Aug 6, 2021 | Communication, Marketing
Hindsight planning is a process of putting yourself as realistically as possible into the ‘headspace’ where you have achieved the goals you set, and then ‘plan backwards’. It sounds like a semantic game, but it is not. It is rooted in Psychology.
As Daniel Kahneman put it: ‘Once you adopt a new view of the world, or a part of it, you immediately lose much of your ability to recall what you used to believe before your mind changed’
Having agreed the shape and size of the business in 1, 3, or 5 years, whatever horizon you have agreed on, the task now is to ‘put yourself there’.
The difficult choices that are needed become more obvious when you can better see the challenging questions you need to ask.
Imagine the outcome has been achieved, and then articulate the steps you have taken in that journey. This is an exercise in perspective. Working backwards enables you to test ideas, assumptions, and choices, against an outcome you have agreed has already occurred, albeit in your collective minds. In that way, a ‘reality filter’ of sorts has been applied.
Some of the obvious questions that need to be answered may be:
- Where did the revenue come from? Growth is not possible in the absence of revenue, so list the sources. Current customers, new customers, channels, business models, products, technical achievements, geographies, and so on. However, do not just list them, articulate in some detail how it has happened. Again, that past perspective adds real ‘grunt’ to the conversations.
- Where did the capital come from? Growth is a veracious consumer of resources, particularly capital. How did you fund that growth? Reinvestment of retained earnings, capital raising from friends and family, or from the markets, public and private, debt finance considering the necessity for assets as collateral?
- What is the dominant business model? Are you a middleman, retailer, on-line item sales, subscription sales, did you achieve a position to monetise arbitrage opportunities? Digital has delivered a host of new and emerging business models to us over the last decade, but one thing that has become clear, if it was not already, is that differing business models do not live comfortably in the same house. Therefore, if your revenue streams come from different business models, the structure of your resulting business needs to be decentralised by those differing business models.
- What is the ideal corporate structure? Have you remained private, are you publicly owned, a partnership, Joint venture, franchise system? There are many options, and as in the previous question, potential siblings rarely successfully live in the same house.
- What capabilities were required to succeed, and where did you find them? This is a question in two parts. Firstly, what capabilities were required from individuals, technical, strategic, financial, and all the other factors that make human beings able to contribute? Secondly, what were the organisational, leadership and cultural factors that enabled the organisation to leverage the capabilities the individuals brought in each morning as they turned up to work.
- Which customers, markets, products, technologies, relationships, were critical to the success? The answers to these questions are a ‘must know’ level. Why did those customers come to you, choosing not to go to a competitor? What is the factor that differentiated you from the others?
- Which competitors proved to be the most potent? Anticipating competitive action, and planning to accommodate the impact is a necessary part of every plan, as noted previously.
- Where did the new competitors come from? New competition almost always comes from the fringes, and often outside the normal scope of most extrapolative planning. Looking widely at what is happening in other markets, and other technologies may offer insights to where new, and more potent competition may come from. Honda started in motor bikes with the Honda 50, selling it to students in California as cheap local transport. None of the incumbents, Triumph, Norton, Harley, saw them coming, they thought they were toys, being bought by people who would never buy a big bike. Blockbuster ‘owned’ video, and could have bought Netfliks for $50 million, but thought them irrelevant, not even an irritation. 5 years later Blockbuster was broke.
- What is the emerging source of customer value in the market? Nothing new will be bought in the absence of a reason to switch from the incumbents, which always means new value has been created, somehow. How did you create yours?
- What did we do wrong, and what did we learn? You learn more from your mistakes than you do from the things you got right. Make sure ‘learning’ is part of the cultural DNA of your business.
When you have the answers to all these questions, and probably many others, found with the benefit of the virtual hindsight, you will be in a powerful marketing position, able to write the plans that double-down on the things that will deliver the objectives and success.
Normally, especially when things go wrong, we conduct a post-mortem to understand why they went pear-shaped.
Hindsight planning is in effect a pre-mortem.
It looks at all the things that could have gone wrong, all the problems that emerged, workable solutions considered, and what works and what did not.
When you have done that well, the chances of being surprised by something are significantly reduces, while your ability to respond is increased.
Header cartoon credit: Tom Gauld at www.tomgauld.com
Aug 4, 2021 | Change, Management
Time is the most important, and only non-renewable resource we have.
We all have exactly the same amount every day, week, and month. It is how we use it that counts.
It seems common that almost none of us have enough of it, yet we all know we waste a lot.
If you are like me, you have tried all sorts of things, lists in many forms, blocking out time for specific tasks, all the way to leaving it to someone else to manage your calendar.
None have been wholly successful, which I put down to my own lack of discipline and routine.
However, there are several techniques to make it easier.
The ‘top 3’ technique.
I use this a lot in workshops, where the challenge is a lack of common focus amongst a group of executives. It works equally well on a personal level.
- List all the priorities on a whiteboard that those in the group are working on.
- Combine those that are common. This usually brings what can be a large number down to 15 or so.
- Weight them all, by putting them in order of importance, one to however many you have.
- Draw a line under number 3 and declare that these are the only three things we are working on, the rest are in a parking lot, to be brought out when one of the three top priorities is completed.
It works, mostly, and then usually only for a while so it gets repeated.
The 6 questions technique.
Six very simple questions, all of which require an answer.
- What will you stop doing?
- What will you start doing?
- What will you continue doing?
- What should you do more of?
- What should you do less of?
- What are you building?
That last question is the only strategic question, the other five are all tactical.
I would suggest you use Warren Buffett’s technique, which obviously works for him. He leaves a lot of time uncommitted to accommodate the opportunities that emerge, think creatively, and deal with the unexpected.
There are many other methods, find the one that works for you, and make it a habit.
You will be far more productive as a result.
Jul 30, 2021 | Governance, Innovation, Strategy
The old saying that ‘he who pays the piper calls the tune‘ is almost always true.
The piper in this case has been the orthodoxy prevailing over the past 40 years in Australian manufacturing.
I have been actively observing the trend towards outsourcing for a long time, deeply concerned that as a country we were collectively making a huge mistake, by focussing on lowering costs by outsourcing. By slicing off the things that are not deemed to be ‘core’ in some way to your profitability, you can reduce costs while maintaining revenue.
I guess it is much easier than being truly creative, taking risks, betting on a future different to the present.
As a result, manufacturing businesses in this country have progressively outsourced manufacture of sub-components, then whole components, then manufacture and assembly of finished products, and finally, because the manufacturers in China, Vietnam, or Thailand are closer to the technology, the design.
All Australian manufacturers, those few that have survived so far, are left with is a brand, with nothing to support it.
A brand without the supporting ‘brand infrastructure’ is a bit like a heavily inflated balloon. At some point a bugger with a pin will come along and, ‘bang’, you have nothing left.
The bugger with the pin proved to be a virus.
Supply chains have been ‘kneecapped’ and there is suddenly a recognition of the need for ‘sovereign manufacturing’.
Being driven by short term profit at the expense of long-term commercial sustainability has been a dumb choice.
I understand how it has happened.
Along with outsourcing manufacturing, we outsourced good old common sense to the educated but inexperienced crowd who applied IRR (Internal rate of return) and RONA (return on net assets) models shoved down their throats in MBA classes. These led to incremental investments in little, short term things at the expense of longer term and less certain but potentially bigger returns, to satisfy IRR hurdles. Reductions in the denominator in ROI calculations by flogging off productive assets made them look good by increasing RONA numbers.
They forgot that cash, and intellectual capital are not ratios, you either have them or you do not. Without cash you will be dead tomorrow, without the intellectual capital underpinning operations, you will be dead by a slower route, but just as dead.
Covid has awakened us to the effects of those decisions made over an extended period. Question is, do we have the resources and resolve left to start playing a different tune, one that common sense rather than capital ratios dictates?
I truly hope so for the sake of my grandchildren.
Header cartoon courtesy www.Gapingvoid.com
Jul 28, 2021 | Analytics, Management
Many if not most marketers, approach metrics that seek to increase their accountability with about the same enthusiasm they would approach a snake of unknown species in their backyard.
Warily.
The default has become a range of numbers that might look useful, are ‘saleable’ in the corner office, but usually do little to hold marketers genuinely accountable for the outcomes of the decisions they make.
The most common I have seen are:
- Vanity metrics. Typified by ‘likes’ or number of ‘friends’ on Facebook.
- Measuring what is easy to measure instead of measuring what is important, the drivers of outcomes.
- Measuring activity rather than results. This is endemic in publicly funded organisations.
- Measuring for efficiency rather than effectiveness. You can be highly efficient at doing exactly the wrong thing.
- Concentrating on cost rather than the return that the investment generates. This measure, as does the following one, infests organisations of all types.
- Measuring budget compliance.
Charles Goodhart, a professor at the London School of economics proposed what has become known as Goodhart’s law: ‘When a measure becomes a target, it ceases to be a good measure’
The implication is that you need two opposing measures that drive the outcome you are looking for to use as KPI’s.
For example: We all know that the best lead is one we get from a satisfied customer, a referral. Therefore, it is easy to set as an objective the number of referrals given. Unfortunately, this is very easy to ‘game’.
Sales people are able to just extract any old name from customers, to reach the number. Therefore, it follows that the KPI should be referrals that are converted into a sale. Better, that ensures that the referrals given are genuine. However, it is also flawed, by the simple fact that a conversion can happen for a number of reasons, including a below cost deal.
Therefore, the related KPI should be around the margin, or perhaps customer cash flow, something that reflects the profitability of converted referrals. This will ensure that the referrals are in fact worth having.
Developing KPI’s that are held across functions will improve the flow of information and resulting functional performance.
I refer to these as Tandem and Opposing KPI’s. For example:
- Sales people responsible for revenue should also be responsible for margin, but not for setting the prices beyond a proscribed band. Those who set the prices should also have margin as a KPI.
- Operations people responsible for efficient manufacturing should also be responsible for inventory levels and stock turn. This should connect manufacturing to market demand, and ensure some level of collaboration with sales to ensure stock availability.
- Those responsible for management accounting reporting and implementation, should also be responsible for reducing operational transaction costs.
Marketing is often accused of using garbage maths, fancy but meaningless clichés, and often they do. For credibility this must change.
It is not only marketing that overuses garbage metrics. It is just that marketing is an easier target than the accountants and engineers who have some numerical street cred and get away with it more often.
Having a simple set of cross functional metrics that go to the drivers of performance at any level, that are openly displayed, will be a huge step towards performance improvement.
Header cartoon credit: xkcd. https://xkcd.com/2295/
Jul 26, 2021 | Communication, Customers
Contrary to much advice, sales is not just a pure numbers game, the quality of the numbers make more difference than the numbers themselves.
Throw the net widely to attract prospects, the more the better, is the common mantra. It implies anyone who shows the slightest interest is automatically in the net, and so becomes a consumer of resources as efforts are made to lead them down the ‘funnel’ to a transaction.
Sound about right?
What nonsense.
If you had 1,000 people and a 1% conversion rate, you would make 10 sales. if you had 100 good prospects and converted 10%, you would make 10 sales. The transaction numbers are the same, but the latter would be far superior, as rather than spend resources chasing the 990 that would not convert, you have cut down to 90, leaving a lot of sales resource to be off doing something useful.
You do need to fish where the fish are, but it helps to make sure that the species around is what you are looking for, and that the bait is right, otherwise, you will just catch a cold.
The lesson is to focus your efforts on your ideal customer, where you will get the most leverage for your resources. This means you do some work up front to identify the characteristics of your ideal customer, then qualify early and hard to husband sales resources and direct them to the point of greatest impact.
Yes, sales is a numbers game, but the quality of the numbers makes the difference between productive and broke.
It reminds me of the legendary copywriter Gary Halbert’s advice when he’d ask an audience for the best way to sell a hamburger.
At seminars, Gary would throw out that question and people would respond:
… Make the juiciest burger…
… Have the best location…
… Provide the quickest service…
… Create a killer sauce…
And so on.
Gary would then give the correct answer, which was…
Find a starving crowd!
When you need a sounding board to find your starving crowd, give me a call, I’ve been finding them for 40 years..
