Jun 30, 2022 | Change, Strategy
Promoting change is a major strategic and management challenge. Most will accept that change is a necessary ingredient in survival, but most will also hope it is the other bloke who changes, and they can continue in in their comfortable cocoon.
There are three ways to initiate and lead change, all based on behavioural psychology.
Incrementally.
When you ask people to make minor changes, and provide the background information so the changes seem reasonable, people will usually be prepared to make them. Minor change, on minor change, compounds to significant change is what seems like a short time when you look backwards.
You are not taking people too far out of their comfort zones by making these minor changes.
Anchored.
‘Anchoring’ is a core technique in negotiation that is fed by ‘fixing’ on the first number mentioned. In a negotiation over wages for instance, you often see what amounts to an ambit claim, a huge increase over what you are actually prepared to accept. The process then becomes one of compromising, meeting somewhere in the middle. The higher the starting point, the higher the ‘middle’.
Catalytic event.
When something happens that is an attention grabber, it can be used to demonstrate that the status quo is simply not viable, and change is a necessity of survival. This can be used at an individual and corporate level. Management jargon often uses the term ‘Pivot’.
Steve jobs did it on returning to Apple, by radically reducing the product range, and focussing resources on the ‘Mac’ and development of what became the iPod. Bill Gates executed the biggest ‘Pivot’ in corporate history in 1995 when he realised that the internet really was something big to come, and that Microsoft had almost missed the boat. Gates wrote a memo to all staff that instigated the pivot that in an instant, turned Microsoft 180 degrees.
On several occasions over the years as a contract manager and ‘change-agent,’ I have deliberately generated a catalytic event. On each occasion, corporate survival was at stake, and significant change was essential. Under normal circumstances, the scale of the changes necessary would have been untenable in the absence of the catalytic event.
The management challenge to successfully making change, whichever strategy is used to make those changes, is to ensure they will ‘stick’ after the initial pressure is removed. The tendency to revert to the previous status quo is always very strong.
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 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 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.
Apr 6, 2022 | Change, Innovation
‘Go back to first principles’ is an often-heard expression. At least as often, those uttering it have no real idea of the meaning, beyond ‘think again’.
Twenty-six hundred years ago, Greek philosopher Aristotle defined it as: ‘The first basis from which a thing is known’
Application of ‘first principles thinking’ requires you to dig and dig into a situation until you are left with only a few foundational facts that cannot be disproved. You can then rebuild from the ground up.
Elon Musk is often cited as the current guru of this discipline, particularly as it related to the creation of what became SpaceX. Rather than buying a rocket at an astronomical price, he broke down the costs of the materials necessary, and set about assembling a team to do it for himself. The result was SpaceX, which reduced the costs of launching a rocket by 90%, while still making a profit. The same thinking was been used to create both Tesla cars and batteries, each relying on the other as a means to the end of replacing fossil fuels with renewables.
John ’40 second’ Boyd similarly broke the development and performance of fighter jets down to first principles, arriving at the OODA loop. He took it further with his thought experiment that led to the snowmobile.
These examples have something in common: they all combine ideas from different fields into a new solution to an old problem. How do you think the first suitcase with wheels came about? Engineer Bernard Sadow had a patent issued in 1972 after seeing the solution to his ‘luggage-lugging’ in an airport in 1970. However, real credit should go to a Croatian artist with a colourful background, Joseph Krupa, who stuck some wheels on a suitcase in 1954.
The key is to be able to see things from a functional perspective, rather than as a continuation and improvement of what you currently have. We have flying cars already, called aeroplanes, different form to what most might imagine, but the function is as we imagined, movement by air. The light bulb was not a result of continuous improvement of the candle, and the internet did not appear as just another significant improvement on Guttenberg’s printing press.
Thinking from first principles requires that you put aside all the accepted wisdoms, conventions, and forms in order to get back to the core truth. It is in effect another form of the lean ‘5 why’ tool, so useful in removing waste from processes.
The header photo is of Joseph Kruppa and his wheeled suitcase taken about 1954
Addition: This article by Michael Simmons has many more examples of situations which required the application of first principles to come to light, and the blindspots that prevent that happening..
