How to get important things done: Today.

Apr 6, 2020 | Change, Management

How to get important things done: Today.

No business succeeds in the absence of a concentrated application of resources to the most important problems and opportunities they face.

The Pareto principle, or the 80/20 rule. 80% of your profits come from 20% of your customers, so it is logical to focus on them.

The time frame differs, from the daily work, to the long term strategic thinking required for commercial sustainability, but the process does not.

You need to examine the questions and issues in an open ended manner, based on objectivity, creativity, and collaboration in order to have an agreed priority list. The absence of an agreed set of priorities results in less than ideal expenditure of resources.

There are always facts available about what has happened.

There will usually be a range of short term forecasts with a high degree of probability.

As we go longer the probabilities of certainty diminish, and in its place comes the opportunity to anticipate the situations that may emerge, or that you can create, to your strategic and competitive benefit.

The structure of the conversations, and that is what they should be, rather than being labelled ‘meetings’, which implies formality and influence based on hierarchical position, is similar.

What are we facing today? What needs to be done to succeed, today?
What do the metrics tell us? When you are looking at the few key numbers, every day, you will get to see the patterns and trends emerge, as they are doing so, which gives the time to address them.
What are the constraints, what are the questions and issues that are going to get in the way of performing, today?’

Such conversations have a daily, weekly, monthly cadence. The metrics and participants may alter in the differing conversations, but the agenda will not, and once embedded become a vital part of achieving results. However, they will deliver little if any benefit in the absence of specificity. Generality is the death knell, you must be specific, how much, which customer, what communication, by when, who is accountable, outcome expectations, and so on.

Need some assistance with this exercise, particularly in a time of crisis such as we are now? Give me a call, or go to the StrategyAudit blog for many hundreds of tips, templates, and idea starters. Assistance at your fingertips.

Cartoon header courtesy GapingVoid.com

Never have we needed to understand the OODA loop more!

Apr 2, 2020 | Change, Governance

Never have we needed to understand the OODA loop more!

Observe, Orient, Decision, Action, or ‘OODA Loop’ is a thought process articulated by John Boyd, the maverick American fighter pilot, engineer, and scientist, who revolutionised the practise of aerial warfare’. His nickname in the Airforce was ’40 second Boyd,’ reflecting his bet, that he could beat any other pilot in a dogfight in under 40 seconds. It is said, nobody ever collected from him.

Boyd’s OODA loop is a framework for creating tactical advantage. As he put it, ‘To enable you to operate inside the oppositions ability to respond’.

The ability to respond is driven by the speed with which you are able to collect and analyse information, to come up with a tactical response given that it is almost always ambiguous and incomplete information, make the decision, and implement. This is done continuously, creating a ‘loop’ that increasingly becomes quicker than the competition can respond, leading to success.

We are in such a position now.

The ‘Bug’ has turned the way we thought things were on its head, there will be a new normal at some point. Those who survive until then, will be those who are more agile, faster to actively respond in an entirely ambiguous environment, in a manner that learns continuously.

If you apply this sort of thinking to the current situation, you might go through the following process.

Observe.

External assessment.

The state of the economy, recognising the rapidly deteriorating organic demand, seemingly about to receive a public jolt by way of multibillion dollar injections by governments of all three levels.

Corporate failures that are the inevitable outcome of the drop in demand.
Explosive increases in unemployment and resulting community and individual distress

Crumbling of the ability of health institutions to react in sufficient time given the resource shortages.

The emergence of opportunities unavailable previously, such as domestic manufacture of health related consumables and equipment, software that delivers supply chain transparency and accountability, the recognition that remote working is not only viable, but is a cost and productivity effective strategy.
Expected time when economic activity can restart and recover into some sort of ‘new normal’

Internal assessment.

Operating numbers: cash flow, debtors and creditors and varying payment options and cycles, sales pipeline, discretionary spending programs, fixed costs.
Essential people, technologies, products and customer relationships upon which rebuilding can take place.
Sources of cash injections that may be available, including government programs, and the timing and obligations of cash that may be available.

Orient.

Having collected this information, in effect, observed the environment, it needs to be synthesised into a cohesive plan, oriented for action. You might consider factors such as your business model, pricing structures, supply chain relationships, specific market niches, staff deployment, key strategically important customers, and internal reorganisation of individual capabilities.

Decide.

Often, taking what are really challenging decisions, made with incomplete information, that impact the lives of people and the future of the organisation, are easy to put off. There is always another piece of vital information necessary to make a better decision. Unfortunately, in a crisis, you do not have the time to wait, you must decide, be prepared to be wrong, accept the consequences of being wrong, and learn from them, but you must decide.

Act.

Having taken the decisions, take the action necessary. A decision not acted on, is not a decision to do anything other than make yourself feel better, or avoid the pain of implementation. Understandable, but not acceptable.

Wait, your work is not done.

Go back and reassess each stage, apply the OODA loop again, and again, to identify and claim that competitive advantage. In this moment, fighting the ‘Bug’, that advantage might deliver survival, and as the economy improves post bug, prosperity.

How to insulate your business from the inevitable recession

Mar 30, 2020 | Change, Leadership, Strategy

How to insulate your business from the inevitable recession

The inevitability of a bad deterioration in the economy is now absolute. No more fluffing around with nice, reassuring words, the consequences of this Corona pandemic will be an economic and social clusterf**k.

So, in these circumstances, how do you insulate your business from the effect, and even make some competitive and strategic headway?

Five things I have learned over my 45 years in business, the last 25 of them helping SME’s improve, and from time to time, survive, often in adverse circumstances. Over the course of that 45 years, I have lived through a number of events that caused significant distress at the time, and resulted in massive changes to the way we live and work. However, none I suspect will be as cataclysmic as this current crisis. Nevertheless, the lessons from the past can be applied to the present, so long as we do so recognising they will not be just copies, they will have their own characteristics, and some nasty traps for the unwary.

Have a strong balance sheet.

This means having cash reserves. In tough times, nothing is as valuable as cash, it delivers flexibility and options, without which you are at the mercy of others. In days of low interest rates as we have, many have been seduced by the siren song of leverage. It is the ‘ make your assets work harder‘ pitch of those in the financial leverage game. Leverage however, works both ways, and in a downturn, accelerates the rate at which you go broke.

If you are leveraged, deleverage as hard and fast as possible, and hoard your cash.

Have a plan

While plans are made to be broken, at least you are able to track where the divergence happens, figure out why, and how to do it better next time. Planning effectively requires that you have a common strategic objective, broken down into ‘nested’ tactical objectives. This cascading of objectives ensures that priorities are clear, that the required resources and capabilities are delivered to the points they are needed to achieve the objectives, and deliver the best return.

Have a spring clean

Every enterprise carries the imprint of its past, often deeply buried. Many should be jettisoned during the bad times, when it is easier, which has the effect of delivering a leaner more responsive enterprise as things improve. Apply the Pareto principal to everything you have and do: customers, processes, product lines, employees, inventories, fixed assets, and suppliers. Clean out the ones that do not deliver value in excess of cost, and that are inconsistent with the more focussed strategy you will have developed. Hidden deep in most businesses are transaction costs, which are almost always a source of significant cost reductions and ‘no-cost’ capacity increases. Eliminating the friction that generates these costs, will save time and money, deliver ‘no added cost’ capacity, and make customers very happy.

A question I ask my clients at some point is: ‘What would a VC do if they bought this business? Everyone understands a VC investment is always on the basis of a fast profit. Invest, optimise, sell. The question and subsequent conversation focusses the mind on what actually generates the value customers are prepared to pay for. Sometimes there are regulatory costs, and there will be a core of necessary cost that enables operations, but the rest is on the block.

Focus on getting money in, not just cutting costs

Cost cutting is the reflexive response to a cash crisis, and short term it works, but not in the longer term. To use a sporting analogy, you cannot win a game by being defensive, the very best you can do is have a draw. Having a draw in these circumstances means you go down the gurgler with all the others. No, you have to find a way to expand, get new money in the door.

Let the inmates run the asylum.

Post this Corona crisis, the world will not just go back to the way it was. Many of the changes necessary to beat this thing will be baked into the way we interact with each other. Work and the expectations of our institutions will be forever altered. Setting out to manage these changed dynamics without the appropriate level of change in management processes and behaviour will lead to inevitable failure. Following are a few thoughts on the pivotal changes necessary

Remote work. The most obvious is that we will all be more attuned to working remotely. While it was an increasing trend prior to the bug, it has become a tsunami in the past few weeks and it will not go into reverse. Therefore, the management task is how to harness and leverage the capabilities of a remote workforce. Most senior managers are of the vintage that did not grow up with digital as an automatic and natural part of their lives, and for many this is a scary prospect. Most have accommodated the digital revolution in some way, but the institutional cultural barriers that remain in their hands, need to be dismembered.
KPI’s need to be set on outcomes, not activity. No longer will presence at a desk, and seemingly adequate levels of activity be enough, it is the outcomes that will dominate. This change requires a whole rethink of the manner in which performance is measured in most organisations.
Management behaviour has to change. The best leaders and managers BB (Before Bug) spent a significant part of their time ‘walking around’, and communicating face to face. Time spent understanding the problems and opportunities for individuals, and groups of individuals at every level paid dividends. This face to face, personal interaction will no longer be practical. Leaders need to develop processes that deliver that sense of personal interaction to employees and contractors operating remotely. This means they have to have in place systems that deliver emotional security and stability while focussing individual and group effort on achieving a common goal.
Transparency creates accountability. Instinctively, we all know this, but for so long, information has provided power, so it has become the default to hang onto it. No longer will this be the case. Leaders will create accountability by being transparent themselves, and forcing that transparency through the organisation structures to the lowest levels. This change will be very uncomfortable for many, and will lead to a wholesale turnover in older managers who simply cannot make the changes necessary. This will lead to a social challenge for us all. However, those managers will be replaced by younger ones who are more attuned to accountability based on outcomes rather than presence. All those who have not read Ray Dalio’s book ‘Principles’, should use this downtime to do so. It lays out a comprehensive and compelling argument for what Dalio calls ‘radical transparency’. This will become, I think, the emerging default.
Communicate, communicate, communicate. The options for communication have exploded, in the post bug world leaders will be using all of them, continuously. The communication is an essential ingredient in the mix of creating transparency, accountability, and focus on a common objective. It will require entirely new processes and habits to be developed, replacing old ones, and a radical reordering of the priorities of many managers.
Creativity will flourish, if you let it. Crises always lead to creative solutions to existing problems, and innovation to create opportunities in areas not previously recognised. The two world wars last century led to an explosion of technology, Microsoft was launched during the 1970’s oil crisis, the iPod launched in the aftermath of the dot com bust, and the 2008 meltdown led to Uber and Airbnb. All of these were spawned outside any corporate boundaries, except perhaps the iPod, but Apple was as good as broke at the time, so had little to lose.

When you need the wisdom of having lived through it all before, and learnt from the experience, give me a call.

The silver in the corona cloud

Mar 27, 2020 | Change, Leadership

As we hesitantly, with stumbles, come out of this lockdown, we will see the landscape has changed. For some, it will be a land of opportunity, for others, a wasteland.

Rather than seeing it as a calamity, those who choose to see it as an opportunity, will be able to look and see that what has actually happened is that the lockdown has dramatically accelerated many trends that were already slowly impacting on our lives. They were all evident before to those who were looking, now they are in ample evidence to everyone who is not completely blind.

The more obvious ones, are:

‘Digitisation’.

So called digitisation has taken off, whatever digitisation means in your context. Suddenly ‘digital’ is the new normal. From remote control of factories to grannies interacting with their grandchildren via Zoom, nobody has been immune.

Remote work

Working from home, cafes, the car, has been developing for a decade. Suddenly, it has been accepted as an alternative to expensive office space in central locations. What will probably evolve is some combination of decentralised ‘meeting places’ and working from home, serviced offices, and cafes. The trend has been pushed along a decade in 5 months.

Retail delivery services.

Similarly, delivery services have been pushed ahead a decade. Everything from the local restaurant to the supermarket, and department store now must be geared up to deliver or lose the sale. This will change the nature of retail from transactional to more ‘showrooming’, a trend harnessed by Apple a decade ago while everyone else was cutting retail prices and locations to save money.

The end of ‘purpose’ marketing.

The focus of marketing, at least by corporate marketers, will have pivoted from the banality of the ‘purpose driven’ marketing of the last few years. In the absence of a compelling idea, marketers deluded themselves that people really cared about their empty statements of ‘purpose’. Your potential and current customers will be demanding evidence that the statements carry weight in the behaviour of those seeking their money.

Politics.

Politicians have had a huge wakeup call. We voters really hate the division and spite of the practise of politics as usual pre corona. We long for some evidence that those elected to lead, do so, rather than just taking the trappings of office for their own benefits. The pressures on politicians and the political orthodoxy that has dominated to date will have to be revised. The basic assumptions about what services government provides, and from who and how, the necessary funds are raised to pay for them, have moved.

Not since 1939 have our politicians been confronted with the profoundly difficult choices that now face. I wonder if they are up to the challenge?

The economy.

The economy has suffered a major stroke, one for which substantial rehab over a long period will be required. It would be naive to believe it will recover to look much like the pre stroke version, but recover it will, over time. For those willing and able to push the boundaries, there will be opportunity everywhere, from the remaking of supply chains, to the potential of rebirth of sophisticated niche manufacturing, and new export markets. Digitisation of just about everything that has been accelerated massively, will demand investment and different business models and enterprise capabilities. These will offer great opportunity as well as what for many will be a terminal challenge. None of this will be easy, but it will happen.

As we ‘wake up’ from the corona coma, there will be an inclination to revert to the known, and comfortable. Succumbing to that urge will be a mistake, as we have all been forced to move on, to push the edges of our comfort zones. The economic and social climate has changed dramatically, and those that seek the comfort of the Pre-Corona status quo will find themselves isolated and falling behind their competitors.

Picking your way through all this will take effort, experience, and careful planning. When you need the injection of those skills, give me a call.

A Corona, heavily disguised as a Black Swan

Mar 23, 2020 | Change, Governance

A Corona, heavily disguised as a Black Swan

There is a quote by Earnest Hemingway, when asked how he went bankrupt. His response was: ‘Gradually, then suddenly’.

The same thing is happening to us now, as the Corona bug cuts a swathe through economies worldwide.

For the last 25 years we have become interconnected and interdependent, as individuals, businesses and economies. This added to the stability of the system as a whole, and while all goes well, in the absence of some black swan event, we continue to slowly dig deeper into interconnectivity.

Along comes the black swan, and all that interconnectedness and interdependence pivots in an instant, from being a source of stability and certainty, to the catalyst that suddenly brings the whole system crashing down.

Imagine a group of climbers on a rock face. They are all roped together so that if one falls, the others are strong enough to hold him, and allow him to recover back onto the rock face. That is the case almost always, it is why climbers rope themselves together, as it reduces the risk to the individual. However, if the system fails, a vital piton pulls out, or a holding rope breaks, momentum builds almost instantly, and the whole group falls. The risk to the individual is lessened dramatically by the presence of the ropes, however, if the black swan flies in, the group falls.

It seems Corona is our black swan.

In Australia we have had consistent growth since late 1991, 28 and a bit years. In that time we have hollowed out manufacturing, sold off public and private assets, more often than not to international groups, embraced the ‘gig’ economy of casual and short term employment, and forgotten how to think strategically and for the benefit of the group. In its place, we have lauded individuality, immediate gratification, and the expectation of something for nothing.

It seems we are now about to pay a high price.

The rope has come loose from the rock face.

I wrote an article last weekend for an industry forum, expecting it to be published on Monday or Tuesday after the editor had a look at it and got organised. The pressure of ‘The bug’ got in the way, and it was not published, but I just had a look at the draft, just 7 days later, and it is out of date.

7 days, and some of the observations and predictions I made have been passed by events, predictions just a few days old have become utterly redundant.

That is how quickly this thing is moving, and we are struggling to curb its momentum.

Header photo courtesy Simon Murray.

The critical key to reliable forecasting: Be less wrong.

Mar 18, 2020 | Change, Management, Uncategorized

The critical key to reliable forecasting: Be less wrong.

Thomas Bayes. 1701 – 1761

The key to good forecasting, that magic elixir most of us take, is not to be right, but to be increasingly less wrong.

We know the future will be different, being less wrong about that difference is better than consuming resources trying to be right, because you never will be.

For a decade, several decades ago, as marketing manager of a very significant business, I did a weekly sales record for about 50 SKU’s, by hand. It was in the late eighties, early nineties, the days before this was made easy.

Every Monday morning, I took about 15 minutes to record the sales on a sheet, with a 5 week rolling average, and a 5 week rolling forecast. Every month I did the same, but it took a little longer, as there were comparisons to the relevant quarter the year before, and budget, which took about 45 minutes.

In 10 years, I only ever got one forecast right, but was usually very close. Nobody took any notice at all of the forecasts of the sales force, despite them being part of the sales KPI’s. When manufacturing had choices to make about factory utilisation and what not to make, they came to me, and ignored the rest.

This was simply the building of a qualitative knowledge over time.

We routinely defer to ‘Bayesian’ statistics, a theorem proposed by English statistician Thomas Bayes in 1763, that dealt with the probability of a future event, and how that probability becomes more certain with the addition of information relevant to the outcome. We see Bayesian thinking all around us all the time. Every time we see an outcome to an action, and adjust before we repeat the action, we are using Bayesian thinking. Artillery is the obvious example. Use one cannon to get as close as you can, observe the degree to which you are long or short of the target, and adjust accordingly. When you land one on the target is when all the other cannons in the group adopt the same settings and blast away.

In business, we can spent inordinate amounts of time and energy trying to get the last 5% accuracy, when it would be far better to take a decision, and move ahead knowing that the chances are you will be wrong, but able to adjust and accommodate the degree of ‘wrongness’ with far less effort. This is the basis of continuous improvement, Plan, Do, Check, Act.

Bayesian theory at work, every day.