Jun 22, 2022 | Governance, Management
Often, we hear the claim that government should manage the budget better, after all it is just like a hugely complex household budget.
The last election was full of the Liberals claiming to be better managers of money than Labour, despite the ample evidence to the contrary. Irrespective of who won a few weeks ago, we currently have a great big shit sandwich to deal with.
The basic difference between our households and the country is that as a household we look at the investments we make, from the new house to a cup of coffee down the road. Each is a simple and discretionary choice. When things are Ok and we have a bit extra, we have that coffee, and perhaps some avocado on toast for breakfast. When times are tough, we stay at home and have Nescafe and Wheat Bix. We judge what we spend by how much extra we have, and the return we get from making the investment. The more productive the investments we make the better in the long run we do, while suffering some squeeze in the short term to enable those productive investments to be made.
When we make a mistake and find ourselves unable to meet the debt repayments, nasty people with court orders come and take our stuff.
By contrast the government is making huge investments, increasingly as a proportion of the total government expenditure, on items with a very uncertain return beyond the moral one, such as aged pensions. Many others have a very long and hard to calculate payback, such as education and health care. Others such as defence, are a bit like insurance. When they are needed you are glad you paid the price, but if not needed, the payments have just been a waste.
When the government spends more than it collects by way of taxes and direct charges over the course of the economic cycle, nobody comes to take the furniture. In effect, the government just ‘creates’ more money by crediting the Reserve Bank account, which then enables the Reserve to release the funds publicly via the financial institutions. Commonly this is called ‘printing money’ or more confusingly, ‘quantitative easing’. The downside is that we then risk the corrosive impact of inflation that over time reduces the value of what we owe, while increasing the short-term costs of borrowing more, which is where we are right now.
The key is the ‘productivity’ of what is spent. Money circulating in the economy has a multiplier effect, the extent of which depends on whether the money is spent on consumption, or is reinvested in some way. The multiplier varies from very low, 1:1.5 or so, to 1:10, or 15 and up. We are spending way too big a proportion of the national tax revenue on items at the low end of the multiplier scale at the expense of investments at the higher end.
In addition of course, are the investments made in assets that are used by enterprises that make no profit to be taxed. No positive multiplier applies here, it is a negative number, dragging down the total productivity of the economy. Profits by multinational resources and technology companies spring to mind. It is like someone breaking into your house and stealing your wallet. You have worked for the contents of said wallet, but get no benefit from it. The robber sticks your money in an envelope and mails it (via the internet these days) to their friend in the tax-free zone of the Bahamas, Delaware, London, or some other exotic no tax on ‘foreign earnings’ regime to be spent on luxury homes, yachts, soccer teams, and more investments in the tax free cycle that depletes the productivity of their host economies.
That is why your household budget is different from the national one. Once burgled in our homes we tend to put up barriers to it happening again. Bars on the windows, alarms, and a big dog with teeth. We take no such measures in the economy. Indeed, we encourage more investment upon which we guarantee not to demand any return by way of tax from the investors.
How stupid are we?
Jun 20, 2022 | Change, Operations
Over time, as changes in the world trading environment evolved, corporations of all sizes matched that evolution through their supply chains by seeking efficiency.
China began to open its economy in the 1980’s, bringing a massive previously untapped labour pool onto world markets. The accountants in developed countries did what they do and took advantage of this cheaper labour by shifting manufacturing operations. This hit the labour market in developed countries hard, and drove change towards automation. The change also brought huge increases in the standards of living of millions of Chinese that increased total demand dramatically.
A key part of the automation processes was the deployment of operational improvement practises, lean, six sigma, JIT, and others. The driving force in these deployments was efficiency.
Over time as manufacturing focussed on efficiency, we did not recognise the downside sufficiently, and sacrificed the resilience in our supply chains against any sort of disruption. We engineered redundancy out, as it did not deliver efficiency.
This is all very useful in the relatively benign environment we had, barring a few hiccups like the 2008 financial meltdown. However, it becomes toxic when the brown stuff really hits the fan, as it did with Covid, and now the Russians. Having practised in Georgia in 2008, and the Crimea in 2014, they have gone after the bigger prize of Ukraine.
Suddenly the patterns of demand for all sorts of products from microchips to grains and consumer products have radically changed, and we discover the downside of engineering out resilience in favour of efficiency.
As one product becomes disrupted by the chaos, it creates waves of second and third level effects, many of which nobody has thought about. Suddenly, and belatedly, we recognise the interconnections and dependencies that compound the disruptions.
The huge challenge for manufacturing leaders is to devise new models that continue to build efficiency, while not sacrificing resilience.
Jun 15, 2022 | Communication, Marketing
The first Elvis festival in Parkes, NSW, was in January 1993. The brainchild of a couple of Elvis fans running a restaurant in the town, who thought it might be a bit of fun. A couple of hundred people showed up.
Every year since then, except the last two, it has grown. In 2009, 9,500 showed up, at the last one in January 2020, 25,000 showed up, supported by a worldwide online audience.
How does this happen, across all the boundaries we usually use to define who we are? Colour, religion, ethnic origin, age, social status, wallet size, and so on. The Elvis festival cuts across all these boundaries.
All humans are attracted to ‘people like us’. This is how we define ourselves. For the Elvis festival to succeed, all they had to do was define ‘people like us love Elvis’s music‘. The rest was easy, well, not easy, but on some sort of cumulative automatic pilot. For Elvis fans, defining themselves that way breaks down any other barrier between them and other Elvis fans.
There is a bloke at the local Gym I go to who from time to time creates a real stir. An Elvis fanatic, he does an occasional show at the gym for fun, during one of the classes. He dresses up and sings along ‘karaoke style’ to recorded Elvis music. He is terrible, but does not care a bit, and the classes end up being a huge, dancing, singing, sweaty party.
It is infectious. Few in that class would describe themselves as an Elvis fan, but the communal vibe breaks down all the barriers.
When you want to create alignment in your organisation, attract customers, or just be noticed, find something that everyone you want to communicate with can relate to. Find the hook that enables them in some small way to say to themselves: ‘that is for me‘
Jun 13, 2022 | Customers, Marketing
Manufacturing Week was last week in Sydney. I spent Wednesday there, snooping for solutions to problems most of my SME manufacturing clients may not yet recognise they have, and just looking for ideas.
Found one that might be useful, but it was hard going, very hard going.
There were 170 exhibitors in one of the ICC halls, ranging from the small 9 square foot booths to enormous installations that must have cost tens of thousands just for the floor space. On top of that there was the cost of the installation of the gear, manning the stands, and all the associated costs.
Every stand had the name of the company emblazoned somewhere.
Not one stand, not one, had any reference to the problems they solved.
Why?
It is useful to have the names up there. Many visitors would find their existing suppliers to have a yarn, complain about service, look at the new versions, or do a deal. However, those like me, with a problem to solve, the name of the company is of little use.
How much better would it be for them to have up in lights the problems their products are uniquely designed to solve?
I had a look at several participants websites, and they make the same mistake.
They almost all have an ‘About us’ page. It might make them feel good, but I am not interested in the family history, or the great awards they have won, I only care about the problem they solve for me.
They all fail my 3 second Vegemite test, and as a result have wasted at least part of the investment made in being there.
Where are their marketing people hiding?
Having thrown a brickbat, it is also fair to acknowledge that there was some pretty impressive stuff on show.
Header photo courtesy university of Woolongong.
Jun 8, 2022 | Leadership, Management, Strategy
Much of the volume of paper dedicated to pontificating about strategy these days seems to focus on ‘Purpose’. Sadly, we do not have a workable and agreed definition. What we do have is confusion about the meaning, particularly when you consider the other strategic pontification generators ‘Mission’ ‘Vision’ and ‘Values’
What are the differences, and how do they improve enterprise performance?
In my view, spending time worrying about the differences, and similarities is time wasted. All are words that should lead to four outcomes that will improve performance.
Strategy.
They all provide a framework against which strategic decision can be measured. ‘Does this decision enhance our performance in a way that assists to deliver whichever of the labels you choose to use.
Differentiation.
A well articulated statement of strategic intent, called by whatever labels you choose, supported by overt action can, and does offer the opportunity for a differentiated product offering that will be hard for competitors to copy. This generates incremental revenue, at enhanced margins when done well.
Human resources.
Most people would prefer to work for a company that makes a positive contribution to their community as well as offering competitive pay and opportunity. I have an acquaintance who used to recruit for a tobacco company. His experience was that they had to pay well over the odds, and accept a modest performer in order to keep bums in the seats to get the job done. BTW, I dislike the term ‘human resources’ but have yet to come up with a better one that does not sound confected.
Culture.
This often misused word gives a sense of direction, focus, behavioural norms, common ideals and risk management that enables the building of momentum. ‘Culture’ is the essential glue that holds enterprises together.
You do not need a strong purpose, or either of the other two to have a successful enterprise. Most have survived and prospered to date without one, but there is no doubt in my mind that it helps enormously, however you define it.
Header cartoon credit: Courtesy Scott Adams and Dilbert.
