What retailers can learn from the Game of Thrones

 What retailers can learn from the Game of Thrones

Mar 28, 2018 | Change, Governance, Leadership, Strategy

The ‘Game of Thrones’ series is an unlikely metaphor for Australian FMCG retail. There are however commonalities. Intrigue, politics, intense competition, vendettas, invasion by ‘wildlings,’ dumb decisions motivated by ego, desperate defence of the status quo, and more.

However, the world of retail is changing around us, just as did the world around Westeros, and potentially with similar bloody results.

The business model that has served so well since Piggly Wiggly invented the supermarket in 1916 is becoming redundant.

The incumbents are fighting to save the status quo, the invaders are looking everywhere for weaknesses to exploit, and the natives are restless, irritable, and open to offers.

All retailers, from the corner store to Walmart, Amazon, local farmers market, and the two Australian FMCG gorillas, Coles and Woolworths, work from a similar business model. All that changes in the model is the emphasis put on the different components.

StrategyAudit.com.au

All retailers are facing the pressure of change from the digital transformations of our world, what interests me specifically is the manner in which the Australian retailers are adapting, specifically Coles and Woolworths to the changes.

The gorillas consolidated their market power, still somewhere north of 70% by the relentless growth of market share through competitive pressure, and ruthless optimisation of their supply chains over time, leaving consumers with little option but to shop with them.

However, optimisation has a down side.

It breeds resistance to change, a dismissal of the minor disturbances that happen on the fringes, which are seen as little more than an irritation, unlikely to have any impact, and complacency. Just as Netflix was an irritation to Blockbuster, unlikely to be relevant, until it was, and then it was too late for Blockbuster.

It seems to me that the incumbents in Australia are paddling the same boat. Woolworths opened, then closed down Thomas Dux, in what I regard to be a great example of short sighted strategic stupidity, but at least they are consistent.  Then they botched in spades their foray into hardware with Masters, closing it down ironically as Wesfarmers buys into Homebase in the UK in an effort to spread the gospel of Bunnings. That did not turn out too well, Wesfarmers taking a $1.3 billion hit in February, and more recently announcing that the Coles business, apart from Bunnings and Officeworks would be flogged  off into a separate listed entity.

In other words, the incumbents are paddling around in the same warming pot as interlopers turn up the fire.

There is a lot going on at the fringes. Companies and technologies as varied as Amazon, Costco, Farmers markets, Harris Farm, Kaufland, various ‘pick your own’ schemes, organic, home delivery, and all the rest interrupt if not disrupt the market, and around the corner you have Alexa, AI, AR, Blockchain, personalised communications, Robomart, and who knows what else knocking at the door.

Optimising the existing model is coming to the end of its usefulness, the gorillas need to get out and get a bit messy.  They do not need to make huge bets as with Masters and Homebase, but they do need to clean out their own business model to make them easier to deal with, thus prolonging the profitability of their current investments, while building the retail model that will sustain into the future. If the best they can do is remodel an old crappy store into a very nice new one with better ranges, layout and lighting, as Woolworths has with Marrickville, then they are in trouble.

This is a big call, telling the future is not a productive pastime outside the circus tent, but having a lot of small bets on what it may look like would be useful. Take a long view, nurture some of the more looney ideas, and assume that the march of technology will not stop at a point of convenience for them, and one or two of the bets might turn out to be trumps. (whoops, not sure of I should use that word any more)

When I can help you consider the impact of all this change on your business, its profitability and longevity, get in touch, and I will be delighted to apply my knowledge and experience to solving your challenges.

 

The formula for trust, and how to lose it.

The formula for trust, and how to lose it.

Mar 26, 2018 | Governance, Leadership

Building trust is a process, long term, incremental, and very fragile.

Trust given has always been earned, it is never just ‘given’. Sometimes trust applies to institutions.  We expect anyone holding office in an institution to act in particular ways that reflect the trust earned by those who have gone before.

This is why we no longer trust politicians, and many others in various forms of public life. Individuals have tainted the trust we have in the institution by their individual actions, and it affects all who are associated.

Reflecting yesterday on the disgraceful efforts of the so called leadership group of the Australian test team,  I felt personally let down, even somewhat soiled. Cricket seemed to be one of the last bastions of the  Australian ethos of tough, competitive fairness, and looking after your mates.

No longer. It is just another bunch of overpaid, self-interested ego driven dopes who do not deserve to wear the ‘baggy green,’ a symbol of what has gone before.

There is a formula for trust that I have applied to those with whom I work, encouraging them to think deeply about the components, then behave as the formula demands, every day.

Trust = credibility + reliability +Authenticity     divided by perceptions of self-interest.

Apply that formula to the current bunch and they fail, badly.

It is reasonable to think that the pressure of the moment got the better of their judgement, that deep down they are better than that, but then apply the formula, and the result tells a different story.

Steve Smith, perhaps the best batsman in a generation, will forever be remembered for this piece of stupidity, no matter what he has done, or will do, the decision to cheat will forever be an indelible stain on his reputation and credibility.

How can we trust him to lead an Australian icon.

Does he even deserve to remain in the team, irrespective of his prowess at the crease.

He is no longer a leader who we can trust, therefore he is no longer a leader, at best, just an incumbent.

The Kiwis, still smarting after the underarm bowling incident in 1981 will be laughing at us, and muttering ‘Told you so’

How to apply logic to the development of KPI’s

How to apply logic to the development of KPI’s

Mar 12, 2018 | Governance, Leadership, Management

‘If it matters, measure it’

There are many variations in that old saying, but it holds true. How therefore do we end up with hundreds of measures that seem not to matter?

Fear.

Fear of missing a measure that does matter, so we create metrics for every-bloody-thing to ensure that we do not miss one.

That is crap management.

Let’s think about measuring stuff that does matter, and then measuring it at the point where the decisions and actions that influence the outcome are made. This is tying cause and effect together at the point where they intersect, not looking at a range of data and wondering what happened to cause that!

How do we define what matters?

To me it is simple, if it moves the performance indicator, it matters. Clearly, the converse is also true.

Ask yourself, does the number of Facebook likes you have impact your profitability? If it does not, and I would contend it never does, so why use it as a KPI? It is simply a readily available metric that has no relevance to performance. It is what those ‘likers’ do with your information that counts, much harder to define and measure, but if you understand that, and the cause/effect chains, it just might move the performance needle and become a KPI worth measuring.

In short, behaviour determines the outcomes, so set out to measure the behaviours you need to deliver the performance you are looking for, not the other way around.

How do we measure what matters?

A measure without a target is not of much value, as we cannot see if any movement is relevant to performance. A measure should articulate the performance against which we need to move the performance needle in a strategically significant manner. This setting of targets is challenging if we do it properly. Applying a 3% increase in last year’s performance is not doing it properly, it is just extrapolating, accepting that history will repeat itself.

To measure properly, we need to consider the factors at work that will influence performance, seeking the causes, and measuring them, not just glancing at the metrics and having no idea of whether or not any movement is significant. Holy cow Batman, we just got another 5,000 likes on the Facebook page. Wow! But so what?

A further caution. ‘Sandbagging’ so called KPI’s is common in situations where there is little strategic linkage, and analysis of flow on impact. Two examples. Sales people when incentivised only by a target will be tempted to keep the targets as low as possible in order to achieve their bonuses.  Who has not seen that? Purchasing people incentivised only by purchase price will not care too much about the performance of the cheaper version they opt for, which in the factory, may corrupt the efficiency numbers, and have a far greater financial impact than the saving of a few bob on the initial purchase price.

Do not focus on averages.

Too many times I see piles of measures, taken at a high level, so that they reflect the average of a whole lot of other factors. If I have one foot in an ice bucket, and the other in the fire, on average the temperature of my feet is about right.

Nonsense.

Measure the outliers, the things that are unseen in averages in order to better manage them. For a KPI to be meaningful, it has to influence the outcome. Removing one foot from the fire will influence the average, but if I have not realised that the effect is caused by the removal of the foot in fire, I will at some point put my foot back in the fire.

I do not remember much from the statistics I did 45 years ago at university, but one of the ideas I do remember is that of standard deviation.  I recall little of the mathematical gobbledy Gook and probably do not need to any longer, as the formula is in Excel, just fill in the boxes, but I do remember what it means. (Forgive the pun).

In the normal distribution curve we are all familiar with, 68% of outcomes are within one standard deviation of the mean. These can reasonably be classified as an ‘expected’ result, given that forecasting is not an exact science, it is just a best informed guess, and the level of ‘informed’ varies hugely, depending on who has their mouth open at any one time.  95% of outcomes fall in the range of 2 standard deviations, and 99.7% fall in the range of three standard deviations. This is commonly called the ‘Rule of 68’

A focus on the unexpected, the outliers, will give you far greater leverage on the outcomes than a focus on the averages, or expected. It might lead to taking one foot out of the fire, and understanding that this is what has caused the increase in the comfort level.

 

 

 

 

 

Defining the outliers, like most things in life, can be made easier by imagery. A core piece of process improvement is defining the levels of variability, and then seeking to understand the causes of that variability. A visual way of communicating this is a performance graph that includes what you define as the limits of the variability you would consider to be ‘normal’. Commonly this is called a ‘statistical control chart’, and includes the upper and lower limits of what can be expected. Anything outside these limits needs to be investigated.

Anything inside the control limits is by definition, ‘normal’ and therefore not necessary to spend a lot of time considering. What however is worth great consideration is determining what the control limits are, where the normal becomes abnormal, which is where action must be taken. Over time, in an improvement process, the control limits will be progressively tightened as the outliers are progressively understood, so they become part of the normal, or eliminated.

 Cascade the KPI responsibility

Having any more than 6 or 7 KPI’s to manage creates a situation where we skate over the top, not able to devote the time and energy to improving the things that matter, that move the performance needle. The things that really matter will be different at each level, and in each part of the enterprise.  Therefore, constructing KPI’s relevant to each role should be a core part of the process of managing the resources of the enterprise, and especially in encouraging the behaviour we want  that will collectively, move the performance needle. Within each functional area, there will be a cascade of KPI’s that together add up to the 6 or 7 KPI’s to which the functional manager is held accountable. This is not to forget that the processes we are measuring are very often cross functional, and ignoring those cause and effect chains leads to sub optimal performance as in the purchasing/operations example noted earlier. This can be addressed by ensuring that the purchasing manager has a KPI that involves operational efficiency in the measurement.

Use the narrative in reporting.

A dashboard of a few easily understood performance indicators is terrific, it tells you what has happened, but lacks two vital pieces of information: Why it is happening in this way, and what should be done about it.

Narrative is the best way to communicate these vital factors, the core of great management, indeed, leadership. Knowing clearly what is happening is step 1, steps 2 and 3 are what make the difference between the companies that struggle to survive and those that prosper and grow. Illustrating these narratives with graphical KPI movements over time is a powerful way to illustrate the impact of performance at any level.

 

Credit Wikipedia: Rule of 68-95-99.7.

Header credit: Hugh McLeod Gaping void

 

11 practises to build a performance culture.

11 practises to build a performance culture.

Mar 1, 2018 | Governance, Leadership

Managing personnel KPI’s, performance reviews by another name, are one of the most intimidating and easy to put off tasks most managers have.

Having recently written about behaviours delivering KPI’s rather than the other way around, it may be useful to do a quick audit of your own practises, and that of your employers.

If you want to shape behaviour, you need to communicate, and more importantly, display the behaviours before they will be taken up by others in the organisation.

This is a crucially important aspect of every person in a position to manage the output of others.

In  no particular order, following are some of the things I  have observed over the years that impact positively in behaviour, and clearly the converse is also true, their absence is telling.

Start from the beginning.

The first thing a new employee should understand is the behaviour that is required, and the connections these have to the KPI’s. Start as you want to continue, as someone who is willing and able to assist the new employee to learn, and contribute to the organisation. So often I see new employees disheartened by the reality of a new job not matching the rosy descriptions given during interviews. This is a bad mistake.

Feedback is a two way street.

Recognise that giving feedback is delicate, and is also a two way street. Positively managing the performance of other people requires a relationship, and no relationship can exist without some give and take. Every employee has expectations of their boss, so you should also ensure they have the opportunity in the conversations about performance to give you feedback. When this happens as a matter of course, as a part of natural conversation, it is a really healthy sign.

Responsibility and credit.

Taking responsibility for the failures around you, but giving credit where credit is due, publicly, is one of the most powerful motivators I have seen. It builds respect, and importantly also builds a well of goodwill amongst those around you, as well as from those reporting to you.

Feedback should be cultural.

Make performance feedback part of the culture. It should not be a once or twice a year conversation,  but an ongoing part of the discourse. This is not an easy part of being a manager, it means you need to be thinking of others all the time, rather than concentrating on yourself.  Have a look through the terrific Netflix culture doc, it is a very useful guide from a business that has managed exponential growth while disrupting established marketers, and building what appears to be a great place to work. Clearly, they know something about performance management and culture that the rest of us can learn from.

Remove emotion.

Keep emotion at bay, by concentrating on facts, and demonstrable cause and effect. This is a challenging task, but emotion is the killer of constructive and mutually beneficial conversations.

Be specific about expectations, exhortations to do better are of no value unless you are able to tell  them exactly how to do better, and the metrics by which that performance will be measured.

Context.

Help people to see their work, and place in the organisation from a broader perspective than just their own little part of it. Understanding the context of a role, and the impact the performance of it has on others is a very powerful motivator.

Educate for the next job

Recognise explicitly that most people move on at some point, and that you take it as a personal challenge to ensure that when someone does move on, it is to a better, more senior job, and that you have contributed to the success that gets them there. Helping them build a career path is a part of your job as a leader and manager, and they will be grateful. When you give something of value to someone else, reciprocity kicks in, and in some way, at some time, most will repay the ‘debt’, often with interest.

See the context of peoples working lives.

Understand the patterns and drivers of the lives of those for whom you are responsible. While keeping a distance is easy, and natural, unless you understand what is going on in someone’s life outside the time they  spend as an employee, you will not  be able to understand them as well as you might, and will therefore fall short of being the perfect boss. This can be a very fine and variable line. Some may not welcome what they see as intrusion, but to one what may be intrusion, to another is genuine interest in them as a an individual.

Address the molehills immediately.

Adverse behaviour does happen, and unless called out immediately, will quickly become  accepted as ‘normal’. When you see something great, immediate recognition will drive a repeat performance, and the opposite is also true, and corrosive. Once poor behaviour becomes the norm, it is very hard to change. Nip it in the bud!

Write it down.

There are regulatory requirements, as well as good governance that relies on things being written down and recorded. Some would  say without a written record, it did not happen. Agreeing a written record with the other party goes a long way towards cementing the  changes you need.

No threat no sweat.

‘Performance review’. Just the words elicit a sweat, an impending doom, that affects the conversation. Remove the implied threat, and the conversation can be mutually constructive. Of course, there are the odd occasions where threat is an intention, but it needs to be the exception, rather than the rule.

In these fractured post Weinstein days, ‘gender politics’ may also play a role, particularly if you are a middle aged, heterosexual white guy with the power. Enough said.

Remove with humanity.

Finally, when someone has to go, do it explicitly, but with humanity. Firing someone, particularly someone with whom you have worked closely, for whom you have had responsibility, and who you might like personally, is the hardest management job there is. Do not shirk it, and do  not leave any room for ambiguity. It is not about blame, it is about both parties moving on in their own best interests. You also need to consider those that remain in employment. They will see the termination,  and the manner of it, and come to their own conclusions about how it was handled, why it was necessary, and how it may impact them. Survivor syndrome is remarkably strong and often overlooked.

What have I missed from your experience?

 

Base KPI’s on behaviour, not outcomes, for best results

Base KPI’s on behaviour, not outcomes, for best results

Feb 21, 2018 | Governance, Leadership

It is budget season, so amongst the detritus of everyday management, we have to make time for creating the budgets for the next 12 months, in Australia usually starting July 1. Hopefully, budget preparation is a normal part of the management ‘flow’ of your enterprise, where it follows naturally after a regular strategic review and preparation of operational plans. The budgets then become a financial expression of the operating plans, but sadly, it is most often not the case.

Irrespective of the procedures that dictate preparation, part of the budget process is the setting, or in most cases, the resetting of Key Performance Indicators, KPI’s.

In almost every case I see, KPI’s are all about outcomes, achievements that more often than not are recorded in the financial reports, which are an alarmingly one dimensional reflection of performance in today’s world.

Would  it not be better to set KPI’s based on the behaviours we want, which are after all the underpinning of outcomes. It is unlikely the outcomes will be favourable unless the behaviours that occur are constructive.

There are many challenges in  setting KPI’s  in this way:

It is hard to do, therefore we take the easier route

To be effective, behaviours, and specifically the behaviours we want, need to be made sustainable, part of the everyday routines,  not something that happens when the boss is watching.

Behaviors are a product of  the environment in which we exist, so the task of management is not just to mold behaviors, but too mold the context in which you want them to evolve. Commonly this gets called alignment, but almost always it implies financial alignment, rather than the broader definition that includes revenue generation activities, operations, process optimisation, and capability development I think appropriate

Behaviours are integrated into the processes of any enterprise, together they make up what is commonly called ‘Culture’. Again, these do not evolve without senior management taking control, and being seen to do so, thus enabling the processes to evolve in a direction consistent with the objectives of the enterprise.

Are the behaviours in your enterprise all contributing to the objectives, or are they disconnected, the KPI’s just a set of optimistic benchmarks dreamed up in the boardroom designed more to intimidate than motivate?

 

 

9 reasons why SME’s should invest in a governing board

9 reasons why SME’s should invest in a governing board

Jan 31, 2018 | Governance, Leadership, Small business

 

Very few of the small and medium sized businesses I interact with have a governing board of any real quality. Many have a ‘board’ required under the various regulatory regimes they must meet, but very few have a board that acts in the manner of a public company, as an independent oversight of strategy, financial and operational performance, culture, and of the senior management effectiveness.

This is something that should be remedied.

The short term costs are in my experience  heavily outweighed by the benefits over the medium to long term.

Some of the benefits I have seen can be summarised as:

  • Introduction of industry knowledge and networks.
  • Introduction of business management expertise and experience from a wide range of backgrounds.
  • Provides time and the catalyst for management to consider wider issues than the normal ‘urgent’ things that dominate the daily routines.
  • Provides diversity of views, values and ideas
  • Keeps management and particularly the CEO focussed on the issues that will impact long term commercial sustainability, as well as the short term financial outcomes.
  • Adds depth to the management functional capability by enabling mentoring and coaching
  • Thought starter and sounding board for management
  • Acts as a catalyst and guidance for longer term capability development of employees, and the manner in which the business captures and leverages those capabilities.
  • Oversight if not development of strategy, and oversight of strategy implementation, feedback and renewal.

 

There is an old saying that most of the smartest people in your industry work somewhere else. Therefore it makes sense to try and tap into that expertise in some way, and a well considered ‘board’ is a great method.

These bodies do not necessarily operate under the rules of  the Corporations Act, where there are enforceable fiduciary responsibilities. They are usually more of an advisory body, often meeting  formally only 4 times a year, but with significant interaction with management on an as needed basis.