Reflections on my 2017 observations.

Reflections on my 2017 observations.

Jan 7, 2018 | Change, Governance, Leadership

 

Each year for the past few, I have looked at my prognostications for the coming year and given myself a score. It is now 2018, so time to do it all again, before I rub the crystals to see what might be coming down the track this year.

As a lead in, I find it difficult to improve on last years recitation of J. M. Keynes, it still seems absolutely right.

Never have JM Keynes’s words been more relevant: “The difficulty lies not so much in developing new ideas as in escaping from old ones”

He said this in relation to economics, but it seems to me that it is now ubiquitous across everything we do personally and as communities and countries.

Working as I do with medium sized businesses, particularly those who actually manufacture stuff rather than flogging intangibles,  all are hugely challenged to compete in a globalised and commoditised world. Some common themes that underpin,  define, and are redefining the path to commercial sustainability appear to be largely ignored.

What is old is not new again.

It seems to me that this old truism is now redundant, as the pace and scale of change is so vast that the old stuff no longer gets recycled, and while by not understanding history we are doomed to repeat it remains true, the new versions are radically different to the old ones.

The ‘old’ ways of doing things are not  being changed, which implies that there is a progression of some sort, they are being disrupted, by which I mean thrown out the window. Uber and Airbnb are the poster boys, but look at what is happening with artificial intelligence, machine learning, virtual and augmented reality, and it is hard to conclude anything other than the old is dead, and the most relevant question has become ‘how will we cope with the new?

How did I do? 4/5. The year past just seems to confirm the view that the old is just old, and should be ditched. However, the lessons that can be learnt from the old should not be missed. The foundations of success over the last 200 years remain the same. Uber disrupted the taxi industry, not because there was any really new customer  value to be found, but because the taxi industry around the world had dropped the ball entirely, and Uber leveraged some tech to pick it up. People still need transport, so in that sense Uber is not new. We also learnt from them that success has its own dangers

 

The fight for attention.

The tsunami of stuff coming at us in a myriad of ways, increasingly mobile, is overwhelming, and most are seeking ways to aggressively filter out the stuff they do not  want, but there are industries out there finding ways around the filters. The old notions of privacy are out the window, and so the tsunami just grows geometrically. So called digital helpers, might claim to make life easier by anticipating what you might need and want based on previous behaviour, but they are really just ways of gaining and holding attention in order to create a transaction favourable to them. Mobility is an absolute requirement of attention. Not just do we require our data to be immediate on demand and mobile, we do our searching and thinking while mobile.

How did I do? 4/5 again, the fight has just got harder and harder, and that will continue. However, it must happen that quality will win out over quantity at some point, so the notion of an overnight success after 10 years of effort still holds.

 

Immediacy is currency.

The world is immediate, we want it now, on demand, and will not be satisfied with less. However, it is hard to get immediacy from legacy systems. Why should it take Telstra a week to connect a new mobile phone, interspersed with bullshit from an off shore call centre, when obviously it takes a few seconds on a keyboard. Not good  enough anymore. With the immediacy is mobility, a sort of coinage from the currency of immediacy. Everything in life is on demand, from cabs to grocery deliveries, and not meeting the demand has become a harbinger of failure. If you are  not mobile you will be missing out.

How did I do? 4/5 again, doing OK so far, except that if anything, I underestimated the impact of immediacy, and again, expectations are becoming more demanding by the day.

 

Creativity delivers attention.

Amongst the tsunami of stuff, the few that stand out will be different, and in some way strike a chord in an individual. It is ironic that the notion of ‘big data’ is really geared to ‘little data,’ picking through the masses of data-garbage to find the few bits that are focussed on the individual. The customer journey, so easy to map over the past few years, has had its day in the sun. No longer can we rely on the standardised generic journey from which, while we know there will be deviation, remains in general sufficiently true to use as a base for decision-making. No longer. There are simply so many ways to travel the road, that the only way to get them to stop is too be creative, arresting, or as Steve Martin says, ‘so good they cannot ignore you’

How did I do? 3/5. I still think the idea is right, but the creative drivers have become more about immediacy than creativity, so the creativity has suffered. In a contest between the ‘big idea’ and reach/ frequency equations, creativity is losing out due to the demands for immediacy, and creativity takes time. It is just as hard to come up with that great idea as it has ever been, and 10 mediocre ideas do not add up to 1 great one. We have a long way to go.

 

Business is personal.

Peter Drucker is famous for observing amongst other things that the sole purpose of a business was to create customers, and never has that been so right. However, in order to create a customer, being different is essential, which requires continuous innovation and more importantly the ability to deploy innovation almost in real time. Marketing is now all about the personal, therefore the ability to create  automated personalisation, or perhaps personalised automation, will define the parameters of success.

How did I do? 5/5? Never has anything been more true, and if possible it is getting truer every day as we ‘communicate’ via digital platforms, we are inundated with likes and connection requests that are covers for a sales pitch. No end to this in sight.

 

Success is dependent on attention.

This is getting harder and harder as the access to organic social feeds is increasingly limited by those with their feet on the choke point, the digital platforms through which this all flows. In order to be successful the need to own your own digital platform is getting greater by the day, just as it is getting harder to achieve it, simply because the task of gaining attention has become geometrically harder.

How did I do? 3/5. TI think I got this one right, but seriously underestimated the challenge of attracting people to your own digital real estate. The challenge has multiplied as we have gone mobile, up substantially from just a year ago. As the volume of information increases, it is getting progressively harder to attract people to our digital platforms, away from the social ones.  In the long term however, the value of owning your own digital property will not go down, and the value of those you can attract, and keep, will multiply.

 

Trust requires transparency, and transparency requires trust.

The world is a way less trusting place than ever, nobody leaves their front doors open any more, and we are wary of public gatherings. Even in a place like Sydney, where last night’s New Years fireworks on Sydney harbour brought an unprecedented level of security, which really serves mainly to get in the way of most, as the really determined would simply plan their way around the cops on the beat. The most concerning danger is the one we do not see and understand, and by over-reacting we are just making things worse for most while offering solace to those who trade in mistrust.

How did I do? 4/5. Hard to get this one wrong, as it has always been so, even if we did  not recognise the importance. I think the turmoil in US politics over 2017, reflected for different reasons in Australia, has just made us more cynical and less inclined to trust anyone we do not know personally.

 

Are we educating for the future, or reflecting the past?

I am no expert in education, but between my 4 grown kids there is 6 undergraduate degrees and a masters, so I claim to have rubbed up against the system a bit. My education goes back a long time, but  the best teacher I ever had was an old Harvard professor, Jim Hagler who was somewhat ostracised even by that august institution because of his ideas about the value of rote learning Vs creative thinking. That was in the 70’s, and I do not see much progress, he would still be outside the mainstream of bureaucratic education implementation. It seems to me that we are setting about the process of education by reflecting the past, and assuming the future will be pretty much the same,  when even the most blinkered thinker will concede this is not  the case. Our universities need to be funded, but the economic rationalists seem to be in control, and are screwing the pooch. The environment of thought, learning and education in its broadest sense is bastardised by the requirement to flog bits of paper to whomever is willing and able to pay for them. Somehow It seems to be a road to perdition, a place where a degree can be bought, and is therefore worth little as a mark of true education. At the same time we have been telling our kids that they are second rate if they do not have a degree. The trades have become dirty, and the skills that built cathedrals, bridges, machines, and the water systems that enable us to be civilised are rapidly being lost to generations who think that manipulating digital currency is useful work.

How did I do? 5/5, and if anything this has become more important than ever, and it certainly has cemented its place in my corral of hobby-horses.

 

I am 65 in a few days, so perhaps I am just a dinosaur, but from the perch of all those years in and around businesses, education and the public sector, I am becoming seriously concerned with the world my grandchildren will inherit.

Anyway, I hope that 2017 turns out to be a great year, one that marks a turning point in our capacity to see ourselves as others see us, and understand that as communities we simply have to live and work together, as the alternative is pretty ugly.

Happy 2017 to you all.

 

And, now on to 2018, (and my 66th birthday…. do not feel 66) the year in which if we believe the bullshit emanating from Canberra, all will be well. We have made same sex marriage legal, and established that the provisions in the constitution, arcane as they may be in relation to citizenship, need to be followed. Now to get on with the stuff that really matters, like shaping a community for our children and grandchildren. (Always the optimist, I expect to be, again, disappointed)

Optimising does not always deliver results: Re-frame.

Optimising does not always deliver results: Re-frame.

Dec 13, 2017 | Change, Innovation, Strategy

Lean thinking, and the lean toolkit have changed the manufacturing landscape around the world. The elimination of waste in processes is now standard practice in every successful business, and the tools of Lean, 5 why, 5S, and all the rest play a key role, and have been successfully migrated into functional areas outside operational ones.

However, like any tool, you have to have the right one in your hand to effectively address the situation in front of you, and lean tools are not always the best ones.

Lean is largely about optimising the existing processes by elimination of steps that add  no value, the elimination of waste.

However, when applied to strategy development they are not useful in many circumstances.

Had the Taxi industry applied a 5 why analysis to their industry, they would not have come up with something like Uber. They would have cleaner taxis, drivers who know their way around, quicker response times, and a way to address the shift changeover lag. To come up with an Uber required the industry to reframe the source of value they create for customers, who want to get from point A to Point B in the least possible time, at the least possible cost, while being kept fully informed. A 5 why or alternative popular tools like a SWOT would not have given them the answers that led to Uber, they needed to reframe the industry entirely from the perspective of the customer.

The problems of the taxi industry were not solved by Uber, they entirely reframed the value proposition to customers.

Innovation is a particular challenge for lean thinkers, as it is always messy, risky, ambiguous, and a long way from optimised. However, it is an essential part of commercial evolution, without which we would end up in a homogenised world.

How boring would that be?

Photo credit Jon Swansan Via Flikr

Red flags to business failure.

Red flags to business failure.

Dec 11, 2017 | Change, Governance, Management

The November 2017 issue of the magazine of the Australian Institute of Company Directors (AICD) contains a very insightful and useful article by Phil Ruthven dealing with the industry cycles that IBIS research has been cataloguing for 40 years.

Ruthven makes the observation that while industry cycles are crucial to success, the risk they pose is only 1/3 of the risks faced by businesses, the other 2/3 are internal risks, in short the quality of their management.

No real surprise there, but seeing it in black and white, with supporting numbers from a source as credible as Ruthven is disturbing.

ASIC has developed a list of the impending signs of insolvency, no surprise, as they deal with that situation every day. High on the list is poor cash flow, absence of a business plan, disorganised internal finances, inadequate cash flow forecasting and budgeting, board dysfunctionality, customer and supplier complaints, and growing liabilities.

Again, no  surprises in this list, I have seen them all regularly over the last 25 years of working to improve SME performance.

I have my own checklist, broken into 4 categories: Financial, Operational, Strategic and Revenue Generation, against which I assess performance. It is a quick and dirty tool that over the years has captured the main culprits of underperformance, the red flags to insolvency.

It is reproduced in summary form below.

Strategic.

  • Unclear undifferentiated position in primary markets
  • Lack of investment in ‘Environmental research’
  • Absence of an innovation mindset
  • Absence of any differentiating Intellectual Capital
  • Lack of clear alignment of operations and strategic priorities
  • Wrong CEO and/or governing body
  • Poor cultural drivers
  • Poor strategic, operational and tactical planning and ‘After Action’ Review processes

Operational

  • Ambiguous lines of responsibility and accountability
  • Absence of a continuous improvement mindset
  • Absence of performance management and review systems
  • Unreported customer and supplier complaints
  • Absence of DIFOT management and measures
  • Digital naivety

Financial

  • Erratic and unforecast cash flow
  • Poor management of debtors and creditors ledgers
  • Inadequate budgeting and financial performance management
  • Disorganised and/or inaccurate numbers
  • Tightly held financial and operational performance reports
  • Growing debt
  • Lack of financial understanding amongst management

Revenue generation

  • No defined ‘ideal customer’
  • Uncontrolled distribution channels
  • Lack of end consumer contact and feedback
  • Disorganised lead generation and conversion  processes
  • Absence of customer profitability and Share of wallet measures

For some time now I have been referring to the marketing and Sales functions collectively as ‘Revenue Generation‘. To my mind the functional separation that is usual is redundant in this fast moving world where the demarcation between the two is both blurred and irrelevant to customers, so should be eliminated.

This list is not a template, it is a compendium of headings that typically require investigation. To the extent that there are numbers available, they are very useful, and the absence of numbers also offers an insight into what is going on. I also make observations based on the conversations I have, and set about weighting of the various factors. Two however always are at the top of the list.

The absence of routine and pro-active cash management is a very strong signal of trouble to come, as is a disorganised, and in B2B businesses, often absent revenue generation processes that go beyond being reactive to whatever walks in the door.

Any one of these 26 factors will result in under-performance, that can lead to insolvency, but a combination of them is toxic.

 

Indifference is the killer of businesses.

Indifference is the killer of businesses.

Dec 7, 2017 | Branding, Change, Marketing, Small business

 

Successful small and medium sized businesses are always on the lookout for opportunities, which can be a problem.

All businesses, and especially small ones do not have the operational and management ‘bandwidth’ to take on too many opportunities, they lose focus and end up being mediocre in the market that made them successful in the first place, as they compromise in order to enable the coverage.

In this terrific cartoon and accompanying commentary, Tom Fishburne relates the contrasting stories of the Mini, one of the most successful cars ever designed, and the Pontiac Aztec, voted one of the worst ever, despite being in front of the demand curve at the time and therefore in a great position to be truly successful.

The problem can usually be distilled down to indifference.

People buy things to solve a problem, scratch an itch. Sometimes that is a simple thing associated with what will I eat tonight, and sometimes it is a personal thing associated with self-image. When it is the latter, creating a situation where there is indifference, where the purchase decision is not driven by a strong emotion, you will end up failing.

Strategy is all about making choices. It is not just a matter of determining what you will do, it is also a matter of determining what you will not do. It is this  latter dimension of choice that always causes the most problems in coming to a conclusion, there is always that bit of green on the other side of the fence.

‘Find a niche and own it’ should be the mantra of every business, but particularly every small business. Be very, very good at a few things rather than average at a number of things.

A former client has a dominating position in a niche servicing the underground coal market in Australia. A dying market if ever there was one. There are several strategic options: expanding into underground coal internationally, and/or expanding into adjacent hard rock mining operations leveraging some of their technology that is relevant to the challenges faced. As there are limited funds available, choices need to be made. Not easy.

One of my mates is a baker, a creative and driven bloke who has successfully built a business servicing the ‘high end’ market in a major city. His business partners now want to expand by expanding operational capacity in order to service the ‘medium’ market  where there is indeed far more volume, but also more competitors with spare capacity, so it becomes a question of price.

Over 40 years of marketing, I have never seen a situation where the dilution of the value proposition benefits the marketer. Customers are not silly, they make judgements on a range of rational and emotional considerations, and they do not consider your operational and financial priorities in those judgements.

 

Cartoon credit”: is again a wonderful Tom Fishburne production

 

The evolving Push & Pull of the supermarket business model.

The evolving Push & Pull of the supermarket business model.

Nov 30, 2017 | Change, Marketing, retail, Strategy

Established supermarkets around the world work from a pretty similar, well-honed playbook. The current business model of supermarket retailers is all about scale and leverage applied to their supply chains, and offer of range and price to consumers. While there are many variations in the detail, in principal  they  are pretty much the same, a ‘Push’ business model.

By contrast, the rapidly evolving ‘E-Tailers’ exemplified by Amazon and Alibaba are pull models, relying on customer engagement to activate the sales process.

When you look  closely at the business models of Amazon and Alibaba, the gorillas in the E-tailing space, there are significant differences. Amazon still at some point in the chain physically handles the products they are selling, and they do often take ownership at some point, while Alibaba at no time touches or owns the products, all they provide is a platform for the exchange to take place, and they make a commission on the transaction.

The established retailers are driven by the core assumption of the 20th Century that price of the product, range, and location of the store will be the dominant factors in determining customer loyalty, which are both supply chain factors. By contrast, the models of the e-tailers are truly customer centric. The value chain is driven by the demands of the customer, which can be influenced, if not completely managed once enough data on the individual is available.

The difference from a strategic perspective is the technology required to drive them both.

It seems to make sense that the existing supermarkets will be setting out to match the customer centricity advantages of their digital competitors, while retaining the advantages bestowed by their control of the supply chain.

How do they do that?

Not easy, but increasingly becoming not just possible, but a reality. By combining their supply chain knowledge with the customer information being collected on store cards, the geolocation capabilities of mobile devices, and social ‘Big data’, supermarkets could find themselves in a position to ‘flip’ some of their revenue from Push to Pull.

Imagine the situation where Mrs Bloggs is driving on her way to pick up the kids at after school care  having finished work at her part time job.  She sometimes stops at the supermarket to do a top up shop for the household commodities, and to buy some fresh produce to cook for dinner. The supermarket  data base knows this routine, and what Mrs Bloggs usually buys from the information collected via the store card she uses.

The algorithms in the store database sends a message to Mrs Bloggs informing her of the price discount they have on a product she may not usually buy, but which they have a surplus at her local store, and the dinner prep bundle for a meal for which she sometimes buys the ingredients. In one case, there will be no discount, why discount something that is a normal sale, keep that discount dollar for a situation where it will generate incremental sales, or can be charged back to a supplier.   The alternative offer is discounted based on the stock turn and availability of the product that needs to be sold quickly. The algorithm also sends a complementary message to Bill and Betty Bloggs, waiting to be picked up, as it knows Mrs Bloggs is driving, so kid pester power is engaged.

Push to Pull.

The strategic development of our grocery markets has been cyclical.

I can still remember as a very young boy going with Mum to a number of stores to buy the groceries. In each one there was a counter and someone who took the order and assembled it from stock to which the customers had no access.  Then came the steady development of the supermarket, which increasingly leveraged the scale of the stores and their control of the supply chains to push product at consumers, and making a margin from the suppliers via retail shelf ‘rental’ and pocketed promotion fees.

The emergence of Amazon et al over the last decade has put some power back in the hands of the consumers, and they are using it, with many households now combining a visit to the supermarket with various forms of on line purchase and delivery. We are going back to the one on one model, but replacing the trip to the store, pantry management, and all the other things my mother used to do, with technology.

Those combinations will continue to evolve, driven by consumers.

Pull winning out over push.

 

Amazons Australian warehouse is finally open: so what?

Amazons Australian warehouse is finally open: so what?

Nov 28, 2017 | Change, retail, Strategy

 

So, Amazon opened its first fulfilment warehouse in Australia last Thursday, to the sounds of the incumbent retailers either telling us that they will have no effect, or just not acknowledging the appearance of a giant shadow on the landscape.

Back in 2015, Whole Foods founder John Mackey waved off Amazon, observing that groceries were a step too far for them. Pity for him he was absolutely wrong, and now works for Jeff Bezos

Does that sound like Gerry Harvey recently?

It seems to me that the most valuable warehouse Amazon has is not  the new behemoth outside Melbourne, but the data warehouse that has been capturing our digital footprints for the last decade.

Last Christmas, my wife of 35 years was moaning that she did not know what to get me, while Amazon was regularly making suggestions of things I might like, and they were usually pretty good suggestions based on the data they collected. In one sense at least, Amazon knows me better than my wife.

Scary, but just another example of the value of data.

Via Amazon Web Services, the biggest in the cloud services business, and growing like crazy, Amazon has their hands around the throats of a huge pile of data on all of us. Add to that the data facebook, Linkedin, Pinterest, Twitter, and all the rest have on us that can be leveraged, and the world of boring old retail in a shop is no longer.

Harvey Norman has a current market capitalisation of $A4.3 billion, Coles about 18 Billion, and Woolworths 35 Billion, and all are struggling. Amazon has a current capitalisation of almost $US1.6 Trillion, (a trillion is a million, million, I had to look it up to be sure) and rising steadily,

Amazon is more than a huge retailer, it is a collection of businesses and dreams that spans a huge range of activities and interests of Jeff Bezos, who has built this giant in 21 years from a simple book selling landing page in 1996.

We always think about on line as being about convenience and price, but it is more than that, it is an immersive experience, we are becoming ‘digital natives’. Our addiction to the screens and devices is advancing at a rapid rate. Nir Eyal documents the means by which we become ‘addicted’ to technology, but as a suggestion, ask your teenager to switch of the notifications on their phone, and there would be a revolution.

So, digital has become immersive, but is that not the real and under-utilised competitive advantage that Bricks and Mortar retail currently has? You can go into a store, touch, feel, try on the stuff, see how it looks in real life, it is a tactile experience.

What will happen as AI and VR explodes onto the scene, you may be able to try on clothes at home, change sizes, colours, combinations, how immersive will that be??

The reality is  that Amazon could buy Woolies and Coles out of petty cash and barely notice the bump in their cash flow. The same could be said about Alibaba, China’s answer to Amazon, that is in fact bigger on most measures, but is an entirely different business model, so is unlikely to venture into the space Amazon is carving out.

Last Thursday was no more than just another day, the opening of Amazons warehouse, just another small brick in the wall Amazon is building. We all knew the opening was coming, but it is just that the pace is picking up, and the retail incumbents are being left behind, as our lives change.

 

Photo credit: Tony Webster via Flikr.