Nov 20, 2012 | Lean, Management, Operations
Have you ever calculated yours?
It is a pretty simple performance measure that carries a lot of weight, and contains the seeds of success, and destruction. In addition, if you know your industry well, it is pretty easily calculated for competitors, so acts as a useful competitive benchmark.
Break your P&L up into a few categories:
Ingredients
Direct labour
Administrative Overheads,
Divide the results by sales, and you have the value adding ratio. Just ask your customers what parts of your cost base they are happy to pay for to get the product they buy, unlikely many will answer with a positive to the fancy headquarters building, the boss’s new car, or the off-site strategy meeting at the Casino in Hobart.
To be fair, there are many costs that are necessary, but do not necessarily add the value that consumers are happy to pay for at the supermarket. Things like R&D spending, market research, IT expenditure, freight costs, and many others fall into these categories, but a debate about how they can be reduced, and how the productivity of the expenditure can be increased, is extremely valuable to have.
Pretty basic management stuff, but so easy to ignore. It is also very easy to produce an infographic that everyone can buy into, by simply breaking up a picture of the end product into its percentage categories. This has an enormous visual engagement value for anyone embarking on a Lean initiative.
Nov 19, 2012 | Sales, Strategy
Sales revenue is probably the most common senior management KPI, and is virtually always present for sales people.
It is a very misleading measure.
A friend, one of the best sales people I know, is in an industry struggling to reform itself in the face of direct sales over the net. Her sales are down 10% year on year, so the blasts from irrational budget enrobed donkeys keeps coming, but her industry is down 30% YOY. In that context, her performance is fantastic.
The basic question therefore when planning sales should be: “What are the demand drivers” Understanding the answer to that should offer a realistic view of the customers motivation to buy, not just from you, but to buy.
Too many ask “What sales can we do” which implies looking internally, ignoring the drivers of demand. They take the easy way, click a few keys to give an extrapolation of the past, which rarely has anything to do with the future.
Nov 15, 2012 | Change, Communication, Marketing, Social Media
Comment on digital media, the opportunities, challenges, and pay-offs is largely made by people engaged in the business, and they are different.
In a previous life, I dealt with a series of advertising agencies in the great days of the radio/mag/TV triumvirate of advertising, spending a “shedload” of money.
In those days, the personnel engaged in the industry all seemed to live, work, and play east of St. Leonards (in Sydney, Australia), while most of my consumers lived west of Lidcombe. Whilst these may locations may not be as different as night and day geographically, there were fundamental demographic, ethnic, cultural, and economic differences that, had to impact on their consumption behavior, and the manner in which they consumed and responded to advertising.
It is a reasonable assumption to think that the democratisation of media enabled by the internet would change these demarcation lines, at least blurr them, but instead they have seemed to have redefined them as obsessed, or otherwise by digital media, as noted by Bob Hoffman.
Consumers use the net as a tool, and like all tools, they use them differently depending on their skills, inclinations, experience, and where they are. However, the tool now understands how, where, when, and why it is being used, by whom, and responds accordingly. In this terrific post by Avinash Kaushink, consumer purchase behaviour, and the manner in which the data can be leveraged is examined, with Ash’s usual forensic eye.
Nov 14, 2012 | Change, Innovation, Leadership, Strategy
The interesting and fun bits of our world are driven by the vision, imagination, and execution capabilities of people. Much of the capital and technical capabilities required to enable these great things to happen are tied up in our corporations, governed by the legislative, and community demands for absolute compliance to an established norm.
Almost by definition, the norm is boring, ordinary, “so yesterday” as my beautiful daughter would say. How is it then that the boards of those same companies, the people with the ultimate responsibility to determine the long term priorities of the business, and allocate the resources to deliver them for stakeholders make the necessary choices. They have to make choices between the creative, the risky, and the new stuff that will cannabilise their existing position, whilst being tied down to processes that demand short term, conservative, risk averse, and ultimately boring behaviours.
The Corporations Act and various accounting standards, domestic and International, require many things of directors, almost all are quantitative, take great time and energy, and deplete resources, when the real value is added by the qualitative.
As a community, we demand probity from directors, and largely we get it, but the few who play fast and loose, who feed self interest at the expense of the interests of those who are footing the bill, ensures that there are rules crafted to catch the 1%, but that hamstring the 99% in the process.
The few truly great leaders around in charge of our large corporations that manage to make those choices are the exception. Jack Welch at GE made six sigma the manufacturing standard of the west by driving GE along a path invisible to most, and his successor, Jeffrey Immelt followed by a pivot of GE into green power, and has created an 18 $billion manufacturing division in just a few years that promises to be hugely profitable whilst delivering enormous value to the planet. There are a few others, the oft cited Apple, FedEx, Disney, add your own, but it is a short list.
Perhaps it is happening again as the suppliers of the milling and moulding equipment used in manufacturing, are about to be made at least partially redundant by a few outliers who are putting manufacturing equipment on desktops.
Just a pity there appears to be so few in Australia.
Nov 12, 2012 | Leadership, Management
Making decisions is like any other process, you gather relevant information, consider options, look for the optimum outcomes, and decide accordingly. Right?
Often wrong.
Decisions are often made based on the HiPPO (Highest Paid Persons Opinion) what was done last time, how it would be viewed by others, what the “rules” say should be done, and a host of other drivers that really add little value to the quality of the decision making.
Decision making is like any process, the better that information, and the more objectively it can be analysed, the better the decision is likely to be. As importantly, the process is optimised by being sufficiently robust such that if the decision were to be made again, with the same information, but a different , but equally capable group of people, the outcome would be the same.
There are a few questions to be asked of any decision making group:
- Where did the data come from?
- What analysis has been done?
- What is the level of confidence in the outcomes?
Pablo Picasso is reported to have said ” computers are useless, they can only give you answers” which goes to the issue at the heart of decision making, the quality of the questions that are asked and the manner in which that are answered.
How disciplined are your decision making processes?
