The only commercial vaccine for COVID-19. Cash.

Mar 20, 2020 | Governance, Management

The only commercial vaccine for COVID-19. Cash.

When things suddenly get really tough, as we are now seeing, the priority is survival.

That simple word means many different things to different people, but the common denominator is that you need cash to do it.

If your processes do not include short term rolling cash flow forecasting, the best time to start was before the do do hit the fan. The second best time is right now. There are many templates out there, but the information required is simple:

A forecast of the cash coming in.

A forecast of the cash going out.

This is not a managed number like a profit and loss statement, it involves only what goes in and out of the bank account.

My preference for most circumstances is a 13 week rolling weekly forecast. It is long enough to give a good picture, short enough to be sensitive to the immediate challenges that arise.

As a sibling to cash flow forecasting and a little more complex, is an exercise to ‘stress test’ your business. It is in effect a model to enable you to test to see how long your cash will last given a variety of assumptions about the trading environment.

To do a stress test, you need 8 pieces of added information, some will be forecasts, others will be sourced from your trading history, captured in the P&L and ledger accounts. The importance of each will vary depending on the type of business you are in. For example, physical inventories in a service business do not exist, but there will be a work in progress number that can take its place.

Projected revenues

Margins

Fixed costs

Variable cost of goods sold

Accounts receivable

Accounts payable

Inventories.

Cash reserves and available lines of credit

You can make this a sophisticated and challenging exercise, and in a large business, it should be. However, in an SME, it should be simple enough that a competent bookkeeper will be able to create a simple spreadsheet that will reflect the impact on your cash reserves of changing assumptions about any of the variables. Even just the conversation about the weighting of variables going into the stress test model, and their underpinning assumptions, will be extremely valuable.

When you could do with an experienced outsiders input, give me a call.

Header cartoon courtesy Scott Adams and ‘Dilbert’

The critical key to reliable forecasting: Be less wrong.

Mar 18, 2020 | Change, Management, Uncategorized

The critical key to reliable forecasting: Be less wrong.

Thomas Bayes. 1701 – 1761

The key to good forecasting, that magic elixir most of us take, is not to be right, but to be increasingly less wrong.

We know the future will be different, being less wrong about that difference is better than consuming resources trying to be right, because you never will be.

For a decade, several decades ago, as marketing manager of a very significant business, I did a weekly sales record for about 50 SKU’s, by hand. It was in the late eighties, early nineties, the days before this was made easy.

Every Monday morning, I took about 15 minutes to record the sales on a sheet, with a 5 week rolling average, and a 5 week rolling forecast. Every month I did the same, but it took a little longer, as there were comparisons to the relevant quarter the year before, and budget, which took about 45 minutes.

In 10 years, I only ever got one forecast right, but was usually very close. Nobody took any notice at all of the forecasts of the sales force, despite them being part of the sales KPI’s. When manufacturing had choices to make about factory utilisation and what not to make, they came to me, and ignored the rest.

This was simply the building of a qualitative knowledge over time.

We routinely defer to ‘Bayesian’ statistics, a theorem proposed by English statistician Thomas Bayes in 1763, that dealt with the probability of a future event, and how that probability becomes more certain with the addition of information relevant to the outcome. We see Bayesian thinking all around us all the time. Every time we see an outcome to an action, and adjust before we repeat the action, we are using Bayesian thinking. Artillery is the obvious example. Use one cannon to get as close as you can, observe the degree to which you are long or short of the target, and adjust accordingly. When you land one on the target is when all the other cannons in the group adopt the same settings and blast away.

In business, we can spent inordinate amounts of time and energy trying to get the last 5% accuracy, when it would be far better to take a decision, and move ahead knowing that the chances are you will be wrong, but able to adjust and accommodate the degree of ‘wrongness’ with far less effort. This is the basis of continuous improvement, Plan, Do, Check, Act.

Bayesian theory at work, every day.

Has ‘The Bug’ created an organisational crossroad?

Mar 16, 2020 | Change, Strategy

My eldest son has been talking to his employer for some time about remote working.

He and his family wanted to get out of Sydney, with its attendant challenges, and have a simpler lifestyle.

Problem has been, the simpler lifestyle also limits the job opportunities, particularly in the relatively narrow field where he has developed experience and expertise.

He conducted an experiment, both for himself and his employer, by working remotely for 6 weeks, from Tasmania. His boss was happy, as was he, and so the idea flourished to the point where he sold his unit a couple of weeks ago, just after his boss’s boss informed them that remote working was not on the agenda, and not acceptable.

This was all before the great dunney paper rush motivated by ‘The bug’ over the past few weeks.

I wonder if the attitude has changed? I know Geoff and his family are committed, and in the absence of a job, will move anyway and try their luck, cashed up as they are.

What does Geoff’s employer have to do to make remote working a part of the way they work?

They have to undergo a digital transformation, supported by a cultural one. In a global company in a regulated market, this is not easy. In fact, the only easy thing about it is to kick the can down the road, so it is someone else’s problem to solve.

However, Millennials are not the same as us baby boomers. They are looking for something more, and are very mobile, risk takers, and unlikely to stay with an employer who does not meet, or even try to meet their needs.

I have prepared a list of the elements Geoff’s employer needs to think about, if they are to transform, and have the chance at retaining the training, commitment and intelligence Geoff, and his cohort bring to the table.

Change of this nature requires leadership and overt commitment from the very top, cascaded through the organisation. This means that there is a mandate to change from the top, and the necessary resources and leadership are made available. When change is slow, or not forthcoming, the leadership needs to remove the roadblocks, ensuring the ball keeps rolling, building momentum.
All stakeholders need to understand the reasons for the change, and the value that is created by the outcome. In the absence of an articulated reason for the change, it will stutter.
Organisation structures need to change from vertical siloes to cross functional collaboration. While this is organisationally and operationally difficult, it is logical, as the customer does not care which part of the organisation addresses their needs, they just care that it is done in a timely, reliable and efficient manner. Organisation structures have to evolve to reflect the customer journey, they can no longer dictate how that journey will be fulfilled. Siloed organisation structures generate ‘transactional friction’ for customers, and the millennials amongst them generally will no longer tolerate it, so they will go elsewhere.
These changes are not a digital transformation, they are an organisational transformation that uses the evolving digital tools to add value to customers. Too many become obsesses with the tools, when it is the outcome that counts.
Transformation of any type ultimately boils down to the people, it is them who will engage and push the cultural transformation needed, it just requires the permission and tools to do so.
Somebody, somewhere, has to build and approve the business case for all this. Change is risky and potentially expensive, but is a necessary part of commercial sustainability. In the absence of a business case that finds a way to articulate the desired outcome, in a manner that everyone understands, the change process will grind to a halt under the weight of the status quo.

The bug may be the catalyst that kick starts remote working. If I was a share market punter, I would be tumbling all my spare cash into businesses whose product was enabling this move. Zoom, for example, as well as the integrated cloud systems, Microsoft, Cisco, Zoho, et al. My son is well down in the pecking order of a very large corporation, and seemingly irrelevant to the success or otherwise of the organisation, but losing him, and others like him, will slowly rot the business from the core.

Header cartoon courtesy Mike Luckovitch

Canberra bubbles bumble on

Mar 12, 2020 | Governance, rant

#Scottyfrommarketing blew it again on Tuesday morning, (March 10) further demonstrating why he had to move out of marketing, where you need a modicum of common sense, into politics, where common sense appears to be a liability.

He was speaking at the Financial Review business forum in Sydney, looking at the strategic challenges that face us. Amongst his words was an exhortation for business to keep people employed, to keep temporary and casual workers on the payroll despite not having work, for the good of the nation, to help them feel like they were proper Australians.

If he had any common sense he would have known, and as PM, should have known, that those running businesses do so for reason other than patriotism, indeed, they have a fiduciary responsibility to deliver returns to shareholders.

As an alternative to his naive and fluffy exhortation, he should have pointed out the costs of rehiring and retraining employees, the hidden transaction costs, adverse behavioural impact of survivor syndrome on employers, and the opportunity costs involved in cyclical staff management. Produce a few statistics from one of the many bureaucracies tracking this stuff, accompanied by a few real case studies, and the impact would have been significant. As it was, the impact was nothing more than further confirmation that the PM is not dialled into the real world.

I noted, ‘again’, in the opening sentence for a reason. It was not the failed responses to the fires, wooden recognition that there might be a problem emerging from climate change, or the astonishing revelations emerging from the shallow end of the pork barrel pool. It was driven by the stupidity of turning away from the opportunities offered by the rapid evolution of the world economy from fossil fuel to renewables.

Australia has plenty of space for mass solar panels, the resources required to produce batteries for storage, and the opportunity to be at the forefront of developing Hydrogen as a renewable energy source. It has just been too expensive in the past, and requires a lot of energy, to date supplied by fossil fuels. It will not be so in the future. But unfortunately, our scientific resources have been decimated, and what is left, directed elsewhere by ideologues and ‘flat earthers’.

Having sent brickbats in his direction, it is fair to be even handed.

This morning the PM announced the expected response to the virulent growth of the Corona virus. To me it appeared to be measured, sensible, and appropriate, and to be fair, again, the PM appears to be in front of the game this time. Perhaps #scottyfrommarketing is finally listening to those with some expertise in the arena he intends to flap his gums about.

Header cartoon courtesy Mark David and Independent Australia

An extreme case of Marketing Alchemy: Bananas!

Mar 11, 2020 | Branding, Marketing

Italian artist Maurizio Cattelan may have set a new world record. He taped a banana to a wall in an art exhibition in Florida on December 7, 2019, which was then sold for $120,000 (US) dollars.

The buyers, Billy and Beatrice Cox acknowledged the absurdity, but supported the impact the taped banana had on conversations about art. As a marketer, I am in awe of the process by which Cattelan turned a perfectly ordinary banana, into a cash cow.

Marketing alchemy at work.

A competitive artist at the exhibition ensured the banana would not go off, by eating it. An act of sabotage, or extension of the publicity the ‘thingo’ (I have difficulty calling it art, or even exhibit) generated.

Nevertheless, it is a massive demonstration of the contextual impact on the perceived value of an object.

You can buy an Eric Clapton signature Stratocaster for a couple of grand, new, or had you been at Christies in New York on June 24, 2004, you would have seen Eric’s Stratocaster (nicknamed ‘Blackie) that was the mainstay of his playing during the heydays of ‘Cream’, sold for $959,500. Better value than a banana, at least you could have resold it, rather than have some goose run up and eat it.

All this proves, once again, that utility has little to do with value.

Update: November 2024. The monkeys have really come out to play. The original buyers of this ‘art’ the Cox’s sold it subsequently for 184k, on-sold twice more for 150k and 230k. It has now been sold again at an auction in new York for 6.2 million according to a video in X. (which I always believe to be the truth..???). The absurdity of this is disturbing, Every few days the thingo has a new banana added, presumably to keep the ‘art’ fresh. I have never heard of such marketing alchemy as this! https://tinyurl.com/w7ma9fvx