of their brands, Fountain amongst them. I saw an opportunity for a pasta sauce to complement the then very small, but expanding dry pasta market. Fortunately there was an Italian food technologist in the development team who developed a range of very good pasta sauces, which we launched in test market  in Victoria. The test failed, for a number of reasons, that had nothing to do with the quality of the products, or the strategic thinking that was behind them. Eighteen months later, Masterfoods launched ‘Alora’ pasta sauces and  built a category. In blind tests, when considering a second try, the failed Fountain sauces significantly outperformed the successful Alora products, but their timing was way better than ours.

 

When you need to inject the wisdom of ‘been there done that‘, give me a call.

 

21 Lessons from a manufacturing turnaround

21 Lessons from a manufacturing turnaround

Aug 28, 2018 | Branding, Change, Leadership, Marketing, Strategy

 

I was asked the question ‘what did you learn from the turnaround of the GPD‘ a while ago, and was persuaded to present on it.

The GPD was the ‘General Products Division’ of the Dairy Farmers Co-Operative Ltd. It produced all the dairy products you manufacture with milk, which were at the time (mid 80’s) unregulated, while the stuff you put on your cereal in the mornings was regulated to the wahzoo. The GPD  was spun out of the much larger milk business so it could be run as a business, and not an outpost to absorb the milk not required in the regulated market.

Various aspects of that journey have been in these pages before, but I had never contemplated the question in depth and from a height, at the same time.

I started with the business just after it had been set up, then called the ‘By-Products Division’ and in the early stages of building a new ‘state of the art’ factory in Western Sydney.

The division was commercial road kill.  I know that as I did the first P&L by hand, (calculator, 18 column ledger sheets, pencil and rubber)  from scraps of information gathered and constructed from a variety of sources, and a lot of observation.

From that position, turning over $32 million, losing somewhere between $6 & $8 million, with the heavy commitment of the half finished high tech plant nobody knew how to run, 8 years later it was turning $162 million and making good money, with much improvement still to be done. It was a very substantial turnaround, not without its share of drama and missteps,  moments of joy and ‘what the hell just happened’. It was a journey that involved everybody in the business, at first reluctantly, then enthusiastically, had built astonishing momentum that was really only obvious to those on the inside.

Then it was stuffed up by a stupid decision to re-incorporate the business back into the milk business in order to ‘spread the successful commercial DNA‘  in preparation for the inevitable deregulation of white milk.

Over the first 6 years I carried responsibility for the Logistics, and part of  the sales, in addition to the marketing role I was hired for, and for  the last 2 years that the GPD was a separate entity, I was the GM. My ideal job at that time in my life.

Over the eight years, the business and its processes was totally reorganised, the  culture completely turned around, and we launched a string of successful market leading products, all of which contributed to the success.

So what did I learn, in no particular order?

  • You have to engage all employees, at all levels in the journey. They must understand their role and importance in that journey and to each other.
  • When you make a blue, recognise it early, correct and move on. Chasing a sunk investment that is not working is a terrible mistake to make.
  • Never look back with nostalgia, just for the lessons as input for what is next.
  • Price is not a measure of customer value, it is simply a means to express it that is understood, and unfortunately, usually misunderstood. Price only really matters when all other things are equal.
  • No business can be all things to all people.
  • Look after your small customers, one day they might be your big ones.
  • Standards of performance and behaviour have to be both present, well understood, transparent, and meticulously followed by those who set the tone.
  • The greater the general level of transparency the better. Hiding bad news never works, and brushing over problems just lets them fester and get worse. ‘Nip it in the bud’ is always a good piece of advice.
  • A managers job is to support the efforts of their staff, not the other way around. Successful companies extend trust to all employees at all levels, and deals with those who breach that trust openly, and absolutely consistently.
  • Breaching trust is very different to making a mistake. ‘Good’ mistakes are the result of initiative, trial and error implemented with due diligence, and are essential for learning.
  • Continuous investment in product and brand development is necessary, and even more important when times are tough. A great mistake is to see this investment as an expense item in the P&L, available to be managed to deliver a short term result. A powerful brand does not happen overnight, is the outcome of many thousands of small actions and improvements, as well as the obvious external marketing activity,  and it is the greatest asset any business can have.
  • The culture of the place is very hard to describe to an outsider, but clear to an insider. It is a mix of rules, experiences, stories, relationships, habits, and is more complex than any family.
  • Have in place a robust and well understood strategic process which serves as a framework for all decision making at all levels. When an opportunity presents itself, no matter how attractive it may seem, if it is outside the framework, leave it alone.
  • Have in place a robust but simple set of KPI’s intimately connected to the strategy, cascaded through every level, and proactively managed.
  • Never compete with a stronger competitor on their ground.
  • As far as possible, fund growth from cash flow. Long term debt is sometimes necessary, but can turn toxic when the best interests of the lender and the business diverge.
  • Be prepared to kill your favourite children and sacred cows, just be careful to ensure they are not golden geese in disguise.
  • Look for diversity in the thinking styles of people, and encourage that diversity of thought to bubble through and influence the whole business.
  • Treat employees as you would a trusted associate, not a piece on a chess board to be moved around at will. That trust will pay huge dividends in morale, productivity and loyalty
  • Institutionalise regular interaction and conversations across functions and up and down the company, without the impediment of formal roles.
  • Continuous improvement in everything should be so ingrained that people feel its absence keenly.

My final two years in Dairy Farmers were as GM Marketing of the much larger entity that now included the former GPD. While the business continued to be successful, the pace of change and improvement stalled under the dead weight of the still regulated milk business. After  two years, the MD of the business reached the end of his tether with me, constantly being a thorn in his side demanding change, and I with him, so one morning we parted company. The irony is that during this time, I (and the marketing team) launched the single most successful product I ever launched, the last in a long list of successful product launches as an employee. However, the means by which I had to subvert the ‘rules’ to do so were the nail in my corporate coffin.

Another two years on after my exit, the business was flogged off, ultimately to a Japanese brewer, at what I regarded as a fraction of its long term value. A sad end indeed to an iconic Australian food manufacturing business, and perhaps a metaphor for the whole food industry.

 

 

What SME’s can learn from Apples trillion dollar milestone

What SME’s can learn from Apples trillion dollar milestone

Aug 6, 2018 | Branding, Small business, Strategy

On Thursday last week, Apple became the first trillion dollar company in market capitalisation.

I was not even sure what a trillion is.

A ‘Trillion’ is different in the US count to the British system which we in Australia follow.

In the US system a trillion is one thousand times one billion.

In the British system, a trillion is one million times one billion.

Apple when it passed the US Trillion mark on Thursday at a stock price of $207.04 per share, was a company worth 1 with 12 zeros following it. $1,000,000,000,000.

Long way to go to be a British trillion, but nevertheless, a heap of money. (pity they pay so little tax on Australian revenues). Just for a little context, the US Federal  budget in 2015 was $3.8 Trillion, and was 21% of the US GDP. Therefore, Apples market valuation is now roughly 25% of the US federal budget.

So, what can a simple local SME, the businesses I work with, learn from this astonishing performance? Broke to a trillion in 20 years.

Yes, Apple was as good as broke in 1997 when Apple brought back Steve Jobs by buying his NeXT business to get their hands on the operating system, because windows was killing the MacOS as it was at the time.

The Apple board terminated then CEO Gil Amelio and put Jobs back in charge, and he changed everything.

So, to the question, what can the local SME’s learn from this?

A lot it seems to me.

Strategy.

You have to be able to take a ‘helicopter’ view of the market you are in, its adjacencies, and likely future influencers.  Jobs did this several times, seeing the potential impact of MP3 players, then teaming that device up with software iTunes, then moving again with the iPhone and iPad. Each time he saw what was potentially possible, and made it happen. As a local business, this helicopter view is just as valuable to you as it was to Jobs in 1997, and subsequently.

Timing is everything.

Jobs was able to see what was becoming possible before anyone else, and leverage the change. He was not the first in any of the individual technologies, but he put them together in a different way to leverage the multiplier effects. However, each wave was enabled by the one before, so timing was crucial.

Control of your value chain.

Customers are not looking for components, they are looking for the best solutions to their problems. Apple controls its value chain with an iron hand, delivering to their customers a unique experience in a ‘must-have’ package. They do not manufacture any of the core components, they just arrange for it to be all put together. In the evolving commercial world we are all facing, one of the most important words will be ‘Control’. Apple has proven to be a master of control, and has benefited accordingly.

Great design sells.

Dell, and HP, and all the rest could have done what Apple did, but they failed to do so. They designed and sold solid, reliable commodities, that all looked, performed  and felt the same, Apple designed something different that delivered an experience. The evidence is clear. Apple has roughly 15% unit market share of smartphone units sold, but holds 85% of smartphone profitability. This astonishing performance is the result of great design and branding over a long time, and the control exercised over the supply chain and tech eco system.

Dream.

It is usually just fluff to talk about ‘dreaming big’, creating your own BEHAG, (Big Hairy Audacious Goal) but occasionally, someone does it. Dreaming is a key part of the process, but dreaming by itself does not get anything done.

 

As an aside, one of the members of my local tennis club is a long term Apple employee in Australia, who has Apple shares as a part of his salary package. He has been issued shares progressively over the years, all of which have been sold to pay for  the expenses of living, mortgages, school fees, all the stuff we all face along the way. The first shares he was issued were at forty cents each. A very long way from the $208 closure on Thursday, and yes, he was crying!

 

When you need help thinking about all this stuff, even if you do not aspire to be the next Apple, call me.

 

The four parameters of collaborative success.

The four parameters of collaborative success.

Jul 23, 2018 | Collaboration, Strategy

Collaboration in all sorts of guises, from casual cooperation to formal agreements and even mergers and acquisitions,  is becoming more and more common. Digital tools of communication appear to make it easier, which they should do. However, the tools themselves do not address the basic causes of collaborative failure, a failure to agree on a common outcome that is in the best interests of all parties, and to act on that agreement consistently.

Most collaborative structures fail, sometimes after initial success is unable to be repeated or scaled, even in the face of a compelling logic.

Over the years I have put together a number of alliances, in several industries, with vastly different objectives, from buying simple manufacturing inputs together, to jointly entering export markets with high barriers.

While the nature of  them is different, there are four challenges that simply must be addressed before the collaboration has any hope of survival let alone success.  These four common characteristics of all of them need to be acknowledged and managed.

Profit potential.

The collaboration must be seen by both parties, sometimes all parties where there is more than two (as is often the case in agricultural alliances) as being worth the effort. The potential value must be positive for both the alliances and every individual member of the alliance. This is always a fragile calculation, and the tragedy of the commons always comes into play.

In areas where there is no profit motive, such as between government departments, finding a unifying motive is even harder, and usually in my experience succumbs to politics and ego even faster than  in the private sector.

Complementary skills.

The chances of success are enhanced when the strengths of the parties are complementary, the strengths of one serves to fill in the weaknesses of the other. There is always overlap, sometimes considerable.  At each point of overlap the parties should be asking themselves if that particular area is of significant strategic importance to them, is it a key part of their value proposition and differentiation. Where it is, and there is overlap, trouble follows.

Common view of the outcome.

Differing expectations of the outcome results in stresses that kill off any collaboration. In the absence of a very clear and common view of the outcome of a collaboration, both for the collaborating group and its individual members, it will fail. This is a challenging proposition, as all sorts of human characteristics and frailties become enmeshed in the manner in which they all behave. This common view of the value and outcome of the collaboration must be clear at all levels in all  the collaborating enterprises, and the resources of all focussed at least to some extent on making the collaboration work.

Governance of the collaboration.

Managing an enterprise where there is the opportunity to exercise institutional power is hard enough, it is geometrically harder when the institutional  power is absent, or significantly diminished as it usually is in a collaboration.

Collaborations vary as noted from one-off transactions to  financially, operationally and strategically merged entities, with most residing somewhere between these extremes.  There must be governance rules that define the appropriate behaviour of the parties to  the agreement in all sorts of situations that can be envisaged, as well as those that cannot. These rules must go beyond the scope of applicable regulations, as we are dealing with people. The role of Directors and senior management is to enhance the value of an enterprise, and given there is mountains of data demonstrating that collaborations, particularly at the M&A end of the continuum destroys value, the governance of any form of alliance is critical to its commercial success and longevity.

Normally there are common concerns that can be agreed up front, but there also needs to be agreement on how to manage those situations that are not specifically a part of the initial agreement, but that pop up in the course of operations.

 

It is always best to hammer those out and put them in writing, irrespective of the goodwill that may exist at  the outset, as both people and circumstances change. Tiny molehills that emerge tend to rapidly become mountains unless addressed in a consistent manner, early.

 

There is considerable benefit in working on a ‘code of conduct’ at the formation stage. This can be an agreement over coffee of two sole trader entrepreneurs to a several day workshop of the parties to hammer out the agreements against a pro forma that covers the areas necessary for success.

Such a pro-forma must cover a range of areas, the most important being:

  • Expressions of the specific outcomes each party expects.
  • Definition of what is in, and what is out of the collaboration.
  • Definition of the roles and responsibilities of each of the parties.
  • Creation of joint decision making processes, and the means by which they will be communicated, evolved and managed.
  • The investment requirements of the parties, including non-financial investments, the area where the most challenging disputes can emerge, and how these differing investments will be valued over time.
  • What happens to the assets of the collaboration in the event of a dissolution of the collaboration.
  • A specific list of governance rules and the investments required to maintain them.
  • Specifically set out to build and maintain trust, without which all  the foregoing is a waste of time, and trust is always a function of behaviour, it has to be earned, rarely is it just given..

 

A final point upon which all collaborations hang, and have always hung since the beginning of people living together in some sort of interdependent manner. A collaboration,  or co-operation can only succeed over time when all parties to the agreement see that their best interests are best served by serving the best interests of the group before their own.

Cartoon credit: Scott Adams creating Dilbert, and his wry commentary