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.
Jun 6, 2022 | Change, Collaboration
Fragmentation of supply chains is the reality post covid, and now with the turmoil in Europe, evolving attitude of the world’s factory, China, Brexit, polarisation of the US, and the increasingly fragile geopolitical world order.
Many businesses I see have spent considerable effort internally, progressively optimising their own operations. Very few have spent anything like the same effort externally, optimising the interactions with others in their supply chain with the objective of increasing the strength of the whole, rather than just increasing their negotiating leverage.
Making one link in a chain stronger is great, but it is the strength of the weakest link that is critical.
One of my SME clients faces this dilemma.
His business is in a rapidly growing segment of a very large and well established market. He is the last link in the chain to the client, and has done an excellent job over the last couple of years building the foundations that will enable him to scale at an increasing rate. He has a number of suppliers for a key part of his offering, to which he then adds the value to the end client. Each of those suppliers has their own set of challenges, but the common feature is that they are modest sized, often relatively new businesses, all are underfunded, and management structures and discipline are generally poor. To varying degrees, and in differing ways, they present barriers to my client’s growth.
Question is, how does my client inject the ‘improvement DNA’ into his suppliers, so that they can grow together, make the pie for both parties bigger?
Collaboration is the easy answer, it is just that the distance between where they are now, and a fruitful collaboration is significant.
In my experience, there are four critical steps to be taken. These are not always sequential, although the deeper you become involved, the harder it becomes to extract yourself should that be necessary.
Pick the right partner.
Choosing a partner for a long-term collaboration is not unlike picking a partner for life. None is going to be perfect, and it will take time and effort, but in the absence of the right foundations, it will not work. Jim Collins in his book ‘Good to Great’ offers the advice to: ‘start with the who and then focus on the what’. Seems to be good advice.
Your chosen partner, and making a choice is essential so that you can focus resources where they will have the greatest impact, must be aligned with your strategy, and vision of the future. Only then can you engage collaboratively in the journey.
Learn together.
We humans learn better in groups than we do individually. The greater the variety of input and perspective the better decision making. Quicker recognition and wide acknowledgement of errors, and understanding of why they were made, leads to more robust recovery from those errors, and growth.
Leverage each other’s strengths
Every relationship requires ‘give and take’. When you assist a partner to improve their operations, you will benefit. That benefit may not always be directly evident, but indirectly it will be there. Reciprocity is a powerful motivation, on top of the commercial benefits that accrue from optimised operations. Often it is the case that the strengths of one partner fills the hole left by the weakness of the other, greatly benefitting both.
Measure together.
‘What gets measured gets done’ holds true, although you must be cognisant of Goodhart’s law. This states that when a measure becomes an objective, it ceases to be a good measure.
Both parties should be on parallel and intersecting continuous improvement efforts. Where these intersect there is significant opportunity for mutual improvement. Most often that is where there are shared measures. The most common I have seen are ‘DIFOT’ (delivered in full on time) and production scheduling and inventory measures. For example, years ago a business I worked for built a small number of measures that had shared production scheduling and inventory measures across the two collaborators. The result was a radically increased rate of ‘flow’ between the raw material and production scheduling of one party and the inventory and volume offtake of the other. Both parties benefitted enormously.
Such collaborative efforts, when they are successful provide the most effective antidote to the fragmentation of supply chains. While your competitors struggle with the fragmentation, you and your collaborators can leverage your success into market share and sustainable profitability.
Jun 1, 2022 | Change, Governance
As the new government beds in, the usual hymn-sheet of ‘the budget position is worse than the previous lot let on’ is being sung.
All the public discussion will be about nips and tucks around the edges of the tax system, when the reality is that fundamental change is needed.
There is an institutionalised imbalance between the outgoings and the sagging tax base from which those outgoings are funded, and the position is deteriorating. Deficits are supposed to be a cyclical balance, not baked into recurring expenditure as interest bearing debt. Kicking the can down the road must end at some point, and the longer the rot is left, the nastier the antidote.
The British government has announced a 25% levy on gas profits, being driven up by the war in Ukraine, an option ruled out by new Finance Minister Katy Gallagher.
Perhaps hasty, given the twin facts that the exporters of gas typically do not bother the tax commissioner beyond GST and the PAYE of their local employees, and that the resources they are selling are, or should be, the sovereign property of all Australians, including those yet to be born.
You can only sell the gas once.
Part of the new governments policy package is to crack down on the tax minimisation practices of multinational corporations. This has also been a common theme for the last 5 or 6 elections, yet little has changed.
Key to every (legal) tax minimisation scheme is the simple fact that legal systems are limited to individual countries, while money is global. The money therefore finds the gaps in the system and slides through, assisted by the armies of very smart lawyers and accountants who make piles for themselves assisting this legal but immoral practice.
Yesterday (May 31) Michael West media published yet another item outlining the tax performance fairytales of Google, Facebook and Netflix in the year ended December 31 2021.
The money fleeced from Australian schools, hospitals, and other essentials services by just these three is only a tiny amount of the total that goes walkabout. The tax loopholes enabled by places like Bermuda, Delaware, London, Malta, and many others that have low to zero tax rates, and hide the identities of the beneficial owners of the profits have created the loopholes. Those that hide in plain sight in developed countries, particularly the UK and US, should be the subject of the next round of bilateral conversations.
At the very least we should expect some changes to these practises to be made by the new government. The simple fact is that offshore tax havens and most tax management vehicles exist only to allow people and corporations to do things that are not allowed onshore.
Presumably, the new government will also act on its undertaking to create a Federal ICAC with teeth. The first target of such a body should be the ‘shopping bag’ payments and kickbacks made to individuals, who then can use the same tax loopholes to hide those payments from tax authorities.
Dirty money uses the same loopholes as less dirty money to avoid scrutiny.
Aggressive action is required. The lobbying response from those about to lose if changes are made will be sophisticated, well-funded, and effective at highlighting the ‘cost’ of such changes in the willingness of multinationals to invest in Australia. There will be short term costs, and some very loud losers, but we need to do this for the sake of our grandchildren.
I must be dreaming!
May 30, 2022 | Governance, Leadership
There is no situation that requires a decision that cannot be enhanced by asking two simple questions:
Is the information right?
Is it the right information?
These are different questions that often become confused.
An accurate piece of data is of no value if it does not relate to the question being asked, or is related to a symptom of the problem rather than its core.
Often it seems that people use data to back a point of view, and just because they have data, the critical analysis of the assumptions and methodology behind the data is not seriously questioned.
It also pays to closely observe who is asking the question, and their attitude to an unexpected or uncomfortable answer.
Charlie Munger, Warren Buffett’s brilliant offsider is credited with the quote: “In God we trust, all others bring data”. I think this is absolutely right, as far as it goes. You just need to ensure it is the right data, and you do not mistake the data for the outcomes of crystal ball rubbing, self-interest, or optimism.
Header cartoon credit: Gapingvoid.com.
May 26, 2022 | Change, Innovation, Leadership
Opportunities abound, and are hard to ignore.
They emerge to consume resources, distract attention, divert investment, obscure the focus on strategy, and generally disrupt operations.
How do you ignore, or better still, systematically, and quickly assess them, learn, and then execute or walk away?
- Relentless focus on the long-term objective, and the framework that is the strategic plan and supporting operational plans that will deliver that objective.
- Consistency between the long-term objectives and the activities that are shorter term, tactical choices.
- Have a bias for action, coupled with the discipline that any action needs to move the enterprise towards that long term goal.
- Never underestimate the power of the status quo to water down and divert the bias for strategically oriented action.
- You need the right people, those that will measure every decision against the agreed strategic objectives. This is not to remove any opportunity to divert from the strategy, it just requires more short-term agility to take advantage of tactical situations as they occur.
- Make sure you have all the facts and are working from first principles.
Strategy is all about making choices, and making a choice for option A precludes also choosing option B. This cascading of choices becomes a Bayesian decision tree as the choices cascade through the organisation from the top to the points of tactical implementation.
