Nov 3, 2021 | Sales, Strategy
Your pricing architecture should be driven by your business model.
Your tactical pricing decisions should be driven by the immediate competitive and market pressures.
They are different, and while not mutually exclusive, are, or should be, largely separate.
Business models generally evolve slowly, so pricing architecture changes slowly with them, but the tactical needs can vary daily.
Get the two mixed up at your peril.
Years ago I was in a meeting with the MD of the business I was working for, the GM of sales, and a senior manager of one of the retail gorillas, who was trying to extract substantial trading term concessions from us. The sales personnel had been under extreme pressure for some time, but had resisted successfully. The MD was ‘summonsed’ as a last resort by the retailer. Towards what became the end of the meeting, the retailer played the ‘ego card’. He observed that he had thought the MD had the authority to make decisions, but it seemed he had been wrong. The MD, sensitive to challenges to his ego, responded that he was indeed the man who had the veto authority, and proceeded to agree with some face saving but essentially useless caveats. This changed in a moment the pricing architecture of the business for the worse.
It proved to be a profound strategic mistake.
Sales people are often given the authority to vary prices tactically, but should never be given the authority over the architecture. Not because they cannot negotiate, but because they should be kept entirely separate to maintain the integrity of the pricing architecture and the connection to strategy.
In the story related above, the Sales manager had been explicitly denied the right to offer changes to the architecture without agreement of others in the senior management group, but retained complete tactical authority. This meant that there were agreed limits and trade-offs that he, and those who reported to him could make during a negotiation. This tended to hamper potential (read ‘promised’ by the retailer) volumes, but cushioned margin and ensured similar customers were receiving the same terms, within which the sales force was able to vary tactically to leverage our position as best they could. The MD by contrast had the power over the architecture, and the concession on the architecture completely moved the tactical ‘needle’ against us.
It is very hard in a highly contested market to move prices up, and very easy to move them down. The change in architecture moved the whole field for negotiation down which substantially impacted on long term margins. In addition, it also confirmed in the retailers mind that the ‘bottom line’ for the sales force could be further moved by challenging the architecture.
That business, sadly, no longer exists.
Nov 1, 2021 | Culture, Governance, Strategy
A gem of insight from Microsoft CEO Satya Nadella happened in the last minute of this interview by HBR editor Adi Ignatius:
‘What do you think is the biggest source of innovation and why? Is it diversity, technical skill, humanity, employee equity, something else’? Ignatius asked on behalf of a listener to the interview.
SATYA NADELLA: Empathy. To me, what I have sort of come to realize, what is the most innate in all of us is that ability to be able to put ourselves in other people’s shoes and see the world the way they see it. That’s empathy. That’s at the heart of design thinking. When we say innovation is all about meeting unmet, unarticulated, needs of the marketplace, it’s ultimately the unmet and articulated needs of people, and organizations that are made up of people. And you need to have deep empathy.
So, I would say the source of all innovation is what is the most humane quality that we all have, which is empathy.
Empathy. There you have it, from one of the most successful CEOs of the last 20 years.
Being able to put yourself in the shoes of someone else, seeing their problems, motivations, opportunities, hopes and dreams from their perspective.
Satya Nadella has completely rebuilt the culture of Microsoft from the ground up since becoming CEO in February 2014, following Steve Ballmer. In that time, the share price of Microsoft has risen from $36 to $332 today, making its market capitalisation a few billion short of 2 trillion $US, and second only on the share market popularity contest to Apple. Nadella seems to know a bit about what drives success.
Empathy.
It was a really simple answer to what can easily be treated as a complex question requiring a long and detailed answer, employing technical terms, cliches and jargon to impress and further complicate. Instead, he used one simple word, with a short and simple explanation of why he used it.
If I asked your employees and colleagues how much empathy you displayed, what would be their answer?
Oct 28, 2021 | Innovation, Lean
Every improvement project at some point refers to the Shewhart cycle: Plan, Do, Check, Act. I have used it extensively myself, but never been fully comfortable with the language of the last two points in the cycle, and the actions that the language implies.
Plan, Do, Check, Act.
Plan. Planning is essential, it is a fundamentally important part of any project, no matter how big, or small. If nothing else, a plan articulates the points of departure as the journey progresses.
Do. Again, doing is essential, without the doing, the planning is just a dream, someone’s illusion of activity.
Check. This is the point where I start to have problems. The word has two unfortunate connotations. The first is to ‘Stop’, not a good idea in a continuous improvement process. The second, its use in the context of checking someone’s ‘homework’, have they done what they said they would do, by the time agreed? Again, this is necessary, but in my experience in a supposedly collaborative group, when the ‘leader’ is doing the checking, the dog gets busy with the homework. It is better for those in the group to self-manage their commitments to each other and let the group dynamics take care of the laggards. It is the leader’s job to encourage the evolution of the ‘group culture’ that enables this to happen. Therefore, I will propose we replace ‘Check’ with ‘Review’. When we review progress in a regular meeting, or by whichever method is used, the review will ensure that the work is done as agreed. However, review has a wider meaning which makes it way more valuable. It implies that not only does the group review the work to date, and review the reasons for variations, it encourages a wider review of the context and causes of those unexpected outcomes, and variations from the planning hypothesis.
Act. The final step. Act can sometimes feel disconnected from the previous step of Check. It is even more distant if we alter the naming of the previous step to ‘Review’. I would therefore propose we change the ‘Act’ to ‘Adjust’. This change implies that based on the outcomes of the ‘review’ process, we have now ‘Adjusted’ our actions appropriately. We can then repeat the process, starting again at plan, as we now have a more robust set of data to work with as we evolve more informed hypotheses to test.
Plan, Do, Review, Adjust.
Replace the PDCA cycle with the PDRA cycle?
Perhaps a bit presumptuous of me to suggest such heresy, but working with those SME’s that make up the bulk of my client base, it makes sense both to me, and more importantly, to them.
It is a little thing, just two words, but little things are cumulative, and do eventually can make a significant contribution.
Oct 26, 2021 | Marketing, Strategy
There are a number of common phrases used in marketing that should be redundant.
‘Go to market’ is often used before words like ‘strategy,’ ‘Plan’ and ‘Process.’
‘Product/market fit’ is increasingly used in the context of digital products, as in ‘seeking product/market fit’ with prototypes and ‘Minimum Viable Product’ tests before committing to the expense of production.
They have served their purpose but are now redundant.
Independently there has been a rise in the use of the term ‘customer centric.’
I seem to be hearing it a lot, even from those who have never seen a customer, let alone interacted with one. It is fast becoming a cliché.
At the same time, we have a phalanx of tools at our disposal that can segment and re-segment customer cohorts down to the micro level. These are used by those flogging digital space for ads, ‘micro-targeting’ and regrettably, often micro retargeting.
It seems pretty obvious to put these together and start thinking about ‘go to customer’ strategies.
Surely if the customer is truly central to what we are seeking to do, add value to their lives, solve problems, and make a bob delivering that value to them, we should be figuring how to talk to them as mentors and peers, rather than yelling at them from the sidelines.
Micro segments, or micro groups of customers with specific needs, problems, contexts, or indeed, lapsed customers, those who have dropped out of the ‘funnel’ in some way. We can now focus our efforts on understanding these people and re-engaging with them in a human way.
It is all about finding the places potential customers look for information, for engagement, and all the rest of the things they do before they actually make a purchase decision.
Customer centric means you go where the customers are, not try and force them into a funnel that assumes they all act in a similar manner.
These days with all the tools at our disposal, you need an ‘always on’ marketing strategy rather than the traditional episodic campaign communication processes.
Oct 22, 2021 | Uncategorized
Having a vision, mission, purpose, all of them has become top of the consultant pile of ‘must do’s’ for success.
What a misleading crock of old cobblers!
A vision in the absence of the resources, capabilities, and determination to get down in the weeds and do the hard work necessary, to make the tough strategic and tactical choices required to implement, will remain a dream.
Which comes first, the vision or the tough stuff?
Many businesses have grown and thrived without the vision; none have done so in the absence of doing the work. The challenge is to focus the work for the greatest tactical and strategic return, and having a shared destination is a crucial ingredient, but only one of several.
Lou Gerstner was hired from RJR Nabisco in 1993 where he had restructured the business after a highly leverage buyout, to run IBM. The former giant of the computing business had fallen on hard times and seemed likely to be broken up and sold off. In response to a reporter’s question which assumed he was hired because he had some unique vision for the revival of the fortunes of IBM, he famously said: ‘The last thing IBM needs right now is a vision‘.
The revival of IBM started from there.
Alan Mullaly became the saviour of Ford after being hired from Boeing in 2006. There was no grand vision, no set of fluffy words describing some sort of mission, just a steely determination to save what he saw as an American manufacturing icon, and the tough choices and hard work necessary to achieve that end. The choices made delivered a strategy: reduce the stable of brands by selling off all but Ford, thereby freeing up cash and simplifying the business. Make people accountable for identifying and solving problems in their workspace, investing in R&D to modernise the technology in Fords, and manage the cash weekly.
Both Gerstner and Mullaly were outsiders, neither came with the mental models that then dominated the computer or automotive industries. They remained uninfluenced by those peddling quick fix, silver bullet solutions. Both came with fresh eyes and a history of success through challenging times and recognition of the demands of true leadership through tough times.
We tend to look for the silver bullets when we look at successful people who run successful businesses. What did they do that we can copy?
While there are always lessons for the curious, there are no silver bullets, no universal solution to the unique challenges posed by different businesses.
Create a vision and a mission, perhaps a purpose, all will help give people a reason to get up in the morning, but will not replace the tough stuff at the coal face. Interacting with people, generating ideas, giving and receiving feedback, putting in place the operational foundations necessary for commercial success, and making really tough choices.
This is not an easy recipe, but it is the only one that works.
The PR friendly articulation of a vision is extraordinarily useful as a catalyst for the hard work, but is never a replacement.
