May 6, 2022 | Customers, Governance
The Financial service industry is the last bastion of the defence of the 20th century business model where the seller had control over the vital product information.
In those old days, you went to your bank branch where the manager knew you, your kids, your financial position, and was someone to be trusted.
When did that change?
Now you cannot get to see anyone in a bank who either knows your situation, cares, or can make any sort of decision.
This personal relationship has proven time and again to be one of the most important in the lives of most people.
After the Royal Commission into ‘Misconduct in the banking, Superannuation and Financial Services Industry’ which reported in February 2019, most thought that the shenanigans of banks would be cleaned up.
Not as such, as Monty Python would say.
Banks are not required by regulation to take steps that are in the best interests of their clients.
This means that they can, and do, sell you products when they know absolutely that there is a better deal, or one that better fits your circumstances readily available elsewhere.
By contrast, when you deal with a broker, they have a legally enforceable fiduciary duty to ensure they are always acting in their clients best interests. This means they are prohibited by law from behaving the way banks routinely behave.
If there was ever a good reason to go to a broker to find finance rather than directly to a bank, this is it!
You know that a good broker has found the best deal possible, having scoured the landscape for the best deals, because they will be prosecuted when it is found they have not.
Pity the banks cannot follow the same rules, although if they did, and they still had their clients best interests at heart, there would be no need for a broker.
The information, or at least the understanding of the information is skewed away from the consumer of financial services.
Finance is one of the last markets where it is difficult for the average consumer to do a realistic assessment of their best option. In every market I can think of, except financial services, the net has democratised information. No longer do the sellers of a product have all the information needed to make informed decisions, and dole it out as it suits them, to best serve their own ends. The web changed all that, forever.
The regulations applying to financial services have become so complex, the options so wide, and the nuances of options so difficult to understand, that most still need a specialist to navigate the potholes.
Many of the broker groups are owned or at least controlled by banks. Where is the responsibility for doing the best deal possible for the client lie in that situation?
Not with the bank controlled ‘pretendy’ brokers.
No, the best deal is to find an independent broker you trust, one who takes the time to understand your situation, then allocates the time and resources to scour the landscape for the best deal possible for you.
Not the best deal easily available, but the best possible.
It seems the obvious scepticism of Royal Commissioner Hayne, obvious to all when refusing to shake the Treasurers hand when formally handing the Commission report to the government in February 2019 has been confirmed.
May 4, 2022 | Leadership, Operations
Any company that has grown bigger than about twenty or so employees has developed functional silos as a necessity. The bigger the company, the more focussed and powerful drivers of behaviour of functional employees those functional silos become.
At some point, they risk becoming self-preserving organisms, which seek survival and growth in an internal environment that competes for scarce resources to be allocated.
This is always a huge problem when seeking to generate change.
Water runs downhill, it finds the easiest way down, it builds momentum, continuously making minor adjustments, carving out a modified route as necessary.
Individuals in an organisation have a choice. Metaphorically, they can just ‘go with the flow’, or they can create friction and try and redirect the water. Few attempt to redirect the flow, and fewer still have the power to mandate it.
At some point, someone comes in and says we want some water back at the top of the hill, so someone gets some buckets, fills them, and starts back up the hill.
Almost always the journey is too tough, and they give up.
The momentum of the water still flowing down the known tracks beats them.
The task of leadership is to make that journey easier, to enable the individual to redirect their piece of the water flow, not to where it is easiest, which is the way it went last time, but to a new way, forging minor changes that cumulatively create the new best route to the end point.
Customers do not care about your internal structures, rules, and priorities. They want their product as ordered, at the agreed price, on time, no defects. This is inherently cross functional.
We have organised businesses for our own convenience, when in fact they should be organised for the convenience of customers.
Header photo credit: Lunayuna via flikr.
May 2, 2022 | Communication, Customers
The BATNA (Best Alternative to a Negotiated Agreement) has become an essential tool in the negotiation toolbox, yet many leave it in the box.
It is, in effect, your ‘walk-away’ point.
However, before you walk away, there are always alternatives that can be considered. Identifying these alternatives that make the ‘pie bigger’ is often a challenge only overcome after considerable work, but having done this preparation before entering the negotiation starts will always be useful.
Understanding your own BATNA is essential, but it is just as important to understand as best you can, the BATNA of the other party, or parties.
What do they value that you can deliver?
What are their ‘non-negotiables?
Will the decision maker be at the table?
How can you make the pie bigger for them at little cost to you?
There is a myriad of questions you can ask yourself that will give you a better feel for your relative position, simply by thinking about them, and assembling some information that may otherwise have been overlooked.
In a negotiation, we tend to automatically set ourselves for some sort of compromise. We assume that the net effect of the balance of wins and losses for both parties in the compromise will be the most satisfactory outcome for all.
Often it is not.
Prospect theory, first articulated by Daniel Kahneman points out that the pain we feel for a loss is much greater than the joy we feel for a gain. If we are given $50, we just say thanks, and are happy. If we are given $100, then $50 is immediately taken back, we feel pain. The outcome of both is the same, we are $50 ahead, but the balance of pain and joy is completely different.
This applies in a negotiation when trying to balance gains and losses for an acceptable outcome. At a rational level we can reach an agreement on the net outcome, but at an emotional level, a compromise generally does not allow for the impact of prospect theory on the perception of an individual of the net value delivered.
It will pay you to consider deeply how the impact of this disparity between gains and losses will be felt.
Negotiation is all about the recognition, articulation, and exchange of value.
The challenge is we all see value differently. Being able to recognise the value as the other parties in a negotiation see it will deliver hugely valuable insights to be leveraged.
In other words, understand the psychological BATNA of the other party as well as you can.
Header cartoon credit. Scott Adams and Dogbert perfect negotiation tactics.
Apr 27, 2022 | Leadership, Management, Marketing, Small business
The inflation figures released this morning put the annualised inflation rate at 5.1%, up from 3.5% at the end of the December quarter last year. While it may bounce around given the volatility of fuel and food prices, the trend is very clear, and the current election driven lucky dip of spending promises will not help. This increase in a single quarter is the largest I can remember since the mid eighties.
Australia is in for a rocky ride, and it will not matter who wins on May 21, the impact will be felt in every corner of the economy, and by every Australian.
For SME’s who have weathered the challenges of covid and are now experiencing the added burdens of broken supply chains, and lack of labour, while trying to re-establish some level of certainty in their businesses in an environment where demand has ramped up, the prospects are daunting.
Irrespective of the decision made by the Reserve next Tuesday, to raise the cash rate from the current 0.1% to 0.4% or 0.5% which seem to be the prediction of the majority of economists, the squeeze is on. Raising the rate during an election campaign will test the independence of the reserve bank. I bet there are some phone calls being made!
How will this impact your business?
Those impacts will vary enormously depending on the industry circumstances. The rate that gets all the attention is a weighted average, with the actual sector numbers varying from a slight reduction in communication costs, to a 13.7% increase for transport costs.
- Labour costs will soar, as the demand for labour continues to grow, while immigration is still constricted, and the cost of living blows out.
- Transport costs, which most just see in the petrol prices at the local station, which impact everything that moves in the economy will quickly feed into cost of goods sold in every product category.
- Businesses will see a sudden increase in their accounts receivable days, their cash conversion cycles will become longer.
- There will be pressure on margins from multiple fronts. Volumes will be constrained as supply chain failures impact, and competitors scrambling for volume will be more likely to reduce prices to grab that extra sale. At the same time, costs are increasing, and price increases will be harder to get, as buyers exercise their buying power and shop around.
- You will be pressured by your suppliers for quick payments, as they are being squeezed for margin, just as you are.
- General overheads will increase. We have seen significant increases in lease costs for small factory spaces, insurance costs will be turbo-charged after the floods, fires, and pestilence of the last 2 years, down to the little things like costs of coffee for the lunchroom. All these individually manageable cost increases cumulatively add up to substantial and hard to control increases.
So, what should the SME’s that wish to remain successful be doing?
- Customers shopping around for a deal in greater numbers can present an opportunity for those who understand the drivers of Value for customers in their specific market.
- Resist the temptation to cut marketing and selling expenses. History demonstrates with absolute certainty that those that keep marketing when their competitors shut down in tough times not only do better during the tough times but retain their positions after the worm has turned. Optimising your marketing expenditure is not the same as cutting it.
- Actively engage employees and stakeholders in ways to maintain profitability. This should always be a priority, but is more pressing and visible in tough times.
- Focus on the 10 tactics outlined in the Inflation Busting Roadmap published previously
- Consider from the perspective of necessity the five types of cost in your business, with particular attention being given to the last three, as that is usually where the opportunities hide.
Many have not experienced a spurt of inflation before, the last serious spurt was in the mid-eighties while Paul Keating was treasurer. In management terms, this was over a generation ago. If the experience of those times would be of benefit, give me a call.
The header graph is from the ABS website updated as the announcement of the scary 5.1% heqadline inflation rate was announced.
Apr 25, 2022 | Leadership, Strategy
It is Anzac Day 2022, a day we remember those who fought to give us the choices we now have to shape the lives we lead.
In homage to the sacrifices they made, we need to be thinking seriously about the choices we are making that will impact on those who follow us.
Significant in those thoughts should be to think differently about the term ‘climate change’.
It is too narrow a term, implying we just need to be concerned about the immediate impact of CO2 on weather, and the human and capital impacts of those changes.
Instead, we need to be thinking about the challenges more holistically.
The planet we live on is an ecosystem, of which we humans are just a small but enormously influential part. For millennia, the impact we had on the eco system was inconsequential, but that changed with the industrial revolution, and have continued to change at a geometric rate. We suddenly are taking more out of the ecosystem than previously, impacting on the ability of the system to replace what we have taken, to the point where currently we are taking more than can be replaced.
An ecosystem is a bit like an investment portfolio. It benefits from diversity. When the diversity of any portfolio reduces, it makes that portfolio less resilient to outside shocks.
The planets ecosystem is being stripped of diversity, and as it is with an investment portfolio, it has become less resilient, less able to sustain itself. As a result, we are seeing those radical changes in weather patterns, and the consequential changes in climate.
There is nothing we do that does not come from nature. The oxygen we breathe, the water we drink, the foods we eat, the materials we use, all come from nature. We are part of the planets ecosystem, whether we like it or not, and we are consuming the resources of the ecosystem at an unsustainable rate.
Think of it as you would a balance sheet. On one side you have assets, on the other liabilities and equity. When your assets grow faster than your liabilities, you add to the store of equity. When it is the reverse, you deplete equity. The tipping point is when your equity is gone, and you can no longer sustain the difference between the rate in increase of liabilities over the production of assets. At that point you are bankrupt.
We humans have been depleting the assets of the planet unsustainably since the beginning of the industrial revolution, and the rate at which the depletion is happening is increasing. At some point, the music will stop, and subsequent generations will face the sort of dystopian future we see in sci-fi movies.
I think we have reached, or almost reached that point.
On this Anzac Day, as we have a BBQ in the back yard with friends, sink a few beers and stand in circles and throw a few pennies in the air, we should also be considering the legacy of our time in this place, and what we should collectively be doing about it.
It also happens to be my beautiful, educated and talented daughters birthday. Perhaps it is the thoughts of her children, yet to make an entry, that have made me consider the sort of world that my generation is leaving to them.
