Feb 4, 2021 | Change
The most visited StrategyAudit post of 2020 was the one entitled: ‘Hind-sighting the Corona-demic.
In that post, I projected forward to the end of 2020, and made a number of observations about what I thought would have happened as a result of the ‘Bug’. At the time, being a bit of a ‘metrics-nerd’ I promised to review with the benefit of real hindsight and give myself a score.
So here goes.
Digital transformation has accelerated.
It seems unfair to take any credit for this one, as it was so blindingly obvious. However, take the brownies when they are on offer.
Score: 5/5.
The role of deep expertise.
It seemed to me that the ‘bug’ would highlight the necessity of listening to genuine experts, as distinct from those who shouted an opinion, and called it a fact.
The outcome seems to me to be a binary one, as we have become even more split than was the case previously, although the trend was evident.
On one hand, the health officials, at least in this country have been listened to, and their recommendations largely implemented. On the other, a group of those same politicians remain wedded to the lunacy of climate change being some sort of conspiracy, in absolute avoidance of the science.
Globally, that same trend has been magnified, put into stark relief by the odious ramblings of the former US President that led to the invasion of the US congress buildings on January 6.
Overall, I think in this country, that has been the result. However, a scan of the academic articles, of which there are many, seems to point out that not much has changed, although most of the articles were sourced from the US, where the partisan divide washed over everything else, including common sense for a significant percentage of the population.
Score: 3/5
Existential crises become accepted challenges.
The jury is out on this one. The public statements of those who make these decisions trend along the ‘we must do better next time’ line. The cynic in me suggests that short memory will kick back in. it is one thing to commit resources to the crisis in front of us right now, another entirely to commit those resources to a future crisis that while almost certain, the exact form and timing are unknown.
Let’s hope not for the sake of our children.
Score: 3/5
Dunbar’s number.
There is little doubt that Robin Dunbar’s theories that human beings could only hold 150 close relationships at one time, has received renewed proof in spades. We have reverted to smaller personal communities dominated by those close personal relationships we have. Technology has enables us to keep in contact with wider networks as necessary, but the idea that we can have wide personal and emotional networks has been debunked.
However, the second part of the prediction that we would see the malignant potential of Facebook et al has been passed over. While the platforms belatedly have banned some of the more egregious ranting, and we may have become a bit more careful, usage has in fact increased.
Score: 2/5
Economics and Politics.
There was a bunch of predictions included under this heading. Some seem pretty right, a few others way off the mark.
The economy certainly did tank, but there seems to be a blasé view of how the bill incurred to limit the tanking will be paid. What was a ‘crisis’ when the budget deficit was approaching 20 billion has become an item of ‘not a problem’ and ‘we have to react to what is in front of us’ as it approaches 250 billion and 12% of GDP currently. The Federal government gross public debt has been variously forecast to be around 35% (684 billion) of GDP in June, increasing to 55%, well over a trillion in 3 years before the peak is reached. The public debate on all of this has been muted at best, almost certainly because there are no political brownie points in either side in it, and it may be that neither side would want to be in the driver’s seat, were it not for the largess handed out to those in power.
For a while politics became more respectful and collegiate. However, towards the end of 2020, that collaboration on our common problems was fraying badly.
There certainly has been a lot of talk about the much-needed sovereignty of supply chains, and the ‘re-shoring of manufacturing. Little has happened beyond a lot of press releases, and a few undertakings, such as that by ‘Twiggy’ Forrest to bring back all the manufacturing of RM Williams, which he bought last year for a bargain.
Super has been comprehensively raided; I certainly got that one right.
The institutionalisation of the anti-Corona measures are proving hard to remove, as predicted. However, the child support has been removed, with surprisingly little (to me anyway) noise, and the jobseeker payments pruned back significantly, although not back to the pre Covid levels, yet. I suspect this will be a very hard one.
I suspected that there would be some pressure to review the nature of the federation as outlined in the constitution, as the frailties have been clearly shown up. No noise at all, got that completely wrong.
Score: 3/5
Commercial intervention by governments.
There was a lot of pressure brought to bear for the government to provide a helping hand to large corporates in trouble. Firstly, the trouble I foresaw was not as bad as anticipated, and those that did stick their hand out got no relief. That might hamper the corporate political donations a bit, but the rest of us are relieved.
Quietly though, there are continuing examples of pork barrelling, which ins effect is public intervention. I have no objection to governments giving a helping hand where needed to industries, but grants to political donors in fragile seats does see the temperature rise to boiling point. These allegations, first surfaced by Michael West Media are currently making the rounds in NSW.
Score: 3/5
Healthcare.
I foresaw a reformation of the byzantine labyrinth that is health care, a monster devouring money at an ever increasing rate. The virus gave us a once in a lifetime opportunity to address some of the bigger troughs into which snouts had become entrenched. No such luck. There was no move whatsoever that I could see, beyond the great job done by the health workers in the front line of the pandemic. It remains firmly in the too hard basket. To be fair, those who would have been needed to do the thinking and policy work have been pretty busy, although the cynic in me screams that there should be plans on the shelf that with a bit of dust removal could have been floated with little further development investment being made. If this is a wrong assessment, what the blazes are all these bureaucrats in every state doing all day in the absence of a crisis?
Score: 0/5
Unions and Government talking constructively.
The collaboration of unions and the Government, across the federation was an example of how it should be done. In the face of a crisis, for a while, everyone seemed to be working in the general best interest. However, as noted, that collaboration became frayed at the end of 2020, and it appears that 2021 will revert to normal. The opposition, however, seems to be back to arguing with itself, although that dumbass Craig Kelly continues to give them gifts.
Score: 3/5
Social distancing.
This seems here to stay, at least for the foreseeable future (that seems to be a day or so currently). Generally, the public has accepted the need, and acted with great forbearance.
Score: 4/5. (perhaps 5/5 but I am a hard marker)
1st world indulgences.
There is no doubt that we have recognised the value in simple things, and those who are genuinely dear to us, rather than just being ‘friends’ on some digital platform. However, as I go back into shopping centres, all the nail salons, a business segment that seems to have appeared from nowhere in the last few years, appear to be doing a roaring trade. Perhaps they are just a lousy barometer?
Score 3/5
We will all be wiser.
Sadly, I suspect we will not. The lockdown in the Northern beaches, resulted, I am told by inmates from the area, dunney paper being as scarce as a politician that tells the truth in the week before an election.
Score: 1/5. Put that down to me still being an irrational optimist.
I am very happy to take comments and observations, particularly those that are contrary to those above.
Feb 1, 2021 | Customers, Marketing
I regularly see and hear people suggest that ‘thinking from first principles’ is a great thing, a foundation of success. Often when these people are flogging a product or service of some sort, their offering somehow becomes a function of a first principle.
‘This marketing automation stack is built from first principles‘ is a claim made by a vendor to an acquaintance who runs a modest but long-lived SME. The business is constrained by IT limitations of various types. A combination of lack of cash, underdeveloped understanding of the tools available and how they work both individually and together, and general wariness about florid claims about the returns that will arrive, magically, on installation,
What should we mean by ‘first principles’?
Aristotle defined it as ‘The first basis from which a thing is known’. Philosophers since have added their own wrinkles, but it comes down to the few single facts that provide the foundation of whatever idea you are considering. When you break a problem down to this level, it enables you to, sometimes, reassemble from a different set of possibilities, ideas from different fields, and end up with something new.
Thinking from first principles is challenging.
Our brains have evolved to reduce the cognitive load as a survival mechanism. Fight or flight must kick in quickly, automatically, just in case the rustle in the weeds is a sabre-toothed tiger. We therefore have mental models, or patterns we use unconsciously to classify things we see and set out to think about. Even when we set about thinking carefully, we are still subject to the mental models we have built up, the analogies and experiences we have that enable us to respond with the minimum of cognitive energy.
John Boyd used the evolution of the snowmobile as a demonstration of ‘First principles’. A snowmobile combines the body of a boat, the tracks of a tank, motor and controls of a motor bike, and skis, to deliver a machine that gives mobility on the snow. Similarly, Elon Musk used first principles to build his own rockets for SpaceX. He broke up a rocket into its component parts, then built his own rockets with parts sourced independently. Musk’s whole business empire is based on reimagining something and rebuilding from first principles. Arthur Conan Doyle via his character Sherlock Holmes, advocated the same approach. ‘When you have eliminated the impossible, whatever remains, however improbable, must be the truth‘. William of Ockham in the 14th century wrote similar words that have been passed down as the wisdom of Occam’s razor.
When you apply this thinking to marketing, and consideration of what it is that makes a successful business, you come down to one simple first principal.
Happy customers, who willingly and spontaneously refer you to others.
When you have happy customers, little else matters beyond a competitive capability to supply the product or service at a competitive price that returns an industry average gross margin.
What are the first principles of your business model?
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Jan 29, 2021 | Change, Customers
Technology is not disruptive: it is customers that are doing the disruption, technology is just the tool.
Just like matches disrupted the flint and steel manufacturing industry, Josiah Wedgewood disrupted the pottery industry, and the motor car disrupted the horse transport industry. These three, and many others you can think of, were driven by customers preferring the new offering, as it better met their needs. It is customers who are driving the disruption of shopping, communicating, travelling, and all the rest.
Once you accept technology is just the tool, you can start thinking about customers.
The best place to start is with the customer journey.
What are your customers trying to achieve when they buy a product? Do they want a drill bit, or do they want a hole? Do they want a luxury central city hotel, or do they want somewhere comfortable to sleep with a café nearby for their breakfast?
Understand the customer journey, what it is they are looking for, and the means by which they currently get there is key.
Once you have that figured out, you might be able to see places where the current value chain that serves customers can be re-engineered.
Technology is one way, but there are others.
A business I worked for years ago replaced a network of distributors with direct salespeople backed up by a very friendly telephone process. This was pre internet, so no tech beyond the phone and a hand recorded version of a CRM on customer cards was used. The results were spectacular.
Considering any sort of reengineering of the existing value chain means that there will be an element of risk, However, the risk can these days be mitigated by using the Lean Startup methodology, simply, placing a version of the chain in front of customers and seeing if, and how they use it. If the product is entirely new, it is not much use asking them, as they have little frame of reference. Henry Fords dictum of the faster horse still holds true, but seeing how customers use a new product in its minimum viable form is the best way to gather insight. We used to call it test marketing, so this idea is not really new, but the technology that enables it more easily than ever before is.
Alongside technology enabling customers to make different choices, there comes the second baseball bat to the head of incumbents: the business model.
Again, business models are simply the manner in which you deliver value to your customers. The manner in which this value delivery happens can change, enabled by technology, which changes the business model.
They go hand in hand.
Let’s take retail. I was in a large format general retail store a few weeks ago, and there were customers all over the place playing with their phones. Some were just amusing themselves, but many were price checking, seeking product specifications, availability, and looking at product comparison websites. I am sure some bought products, but equally sure that many walked out, either delaying the purchase or making it elsewhere.
Opportunity lost.
The huge untapped competitive advantage bricks and mortar retailers have, is that they have the potential for human interaction. We are a social species, so seek to commune with others. Yet, this retail store, typically, had cut down on staff on the floor, saving costs presumably in the face of online competition. A few added sales staff who were product experts, there not to sell product but to assist potential customers make the right choice, even if that choice was not available immediately, would have made a huge difference,
Back to the customer journey.
In the old days, customers travelled almost the whole journey in the one place, a retail store. Once they determined they needed a product, they went to a store they trusted, and were given information by the salespeople, made a choice and paid, had it delivered. All in the one place.
That has changed,
Now the power of the retailer that came from controlling the information has been lost, the information is available everywhere, so the customer can make their choices while nowhere near a retail outlet. However, often they will go and have a look at the physical product, in a store, just to make sure, or just to get a better sense of the physicality of the product. They then can check price and availability and make a decision on the supplier. Showrooming is the term often used, and it is a powerful new force, underutilised by retailers. The customer journey doesn’t finish with the product delivery. Now there are tech tools that will follow up, ensure service is delivered, ask for referrals and ratings, all designed to offer information to the next customer who may be showrooming.
Technology is the enabler of changed customer behaviour, not the driver. The driver is customers looking for increased value by seeking and accepting the removal of commercial friction.
Header cartoon courtesy of Hugh McLeod at gapingvoid.com
Jan 25, 2021 | Governance, Strategy
Well, tomorrow we will have made it to January 26, 2021. Phew!
As I have for the decade of this blog, I have tried to distil the murky water around us into a few points that I think are worth the consideration of Australians.
2020 was a year in which collectively, the world stared into the abyss, and perhaps the abyss is still coming for us, but we seem to have survived reasonably intact, so far. However, the impact will be long term, and predicting the future usually carries a high failure rate.
2020 has highlighted the binary nature of the political processes around the world. To varying degrees, the nature of global politics has shifted, losing sight of the common good in favour of the good to ‘our side’. This is not just a function of 2020, it has been happening for some time, it is just that ‘The Bug’ of 2020 acted as a catalyst to turbo charge its growth.
It is not as malignant in this country as it has been in the US, and Britain, nevertheless, in our political lives, ‘Binary’, between the various political parties, within the parties, in between states in the Federation, has become entrenched. You are either with me or against me. This ensures that differences are personal, the root causes of problems are not even identified let alone examined, and that experimentation is never done, as failure of any kind brings derision, blame, and personal risk.
Australia has done well by world standards fighting the ‘Bug’ by locking down, largely at the insistence of the state premiers. As a result, we will come out quicker and earlier than most, but travel will remain a dream for a long time, as evidenced by the chaos around the Australian open in Melbourne. A few more days and I might have a chance to get into the main draw as more players are quarantined.
Meanwhile, we gear up for an election, due for some time from August this year. My guess is that it will be early 2022, as that gives the Morrison government more time to dish out the pork, disguised as Corona led recovery investments in infrastructure and ‘community’. The opportunity to push out money to buy votes will not be missed by this bunch of pork addicted hypocrites. However, should the other lot be in government, we are assured by no less than the NSW premier, previously an icon of rectitude, that they would be doing the same thing, ‘Everyone does it’.
The vaccine seems to be around the corner, although believing the press releases of pharmaceutical companies and politicians under pressure is not usually recommended. However, the scientists seem to be reasonably confident it is close, taking advantage of the opportunity to build credibility, after being side-lined in the ‘climate debate’ by vested interests for the last 30 years. The ‘no vaccers’ are out in force, a movement that should be confined to small rooms in nut houses. In Australia they seem to be yelping just on the fringes, but elsewhere in the world, have a real voice that may compromise the value of any vaccine, particularly invigorated by the emergence of data recording challenging side effects in the frail, and otherwise compromised recipients, in addition to emerging evidence that this thing can mutate at an astonishing rate.
The Chinese pachyderm trampling our economy from the back of the room seems out of control, and there seems to be no easy antidote to be administered. The new trade minister has blathered about a ‘pivot’ to India, as if by a few press releases, India will come running to help us as brothers in cricket, or something. He must be ‘dreamin’ or perhaps doing something else best done in private.
Meanwhile, last week there was a couple of cyclones causing damage in QLD and WA. Two, at the same time, nothing to do with climate change. I remain amused, or perhaps disgusted, recalling that idiot Craig Kelly calling a British meteorologist with a PhD, an ‘ignorant pommy weather girl’. This is, however, serious stuff, and decisions that affect us, and our children, are being made by this standard of ignorance displayed by Kelly.
With the inauguration of the new Biden administration in the US last Wednesday, perhaps we can hope for some level of sane government from them, although the wounds are unlikely to heal quickly. It seems to me however, that the change will have little impact on our current domestic and export challenges. We still must navigate the delicate balance between the alliance with the US, and the simple fact that China is the local ‘bother boy’ throwing their increasing weight around with little regard beyond some soothing rhetoric, for those who might get caught in the crossfire.
The general concern about the size of the debt run up in response to Covid, offers an unprecedented opportunity for the Government to take some steps towards sensible tax reform. Unfortunately, I am not able to definitively argue that the rich have got richer over the past 12 months, but those in full time work, in enterprises that have not felt the hammer of Covid (including all the public servants around) are in a pretty good place. They have cash coming in, and interest rates are the lowest in living memory, so there is a lot of demand for items not denied by Covid, like a nicer house in place of the trip to Alaska.
A good place to start would be to dust off the now over a decade old Henry tax review, and the ‘short term’ grandfather provisions to ease the change to a new regulatory regime brought in by the Keating government, and still in force despite several efforts to dump it. Michael West media has been doing a terrific job in highlighting just how effective this 35-year-old ‘short term’ grandfathering clause has been in giving billionaires a leg up.
The government has taken a step towards limiting the reach of Digital platforms by proposing they pay a royalty to analogue media for copy they post on their sites. While this may be well intentioned, similar regulation has failed in Europe, and the cynic in me screams that the hand of Mr Murdoch is up the back of the government. Legacy news organisations missed the emergence of the net, and have been sidelined, and sadly largely disappeared, replaced by a different model. The sight of the Murdoch and Nine group which now includes the remains of the once mighty Fairfax group holding out the begging bowl is not pretty. Emerging is a small group of online journals that do deliver balanced and deep reporting, eschewing the clickbait driven models of many of the remaining legacy media. Organisations such as Medium, The Guardian, Michael West, and several domain focussed journals are carving out a business model that appears sustainable. Also, we still have the ABC, potentially compromised as it may be by the need to please the government of the day, but doing in my mind, a great job.
Let us hope the new acceptance of the value of science generated by the Bug, carries on to other domains, such as Climate change. However, while idiots like Craig Kelly, pollute the federal parliament, and the forces against change that protect the interests of the few, can assemble the resources and dole them out to political parties with no transparency, I fear little will change. There should be no impediment to real time declaration of direct, and indirect donations to political parties and individual politicians. On a similar line, while lobbyists outnumber pollies by 10:1, and have their pockets stuffed with largess, the pollies will be reluctant to take them on.
We have seen the power of social platforms at work over the last year, for good and bad. The good is great, families isolated by Covid can see and talk to each other in ways inconceivable beyond science fiction just a generation ago. Also, on display has been the dark side. Extremist views given the oxygen to spread via social, led by the platforms own algorithms to places of extreme ideas they would never have found without that algorithmic hand holding. This is in the name of free speech, giving people what they want to see, and of course, then selling those eyeballs to advertisers, and in the process, enabling huge levels of ad fraud.
Where do we draw the line between free speech and the ability of tech platforms to put limits on it? The banning by Facebook and Twitter of the last bellows of the Trump presidency has been applauded by most as too little too late. However, it begs the question of where is the line between the individual’s right to communicate and a platforms ability to censor? This is a wider debate than just what should be done about Trump and offensive posts. How do we manage the power of the state to censor intelligent and robust debate? Hong Kong media is slowly being strangled by Beijing, to bring it into line with the rest of China. How should the platforms, who want to be engaged in the Chinese market respond?
There are several key domestic debates, about real issues we need to have. Perhaps I am just old, but I am cynical about the willingness of the institutions involved to debate on the facts, and deep analysis, rather than in sound bites that selectively support their preferred position, irrespective of the wider impact. Several are noted following:
- The debate will be about the increase in compulsory super due to rise from the current 9.5% to 10% on July 1, then progressively increase to 12% from July 1, 2025. Will it, or will it not go ahead? The pandemic has provided a reason to delay once again, as businesses recover. However, the hip pocket nerve will be engaged. The added 0.5% is in effect a pay rise workers will not get, so the individual worker might be unhappy. The opposition seems committed to the rise.
- The proposed changes to the IR laws that the government dropped on the table after parliament had closed shop in December 2020. The guts of the amendments to the existing Fair Work act revolve around the definitions of casual employment, the mechanisms by which enterprise agreements can be reached, award simplification, and the entitlements of those workers in so called casual employment. At the core of the public spat will be the ‘BOOT’ (Better Off Overall Test) provisions. There are serious questions here that impact people’s lives, and superficial sound bite debate is simply not good enough.
- Energy policy, and the attitude of the government to the questions around climate change. It is obvious that private capital is bolting from investment in fossil fuel sources at the rate of knots, but the government seems wedded to the notion that this is a bad thing. The energy companies have a powerful grip on the government, and no doubt the opposition, but common sense, as well as the science indicates this country should be doubling down on renewables.
- Tax reform. Here I go again. Dust off the Henry review and remove some of the more obvious rorts highlighted in the report, and since. In any change to the tax system there will be winners and losers. You can expect the losers to scream loudly, and apply as much pressure as they can, which will be a lot. For the stability of the economy and the society we want to be, a tax system that reflects the long-term national interest rather than sectional financial interests is essential.
- Transparency of politics, and specifically the transparency of political donations needs a radical overhaul. It is an absolute nonsense that donations are not published as they happen, and that so many loopholes are available. We will never get rid of the cash in Aldi bags, unfortunately, until we rid ourselves of political processes infested with people with interests focussed on narrow and too often personal outcomes. However, we must make a start. Similar transparency needs to be in place so we can see the pork as it is dished out. Often money spent in electorates is well deserved, needed, and has considerable community value, and it is the role of members to address as many of the local issues as they can, that is what they are elected to do. However, the blatant pork barrelling that has been going on is a disgrace to us all, and a blight on our community values.
- Manufacturing matters. The disruption of supply chains brought about by Covid, Brexit, and the Chinese pachyderm have, or should have, focussed our collective minds on the value of a robust domestic manufacturing capability. We have become rich and lazy digging great big holes and farming broad acres to flog off commodities. This has given us a false sense of security, a belief that the world needs our coal, iron ore, wheat, and barley. The world can exist without us, and we seem surprised. We are in desperate need for manufacturing value adding and have left it late to come to that recognition. Sadly, this need may not yet have dawned on those elected to look after our long-term prosperity.
- It is of little value to bleat about the lack of manufacturing, when we have not educated our kids to believe there is a great life to be lived with a technical and STEM education. The gutting of our technical capability has been progressing incrementally over the last 30 years, and will not be addressed by simple Band-Aids and press releases. Investment in education is a fundamental pillar of long-term prosperity, and we need desperately to get on with it. As a side benefit, this will also serve to moderate the increasing polarisation of wealth in the community, but again, a long-term outcome.
- Let us not forget the catastrophe that enveloped the east coast in flames a year ago, catching us short in preparation. As a principle, it is hard to invest today in measures to mitigate something that that may, or may not happen. It is hard to quantify the risk and rewards of such investment. However, if we have learnt anything from the past year, it is that we must be prepared. We do that by listening to the science and acting in anticipation. Our grandchildren will thank us, whereas I suspect if we continue as we are, they will be cursing us.
Thanks to those who comment, share, and otherwise find value in my musings.
Have a successful and disaster free 2021.
Allen
Jan 22, 2021 | Governance, Strategy
Our world is as volatile now as it has ever been.
Planning assumes some level of predictability, sufficient to make resource allocation decisions that will drive activity in the future, even if that future is next week.
Planning in this environment, much beyond lunch tomorrow is challenging, and long-term planning in the manner most are used to, downright dangerous.
Instead, we need to focus on probabilities of outcomes, and plan for them, recognising there will be inconsistencies and unanticipated things happening around us every day.
Never has that old chestnut ‘Plan for the worst, hope for the best‘ been more relevant. However, hoping is not a strategy, so it pays to plan with probabilities and the attendant risks in mind.
Thinking creatively and delivering three scenarios greatly assists the process:
The best outcome.
The worst outcome.
The predicted outcome.
This should not be a probability of 33% each, but a more nuanced assessment of the probability of outcomes given a variable set of assumed circumstances.
Inherent in planning to achieve a future outcome is the risk assessment process.
It is all too easy to use a spreadsheet to extrapolate, but spreadsheets cannot think, weigh up probabilities, and make qualitative assessments, all of which are necessary in any sensible risk assessment. To comprehensively assess the risks in a plan, you need to look at the components of the plan, and at least acknowledge the impact of unplanned events on the overall plan.
You need to weight the probabilities of happening with the impact if, and when, they do!!!!
Risk = probability + impact.
How do you assess the probability?
The world is not a binary place, good and bad, black, and white, there are always shades. In assessing the probability of an occurrence, it pays to consider the scenarios from a range of different perspectives, mental models if you like.
This consideration is the most challenging part of the process. You must assume the future is different from the past, and the current, and for most people and institutions, that is extremely difficult. We shy away from uncertainty and ambiguity, tending to fall back on the known and understood, where we have a playbook that we know has worked.
Pity the playbook of the past will not tell us much about the future.
Need assistance thinking about this challenging stuff? Call someone who has done it successfully many times.
Header is from the StrategyAudit ideas bank.
