How to think about your business

Mar 2, 2020 | Governance, Leadership, Management

 

Business is simple, in principal.

Sell something for more than it cost you to produce or acquire it, recognising that the buyer needs to understand that the value they will derive from the product is greater than the cost they incur in buying it.

Simple.

Einstein said everything should be as simple as possible,  no simpler, and his E=MC2 is the simplest  equation that explains (somehow) masses of complicated stuff. It is the best example ever of Occam’s Razor, named after William of Ockham, a 13th century philosopher which encourages decision making to the broken down by progressively removing those outcomes that are based on beliefs and ideas rather than facts. When you have all the beliefs removed, you are left with the facts.

Often however, not so simple after you go one or two levels down the burrow to figure out just how you go about that process of removing all the biases and beliefs that masquerade as facts.

Charlie Munger, offsider to Warren Buffett in creating billions of value for Berkshire Hathaway shareholders over 50 years spoke about Mental Models in a speech in 1994.  His premise was that you need a ‘lattice’ of mental models that apply to the different  perspectives that apply to any question being faced in order to distil the ideas and wisdom that applies to your situation.

I agree absolutely with the idea.

It is simple, but as complex as you choose to make it.

As someone who helps small and medium manufacturing businesses improve the economic performance, there are numerous mental models at work simultaneously.

Strategic models: There are many strategic frameworks or models for business planning. Porters 5 forces, Boston consulting’s 4 quadrant,  game theory,  the old favourite SWOT, and many others. Profoundly important and often missed  at this point, is consideration of the business model being employed. 

Operational models: Lean thinking, 6 sigma,  shift sequencing, the mix of technical, support and operational staff, deployment of technology, interaction of technology and those at the work face,  on and on, you have the opportunity to use the wisdom of others to sort the relevant from the  not so relevant.

Financial models: the standard accounting forms of cash flow, P&L, and balance sheet, together with a break even analysis, and decisions about the type of costing models to be used, ratios to be calculated, and formats in which the information will be communicated. To properly understand the operational mechanics of a business, you need more than the standard financial reporting. Their limits are a view of what has happened to the money, little about why and how it happened, and certainly very little about what may happen in the future.

Marketing and sales models: where do I start?  Ideal customer profiles, value proposition, digital Vs analogue, differentiators, marketing toolbox and the multiplicity of tools to deliver leverage, ROI of marketing investment, Account based selling,  selling models such as BANT, sales funnel, conversion rates, anchoring a negotiation, and thousands more.

How do you sort all these options into a few that will deliver results that are worth the investment?

  • You start with the end in mind, the strategic and commercial objectives, the why. I call this process ‘hindsight planning’
  • You break down the challenges into sequential ‘chewable chunks’
  • You focus on the important more than the urgent.

Behavioural models: These usually emerge as a group of expected behaviours, collectively called ‘Culture’. The best example I can think of is the 10 commandments, common to the 3 Abrahamic religions (Islam, Christian and Jewish) that sets a wide framework of the few things you must not do, leaving the rest up to you. Together, in their own environment, they provide a ,macro framework for behaviour, which we then break down further into the components that we seek to live by in a community.

When you need some help sorting this out, call me.

 

 

What are the ‘tells’ of a failing culture?

Jan 30, 2020 | Leadership, Management

 

A ‘Tell’ is an unconscious, usually inconspicuous, sign that something is happening. It is a term commonly used in card games, someone scratches their nose when they pull an ace, or looks over at their drink when a potential flush, is well, flushed.

Cultural failure is all around us, in our workplaces, communities, and institutions. The news bulletins are full of it, so full we seem to becoming immune, no longer enraged, just sad and drained at the seeming inevitability.

However, when you see a problem early enough, you pick the ‘tells’, you can often address them as molehills before they emerge as mountains.

So what are the tells of a failing culture?

In my experience there are a number of very common ones, the presence of any is a sign of disturbance to be addressed, more than one is a problem.

Lack of accountability.

When accountability is clear, individuals tend to act in more predictable and generous ways. When that accountability is to a peer group, rather than just ‘a boss’, that tendency is amplified, as we are social animals, and our welfare is tied to the welfare of the group. Behaviour that leads to the erosion of the welfare of a peer group leads to expulsion, and that is a huge penalty, greater than any that can be imposed by a ‘manager’

Shortage of diversity.

This has little to do with gender, ethnicity, sexuality, or any other label that can be applied by pressure groups. It is all about the diversity of thinking, background, and understanding. That diversity of thinking does  flow from the diversity of the people, but it is not a direct correlation. Actively seeking those who are willing and able to shed a different light on issues and challenges, hearing those often challenging views and taking account of  them in decision making, is a sign of a healthy culture

Absence of investment in people.

The greatest asset of most businesses walks out the door at 5.00 every day. Without them, a business is just a shell, a building, unable to get anything done. Investing in people is an essential ingredient of not just success, but remaining in business. There is piles of evidence that an investment in people is a great investment, generating a very fat return, but it is long term, hard to measure, easy to cut when times get a bit tough. The best enterprises double down on their people, particularly over the last 25 years as we have moved towards business models that value intangibles over tangibles.

Relentless imposed pressure.

High pressure environments wear people out, generate mistakes, short cuts, and poor behaviour. Every enterprise has times when things are really busy, the pressure is really on for some reason, but when it is relentless, and unchanging, particularly when imposed by a management that is using its power to impose the pressure rather than the individuals taking it on willingly, it is corrosive.

Walk the talk.

Talking about the desired culture and the behaviours, standards and ethics that underpin it is one thing, easy for most, the hard bit is to walk the talk, every day. This applies most specifically to the leadership of the enterprise. The behaviours that support a great culture are embedded and reflected at all levels.  However, they have no chance at all if the person at the top is not diligent about their behaviour, every day, in even seemingly small and supposedly unseen ways. People listen to what their leadership says, and if it is not exactly as they behave, they ignore what is said, and mirror and multiply the behaviour.

If you have ever seen a slick, egotistical CEO deliver a persuasive narrative about the importance of people, and a month later oversee a ‘re-engineering’ because the quarterly numbers are down, you know what I mean.

As you think about the culture in your business at the beginning of the new decade, you need to look at yourself and your behaviour early on in the process.

 

My thanks to Scott Adams for the portion of a Dilbert cartoon acting as the header, that reflects the last sentence.

 

 

 

 

Australia Day, January 26, 2020.

Jan 24, 2020 | Governance, Leadership

 

Sunday is Australia Day, and the bushfires consequences, and the possibility of more in the next short period, is at the forefront of peoples minds.

In recent days however, we have had dust-storms that have been truly frightening, and intensive storms, including damaging hail, some in areas still smouldering. Now we have the farce of the Libs buying votes with grants to sports clubs prior to the last election. (In the interests of full disclosure, I chair a sporting body that had an application in to replace some critical infrastructure that was, now still is, on its very last legs.  We were pretty confident of being successful, as it fitted the guidelines like a glove, but we failed to account for the fact that the club concerned is in a safe Labor seat)

There will be substantial political and commercial fallout from all this.

From the various climate induced calamities, insurance rates will go up, politicians will be held accountable. Those with capital to be invested  will demand that action be taken, and they will vote with their money by not investing in areas they see as subject to the uncertainty of climate change. Larry Fink, chairman of Blackrock, the largest money manager in the world ,has written an open letter to CEO’s informing them of Blackrock’s revised assessment of the risk profile of investments it makes based on climate change risk. His is a voice that carries huge weight, and Blackrock putting their trillions where Larry’s mouth is, will have a significant impact. If the commercial funding of the revised Adani project needed another nail in the coffin, I suspect Mr Fink just supplied it.

Mr. Morrison will be haunted by photos of his stunt bringing a lump of coal into parliament. It has become a parody of the inability of this government, and to be fair, those that preceded it, to develop a framework to manage the impacts of climate change. I wonder if the Greens in their quiet moments now look back on their decision to scuttle the Rudd governments carbon pricing scheme as the greatest blunder they have ever made? I did hear Richard Di Natale defending the decision on radio a couple of weeks ago, and he sounded like a kid caught stealing money from the church fete. 

Rudd’s comment that ‘climate change   is the great moral challenge of our generation‘ is proving  right, unlike much of the other stuff he said. He was right and every government, including his, has failed to step up to that challenge.

I wonder if the fires might start a serious consideration of  the manner in which we replace the infrastructure destroyed? We have the opportunity to experiment with technology, capital equipment, and organisational processes, rather than just running out and replacing the destroyed infrastructure with more of the same. Perhaps not: that tactic may reduce the headlines and openings to use as photo ops, as well as risking partisan criticism in the inevitable event an experiment does not work as ‘advertised’.

The economy is in the shitter. The GDP figures for the April quarter when released in about September, will show increases in activity and our gormless Treasurer will mount his soapbox blathering about the plan, when the increased activity is just about replacing assets lost in the fires. Nothing will be done about our manufacturing productivity, which long term is the core of the economic growth we would like to see. Supporting that are basic items  like the technical education and  apprenticeships, the hard, on the ground skills needed to keep up in a digitising world.

I suspect tourism, one of our biggest industries and employers will be hit hard, not just by the impact of the fires,  but by the uncertainty that prevails. It will put off many travellers, and spending a few million on reactive advertising is about as useful as pissing on a bushfire. Better than nothing I guess, but about as useful.

The impact of the financial services royal commission are yet to be worked through the system, but to me it seems like not a lot will change. There have been a few heads chopped, a few of the protagonists in the debacle promoted, and a few new regulations proclaimed, intended to fill the obvious holes,  which will more than likely just require more administration, and inevitably costs will increase. Just in the past week, we have had AMP caught, again, with its hand in customers cookie jars. Will these amoral pricks ever learn?

The current Royal Commission into the treatment of the aged, will I suspect, throw some more explosive material into the public forum, and we will be demanding quick and effective action, neither of which the government will be likely to deliver. If the fires, storms, and sporting grants rorts do not destroy the prospects of another term for this lot, the anger from the baby boomers whose parents it is that are suffering should be enough to tip them into oblivion. This is assuming of course there is a credible alternative. If not, hopefully Morrisons invisible friend who has been notably absent these last 4  months will turn up to assist.

Exactly a year ago today, I expressed concern that we would be ‘molested’ by politicians seeking election. Well, that happened, but then as we got closer to the day, the polls clearly showed a win for Labor, which failed to eventuate. Nobody was as surprised as our then, and now current Prime Minister who said in his acceptance speech: ‘I have always believed in miracles.’ As a result he floated along doing nothing beyond making ‘how good was that’ speeches and having a restive, and in some cases stupid back bench, sitting on a one seat majority, but grasping the trappings of power. I suspect the year coming will be entirely different, as the mood of the electorate seems to me to be pretty ugly. The question is have Labor recovered sufficiently from losing the election they thought was in the bag to be an effective and contributing opposition, or will they remain hiding under the table. A good start may be to propose a unity ticket to develop a  long term policy response to the climate and energy challenges we face.

Whoops, there goes another heavily made up pink pig flying past.

Have a good Australia Day, hug your family, friends and neighbours, and batten down the hatches.

 

3 factors creating an existential crisis.

Jan 19, 2020 | Change, Governance, Leadership

 

I recently found myself in the position of refereeing a ‘debate’ over lunch on climate change between 2 zealots, one from either side.

One who was a passionate advocate of the argument that it was real, and would kill us unless we did some challenging things, the science was in 30 years ago, and we have barely moved. Our public institutions have displayed, and continue to display, criminal negligence in that inaction.

The other, was a passionate advocate of the ‘why bother’ story. As Australia is a tiny contributor to global warming, unless the rest of the world did something, destroying our way of life was an irrelevant act of self -immolation. 

Thinking about it later, three things came to mind, that reflect the barriers to any major change in the way we work and live.

Denial. It is not happening, we cross our fingers and hope it goes away. Through history this has never worked, it is the ‘peace in our time’ solution.

Money.  Making the change will  not make any money, just impose unnecessary and unrecoverable costs. This assumes that tomorrow looks just the same as today, which is always wrong, we just cannot see the potential. Steve Ballmer dismissed the first iPhone as an expensive toy that would  never work,  Blockbuster did not see the potential in Netfliks, and Kodak, who invented digital photography, failed to commercialise it. With the short term  dominant in our institutional and public governance, the immediacy of money being generated  is a powerful argument for inaction, despite the evidence to the contrary.

Optimisation. We have optimised our current organisations, they are good at running exactly what it is now, and change is messy, expensive, risky, and dangerous to the personal advancement of those who advocate for it. In addition, the short term prospect of generating a return on investment is low, so our institutional risk aversion kicks in, often on steroids. Both time frames have their costs and benefits, quantifiable with significantly variable degrees of certainty. On balance, my money is on the ‘do something’ button, as history suggests those who do not change in the face of undeniable  change around them,  get run over by those who take the prizes. IBM and Olivetti used to own the typewriter business, Kodak owned photography, Hoover owned vacuum cleaners, all optimised businesses for the maintenance of the status quo, and none survived.

As I write this, the east coast of Australia, gripped by drought, has been on fire. We are only in the early part of what is usually called the  ‘fire season’, so things could easily get worse, although there may not be much left to burn. I suspect the views of both sides of the debate my lunch colleagues had will not have changed much as a result, a microcosm of the policy problem facing us.

However, every problem is accompanied by opportunity.

Climate change is a problem for everyone, a challenge for policy makers faced with the reality of short term populism to keep their jobs, and an opportunity for the few who see the problems as challenges to be solved.

 

 

 

Very rarely am I embarrassed to be Australian

Jan 8, 2020 | Leadership, rant

 

Craig Kelly created such a moment this week, spouting idiotic nonsense on British morning TV.

Kelly is the MP for Hughes, at the southern end of Sydney’s metropolitan area, which he won in 2010, succeeding well respected liberal  Dana Vale when she retired.  The electorate includes a lot of bushland, some of it national park. As such, it is bushfire country.

 Kelly has been a continuing goose, making statements that range from dumb and ill informed, to just plain stupid for the whole time he has been an MP.   Despite this, Scomo intervened to save his pre selection prior to the last election when he was almost certain to lose it to a more moderate candidate who seems to accept that facts do have a place in public debate.  

I am no scientist, but after Kelly’s interview, thought I would relate a few facts about climate change undisputed by the vast majority of scientists around the world. The exceptions being only those who know the holocaust is a figment of Zionist propaganda.   It is however realistic to acknowledge the contradictions and paradoxes littering the climate change landscape (pardon the poor pun) that can be grabbed selectively to make a contrary case, should you be so stupid as to do so.

Hello Craig!

  • The human impact on the environment is increasing: there are simply more of us, consuming increasing amounts of finite resources every day, and producing accelerating amounts of waste.
  • A key waste is CO2, which has the effect  of warming the earths atmosphere. Scientists used  basic physics to work that out in the mid 1800’s, it is not new information. CO2 in the atmosphere is transparent to the radiation from the sun, so it lets it through, warming the earths surface, but unfortunately, when the warming earth radiates the energy back, the wavelength is different, and the atmospheric CO2 does not allow it to pass through. Therefore, it bounces back, further warming the earth. Anyone who has stood in a glasshouse understands the impact, it is exactly the same, hence the term, ‘greenhouse gas’
  • While every one of that increasing population exhales CO2, as do the animals we grow to feed us, the effect we have had is dwarfed by the impact of the burning of fossil fuels. Starting with the coal that powered the industrial revolution, and progressing to oil, and gas, we are now pumping billions of tonnes of carbon dioxide into the atmosphere every year. 
  • Some of the CO2 produced gets captured by the earths oceans, stored as carbonic acid. This increasing acidity of the seas has the impact of dissolving coral, which acts as the nursery for sea life, the main source of protein for much of the worlds population, as well as protecting low lying tropical and sub tropical areas from the impact of cyclones.
  • The warming of the atmosphere tends to suggest, even should I say, to Craig, that this leads to an increased ‘dryness’ of the earth, sometimes called drought. Could this increased dryness  lead to fires? Perhaps even Craig can catch the logic of that one. It also, logically, leads to ice melting. take some cubes out of the freezer Craig, and see what happens. It is unarguable that the ice at both poles, and on mountain ranges is melting. Given the amount of fresh water tied up in ice across the planet, the progressive melting  has a range of nasty consequences. For example, there will be new locations for seaside resorts created, although the price will be paid by some places from small islands around the world, to mainland locations from the Bay of Bengal to Florida, for which snorkels and fins will be required to get to the front fence. This should cause a few very emotional arguments in parts of the world not renowned as friendly, accommodating negotiators.
  • While the average temperature of the planet is unarguably warming, averages do tend to be misleading. The incidence of extreme weather is increasing, at both ends. Extreme heat, and extreme cold, and the time between these extremes is decreasing. The locations of these extremes are also scattered, impacted by the melting ice affecting the weather patterns so dependent on sea temperatures, and more specifically, the temperature of the major currents that flow around the world. 
  • The sad fact is that the lag between cause and effect is long. Were we to totally stop emitting CO2 today, it would be years before there was any measurable impact on the climate. This is like the dilemma faced by obese people. It is really easy to keep doing what you are doing, and getting fatter, very hard to change habits sufficiently to stop the increasing weight, and even harder again to reverse the trend, and it takes time for the impact to be seen. However, the longer you leave it, the harder it gets.

Enough of this, point made.

However, it is also a good place to point out, if you have read this far, that politicians whine that we, the great unwashed who vote, do  not trust them any more. Even ambulance chasing lawyers rate higher on the popularity scale, as Scomo found out trying to find a hand to shake amongst the ruins of Cobargo last week.

Climate change is not Scomo’s fault. However, his failure, and that of his predecessors to reconstruct the broken processes that catapult an idiot like Kelly into a position to make me feel embarrassed to be an Aussie, is his fault.

 

My thanks to David Rowe for the header, who as usual, manages to draw the most disturbing cartoons that make a statement.

Oh come all ye turkeys

Dec 16, 2019 | Governance, Leadership

 

As we hurtle towards another Christmas, the turkeys are out, clamouring to be at the front of the line.

Australia’s latest quarterly GDP figures were released  on December 4, generating a flurry of commentary from all sides of the political and economic tables.

What are we mere every day Australians to make of this welter of ‘informed’ commentary, that takes the same set of figures and comes up with entirely different analysis, delivered as fact.

We have the treasurer spewing patronisingly about how well it is all going, the plan is working, as the number is 0.4% growth, an annualised 1.6%. This is down from forecasts, way down from the post GFC average growth of 2.6%, and a long term average of around 3.4%.

Not so sure I like the plan, particularly as all the anecdotal stuff I see indicates we are much deeper in the doo doo than those figures would indicate.

For example, household spending is steady at best by the numbers, awaiting the yet to happen Christmas shopping binge, which seems  unlikely to emerge. Household spending is a key component in the GDP figures, when it sags, the economy is heading for trouble. I expect a very poor outcome when the next quarters figures are released in March.

Unemployment was 5.3% in the latest numbers, and when you look at the graph, it is on a rising trend.  Perhaps it is time for a revision of the manner in which that number is calculated, in order to offer a more realistic picture than the one delivered by the current sanitised nonsense? Unemployment is the number of people looking for work in the period. It excludes those who could work, but are not actively looking. However, the catch is that ’employed’ is defined as anyone who is paid for more than 1 hour a week. By that measure, our unemployment rate may be 5.3%, but the real rate, the point at which the so called ’employed’ are able to live, pay the bills, and not look for more paid time, is way, way, way higher, and the rate amongst significant slices of the population, such as those under 20, is devastating.  Then you have the problem  my client base of SME manufacturing has, of actually finding tradesmen who are capable and willing,  to do the jobs necessary to keep our SME manufacturers competitive, thriving , and employing people.  Those trades do  not exist because we stopped training them and offering the dignity of work.

The unemployment number is an absolute nonsense, we all know it, yet it is a highlight of the political discourse.

The tax system is stuffed, as stuffed as that turkey that will be crammed into the oven as the kids rip the paper off the latest imported offering from K-mart. It is beyond the comprehension of the average person, all we see is the balance swinging against those who are in the PAYE system. Companies, particularly  multinationals, have the resources to manage down their taxes at a time when the governments are spending more, which needs to continue as our infrastructure ages, schools and trades education are in trouble, health costs are rising at a rate significantly greater than the anaemic inflation, and there are added costs like the NDIS.  There has to be a tipping point somewhere, and about now seems to me to be a fair bet. The Henry tax report is now a decade old, and none of the recommendations have been implemented. None. Ken Henry may have blotted his copybook at NAB, but that does not take away from the value of his contribution to public life generally, and specifically as the boss of Treasury, on whose advice Australia dodged the GFC bullet in 2008.

Trust in public institutions has never been lower. It is hard to pick the catalyst for this reality. Is it the realisation that institutions of all types, but  particularly those operating on a platform of faith, have been abusing our kids, that financial institutions have been stealing, politicians have a truly flexible relationship with the truth, or that social media has made us informed, lied to, mesmerised by trivia, and deeply cynical, all at the same time?

Enough, I am depressing myself, just as I have to think about going to the shops and spending on stuff I am not sure people want, for reasons I do not really understand, as should we not be generous with things way more important than money, with those we love and value all the time, not just around the summer solstice?   

The turkeys are all coming home to roost.