8 ingredients for  an idea stew

8 ingredients for  an idea stew

May 2, 2018 | Change, Innovation, Strategy

Ideas do not emerge from nothing, despite the hype, they do not just appear in the shower. They are always a product of a process, conscious or unconscious that connects and curates thoughts, knowledge, ideas from other domains, that can be used in a different way, connected where there was not pre-existing connection, and that have a hook of some sort that does something new. As J.M. Keynes observed:  ‘The difficulty lies not so much in developing new ideas, but in escaping from the old ones’

Ideas evolve and like any evolution require a set of conditions that encourages individual survival, evolution over time, and eventually success for a very few.

There are 8 ingredients to an idea stew.

Allow Prep time.

Every stew has a base, a foundation upon which the variations can be built. While the base is often obscured, it is nevertheless critical. Taking your time to determine just what you have available for  the stew, that will meet the objective, and then organizing the ingredients in the right amounts to be added in a sensible order with any necessary ‘sub-assembly’ being done will improve the outcome. Your idea stew is built in the same way, on a solid  foundation with research, and the results of previous trial and error to hand. The more work you put into the prep, the better the outcome usually is.

Have a pot.

To create a stew, you need something in which to hold the ingredients as they cook, each ingredient influencing the others, and the outcome. Making a great stew without the resources necessary, the time, access to ingredients, the right implements,  and obviously a kitchen, is pretty challenging, next to impossible. While you do not necessarily need the top of the range, you do need enough to manage the process with some degree of control and efficiency.

Have a deadline.

Usually when preparing a stew, it is for something specific. Dinner tomorrow night, for the weekend when the neighbors come over, or standby for the freezer.  Creating an idea stew is no different. The presence of a deadline, perhaps counter-intuitively, creates tension, pressure to get things done, and it focusses attention on the details so things do not get left undone.

Have a picture of the outcome.

The stew you are cooking has to serve a purpose, it has an audience, and the audience shapes the stew. Just as you would not put a pile of chili in a stew your young kids will be eating, you need to ensure that the ingredient in your ideas stew are consistent with the sort of outcome you are seeking.

Be prepared for diversity.

Sometimes, someone who may be a great pastry cook, but knows little about stews can bring across something from his discipline that adds something very different to the stew.  While this diversity in the ‘cooks’ often draws comment, the last thing you want if you are looking for a different stew, is to have only those who are used to the current recipe involved in thinking about the options that may be there.

Have a process plan.

Every stew is made in some sort of sequence, separate steps taken in some order, with interdependencies amongst the ingredients. While each step is not necessarily fixed, there are some things that must come before others can be properly done, to get the best outcome. A stew also takes time for the flavor to develop, for the little touches to be added that make all the difference, a pinch of this, a dash of that, all in the context of the plan, to avoid mucking up the result with that little last minute addition.

Creativity: The vital ingredient.

Perhaps a better word is ‘catalyst’ in a commercial context, as there are elements of creativity in all of us. However, for many it has been beaten out by the education we have, the institutions we work for, and at a more base psychological level, some of us are simply not risk-takers, not outside the box thinkers, so are of limited value for creative input. It is in effect the difference between a very good cook, and a chef. Give a great cook a complicated recipe and they will execute it by following both the recipe and the methodology, but give them a limited pantry and no recipe, and many will struggle. By contrast, the chef gets bored with the recipe, and  prefers to experiment. The outcomes are varied, most will be disasters, bit a few will be spectacular successes. Businesses succeed by doing the same things over and over, getting  better at it all  the time. A necessary ingredient of this mix is to get rid of those who cannot follow the process. However, for a business to renew itself, to cook an entirely new stew, it requires those who do not go by the rules, who think outside the box, sometimes outside the postcode. You also need to keep diligent records so that the unexpected great outcome can be reproduced, often a challenge for the creative ones who get bored with the recording when they can be doing. Pity you got rid of them all because they are a pain in the arse to manage!

Ask a friendly customer.

Asking someone you hope might put their hand into their pocket and give you their heard-earned in return for a taste of your stew seems to be a good idea at some point before you commit to the expensive launch. Generally, the earlier the better, and the more informed and critical their opinion of your evolving stew, the better.

A marketers explanation of the difference between an ‘Intangible Asset’ and ‘Goodwill’

A marketers explanation of the difference between an ‘Intangible Asset’ and ‘Goodwill’

Apr 30, 2018 | Change, Governance, Strategy

When you look at a balance sheet, the intangible elements of it are either the outcome of ‘boilerplate’ accounting standards that bear little resemblance to reality, or are the function of a management narrative. Neither is of much use, and both can be destructive.

For example: under the accounting standards, intangible assets are listed on a company’s balance sheet only if they are acquired, and therefore have an identifiable cost, and usually lifespan that can be amortised. Assets developed internally have no place on a balance sheet.

Of course, neither goodwill or intangible assets as recorded have little ’cause and effect’ connection with the share market valuation, which is all about future cash flows.

The Coca Cola logo is generally ‘valued’ in the billions, but does not appear in the balance sheet because it was built internally, rather than acquired. Were a company to acquire Coca Cola, there would then be a value that could be pinned to the logo, which would then appear on their balance sheet. The caveat is that there are mechanisms to place a value on an intangible asset that can be recorded, usually involving independent valuations, but these valuations come with a grain of salt.

A further example. When developing a new product, the outcomes of that effort may be seen as an intangible asset, but it appears nowhere except the P&L, as development expenses. Assume the product is a pharmaceutical product, years in the development, and very expensive, this is a drain on cash flow in the hope that there will be a pay-off. Prior to commercial launch, it has been patented, the efficacy proven, then the patent becomes a tangible asset, as a dollar value can be attached, and the patent is tradeable. The brand name of the new product will become a new intangible asset, not reflected anywhere beyond an implied connection to the value of the patent. Over time if the product is a market success, the value of the patent will increase to reflect the future cash flows that will result from ownership, to a peak, after which the cash flows will be subjected to competition from generic products that will become available as the patent period runs out, so the value is reduced. The brand name has no value in the books, until it is sold, perhaps along with the patent,

The key distinction between goodwill and intangible assets is that the goodwill has been purchased, so has a market defined value. Google paid $12.5 Billion in 2011 for Motorola Mobility, entirely  for the patent library they owned. At the time, Motorola was close to broke, their products which had led the mobile phone market had suddenly become irrelevant when they missed the smart phone revolution. The patents were transferred to Google, who then sold the remaining  hardware business to Lenovo for $3 billion, without the key software patents. On paper, Google took a $8.5 billion loss, but retained the patent library and intellectual capital associated with the Motorola development labs. This gave them greater leverage with the users of Android mobile software, predominantly Samsung, and protection against the relentless patent wars with Apple. A great deal.

Lenovo would have an item on their balance sheet that values their purchases from Google, but there is nothing on Googles balance sheet beyond the  ‘loss’ they incurred in the transaction, which fails to reflect the future value they will derive from the ownership of the patent library.

However, there is a sea change going on. According to research company Ocean Tomo, the proportion of US Fortune 500 companies stock market valuations represented by intangible assets has gone from 17% in 1975 to 87% in 2015.

The lesson here is that the world has changed, so called ‘soft’ assets are now more valuable than the physical assets that accounting systems were designed to track.  Focussing effort on building those soft assets will pay long term dividends, which cannot be readily accounted for in the monthly financial reports.

For most of my client base, the notion of intangible assets is far-fetched, until they come to valuing their business, when a primary asset becomes the relationship they have with their major customers, and how ‘sticky’ they might be seen post a sales transaction. It is this ‘stickiness’ that is a primary driver for the acquiring company to keep the key personnel employed on a pay-out contract based on a period of time and key KPI’s, to better manage the smooth transfer of the relationships.

Header from http://www.oceantomo.com/2015/03/04/2015-intangible-asset-market-value-study/

What does the FMCG future look like?

What does the FMCG future look like?

Apr 27, 2018 | Customers, Innovation, retail

It is easy to be critical of just about anything, much harder to be constructive, and make suggestions about how to  change the things that attracted the criticism.

In my case, I have been critical of the retail gorillas, Coles and Woolworths for some time, specifically their capacity to change what appears to an outsider, to be their strategic priorities.

As a shareholder in both however, (via managed super rather than choice) I have been rewarded by the returns.

So, I am going to stick my neck out and make some observations, in no particular order, and would welcome feedback.

Delivery services.

Busy crowded lives seem to require a delivery service, and Coles and Woolies have dabbled in it with the delivery trucks we now see around. I have not used either, but several acquaintances have, several extensively, and generally just shrug with resignation at the inaccuracy, inconsistency and uncertainty involved, and wonder if it is worth it. Perhaps the order/pick-up combination will be the answer to the ‘last mile’ problem, as most of us have cars.

In the US there is a service called ‘Instacart‘ that appeared to be doing an ‘Uber’ on grocery shopping and distribution. In Australia, ‘Uber eats’ seems to be bobbing up everywhere, delivering from all manner of food service outlets. Shopping and delivering seems to be a small step to take, or just the delivery part after order assembly in store.

By contrast, Kaufland in Germany appears to have walked away from their on line grocery services, citing the costs of the ‘last mile’ making it unprofitable. This is in the face of Ocado in the UK seeming to go from strength to strength.

In summary, a lot of experimenting to do before the best model evolves, but the common element appears to be basket size. Encouraging on line shoppers of any sort to increase the order size makes some of the other problems less important. It is a standard retail metric, and even more appropriate for on line.

Digital marketing development.

Amazon has mastered the art of cross selling and using feedback to overcome the barrier of not being able to see, touch and feel products as you can in a bricks and mortar store. The current on line gorilla catalogues are just that, catalogues, little more. No cross selling, no recipes, no personalisation based on browse and purchase history, no seasonal suggestions beyond the digitisation of the generic  ‘shop now for Christmas’ stuff. With a few digital tweaks, the current catalogues look like the pages of Co-Op ads in the Wednesday afternoon  newspapers that used to be an important part of dealing with the gorillas.

Opportunity waiting?

Store automation.

Amazon has ignited retail with Amazon Go, poking into action all sorts of activity from the usual suspects as well as some unexpected places.

Hema supermarkets are quickly opening stores after 18 months of testing and development in a Shanghai pilot. Owned by Alibaba, the tech in these stores and the levels of service they offer will, or should concern the two Australian gorillas. Alibaba also has a pilot unmanned Tao coffee shop. I wonder at the quality of the coffee, but who would want to bet against that being commercialised?.  Another Chinese start-up called ‘Bingo Box‘ is planning unmanned convenience stores after a (reported) successful pilot in Shanghai taking Amazon Go type technology a step further.

It also seems obvious that there will be automation applied to the routine and labour intensive job of shelf filling, facing up, and highlighting offers of various kinds. Wal-Mart is experimenting with that idea in 50 stores, using robots to check inventory stock weight, location and pricing, and the other US retailers are not being left behind. Kroger is playing with mobile apps, to communicate offers, lists, coupons, and personalised messages, as well as scanning items in store to reduce checkout lines.

Supply chain automation.

Somebody, somewhere,  will apply Blockchain to the entire supply chain for a product. It will be  kicked off by a consumer taking a product from a shelf, being relayed back through the chain, creating production orders, invoices, inventory management, all ending up in an automated Kanban system at the store selling face, creating a genuine demand chain. The technology to do all this exists, in pieces, so putting it together will not be far off.

The only thing certain about the above thoughts is that there are many I have missed.

Photo credit; Mark Stevens via Flikr

Is Anzac day still relevant?

Is Anzac day still relevant?

Apr 25, 2018 | Personal Rant

Today is Anzac Day, 2018. 102 years after the photo above was taken, and my daughters 33rd birthday.

All are significant.

It seems to me that Anzac Day is a day when Australians can, for one day a year, have a common view about something, about where we came from.

On those beaches in Turkey were men from many nations fighting under the Australian flag for something  they did not understand,  had not expected, for which they would pay a very heavy price, and which would end in withdrawal rather than face defeat.

As a boy, it seemed to me that Anzac Day had had its day, there seemed to be little interest, beyond the blokes who had been there using it as a reason to catch up with mates, and keep the breweries solvent.

Many ex-servicemen however would not go anywhere near it, my father being one. He was in the Air Force, and did a bit of hiking in New Guinea keeping clandestine radar stations working in the humidity, and would not talk about any of it, and certainly did not want to be reminded every April 25.

In the mid 70’s I worked for Contiki as a courier on camping tours in Europe and Russia. While we went past Gallipoli on one of the tours, a stop was not on the itinerary, something I felt was wrong, so went there anyway. Very few of the 20 something’s on those tours knew anything about the campaign beyond the name, but the place is haunted, and by the time we had spent a bit of time wandering around the Lone Pine memorial, with me telling the few stories I knew, they were all infected.

Now Anzac Day has a renewed place in the Australian psyche, irrespective of your origins. I have friends born overseas who see it as a foundation of their commitment to their new country, and I doubt if there is a 20 something who cannot relate at least a bit of the history.

To my beautiful daughter, born into a lucky country on a significant day 33 years ago. She makes a contribution to the future of the place as a paediatric physiotherapist, by giving kids opportunities they would not otherwise have, a bit like those who landed on the beaches at Gallipoli, just somewhat less dangerous.

Happy birthday Jenn, and have a great Anzac day.

 

Is marketing’s greatest failure in the boardroom?

Is marketing’s greatest failure in the boardroom?

Apr 23, 2018 | Change, Governance, Leadership

There have been libraries written about strategy, and particularly marketing strategy. There are now multitudes of tools and templates available to develop and implement, but the gap between the development and successful implementation of marketing strategy is huge, and hard to navigate.

Marketing is a functional silo on an organisation chart, as is Sales, Operations, Finance, HR, but unlike the others, marketing deals with unknowns, the future, whereas all the other functions deal with the past, or what is immediately in front of them.

Marketing is about the future, long term commercial sustainability, and its effectiveness is really hard to measure, other than in hindsight. There are lots of measures for things that have happened, which are the result of often many combinations of actions taken some time ago, so the measures are unable to change anything, just give insights to what worked and what did not.

As the senior marketing person in a very large business 30 years ago, I found myself often talking about advertising, segmentation, positioning, graphic design, and all the rest, around the board table, which either put others to sleep, or elicited opinions, usually uninformed, about the detail. However, when I talked revenue I had their attention.

Marketing is all about revenue, particularly future revenue. The other stuff is the paddling under the surface that enables the generation of the revenue, but the real measure of marketing effectiveness is revenue and margins over time.

In every business I have ever had anything to do with, marketing expenditure is treated as an item in the P&L. By definition, items in the P&L are expenses or past sales revenue. This is inconsistent with the notion of marketing being about building the foundations of future revenue.

The closest analogy is a piece of capital equipment, they are always purchased to fill one of two roles, sometimes both:

  • Increase the volumes available too be sold,
  • Increase the productivity of the processes.

Those purchases are recorded in the journals, posted to the appropriate ledger account and reported in the cash flow statements, and the balance sheet, not the P&L. The greater irony is that capital items are depreciating assets, whereas marketing  investments, when done well are appreciating assets, unrecorded anywhere except the P&L as an expense until the business is sold, when the accountants start talking about ‘Goodwill’ being the difference between the realisable value of the physical assets, and the liabilities on the books.

There is a structural paradox here. We treat a potentially appreciating asset differently to one that can only depreciate, just because it is hard to measure.

This challenge of measurement is the biggest one marketing people have to hurdle. The turnover of marketers in senior roles is the fastest amongst the functional heads in large corporations because we generally do not recognise the essential long term business building nature of marketing investments. We treat it as an expense to be cut at the slightest cloud on the profitability horizon, and the marketing people with it.

One of the challenges here is that to achieve these long term outcomes, marketing requires the co-operation and  collaboration of all the other functions, without the organisational authority to direct. The CMO has to be a leader across functions. He/she has to build the respect and co-operation of other functional leaders, often at odds with their short term function specific performance measures.

25 years ago, I and my marketing team, failed to convince the board of the then Dairy Farmers Co-Operative to invest the required capital in new equipment to launch a new brand of flavoured milk. It was to be packaged in plastic bottles, with a screw cap, to be sold at a very considerable premium to the products then only available in the gable top cartons, and we proposed to sell it to different consumers. Nobody had done this before, we were banking on tapping into a market completely under-serviced by existing packaging and branding. The Operations Manager at the time believed in the project, and put his neck on the line by committing  his R&M budget to refurbish some older gear in the absence of capital approval, and I ‘stole’ the required advertising funds from another brand.  We launched Dare Flavoured milk, and it delivered the fastest return on investment I have ever seen, and 25 years later, it is still going strong, delivering revenue and margins to the now overseas owners of the business.

If marketers started talking about revenue generation, rather than the more common ‘marketing-speak’ like positioning, segmentation, and all the insider jargon generated by digital, they will be taken much more seriously around the board table. Building support amongst other functions to acknowledge the long term impacts of intelligent marketing, is necessary for long term prosperity, and the only real measure of marketing effectiveness.

The management task is all about getting the most out of the assets and capabilities of your business, and it is marketing management that carries the usually unarticulated responsibility to drive the collaboration necessary to achieve the best outcomes.

This task has four dimensions:

Operational management, strategic management, Financial management, and performance ,management.

Strategic management is all about the manner in which you address your market opportunities and challenges, and has a long term focus on commercial sustainability.

Operational management is the manner in which you deploy and utilise the assets of the business on a day to day basis to add value that customers are prepared to pay for.

The financial management of a business provides the basis for the assessment of success, or failure. It is a scorecard that is capable of comparison, across activities, business functions and timeframes.

Lack of a good financial management framework is a bit like walking blindfolded into a minefield, you might be lucky for a while, but eventually you get blown up.

Financial management is far more than just running the numbers, and ensuring compliance with the tax and corporate rules, it is about being in a position to make the choices that need to be made across the business every day, that shape not just today, but build the resilience necessary for commercial longevity. Understanding the numbers is a core part of every management job, not just of the financial people.

Performance management. Performance management is all about getting the most out of the assets and capabilities your business has, and can purchase in, maximising the productivity of the assets of all types you have deployed.

Manufacturing is the backbone of the economy, and is not taken sufficiently seriously by current national leadership. While we migrate to an economy whose GDP is less dependent on ‘hard’ assets, to one that emphasises ‘services’ we fail to adequately factor in the foundations that manufacturing delivers. In our age of ‘digitisation’ the value coming from increasing productivity is ill defined by the measures employed in the past. We need a new suite of measures, based on the old, but adapted to reflect the reality of a changed world. This is particularly as it is now an international race, without the protection of geography, and less of the artificial protection of regulation, despite the regular hiccups that result from populist politics, and just keeping up requires a substantial effort and investment.