Jul 7, 2009 | Management, Marketing, Operations, Strategy
Much has been written about the value of giving people as much information as possible about the organisation, including any unwelcome news. In the absence of certaint, rumor will fill the gap, and it is usually worse than the actual.
I was reminded of this recently having a yarn over a meal with a bunch or people I worked with some time ago, who were facing the reorgansation of the business subsequent to a takeover, and the probable redundancy of many of them.
As GM of a division of this business, I had closed a number of operational sites to increase the returns of the business. In the first, I followed the corporate policy exactly, turned up on the morning with a letter for each employee, a redundancy calculation, and the HR manager and security. Suffice to say it was not pleasant, and there were repercussions.
Some time later, I had to close a second plant, same reason, it simply was underperforming drastically, and had become surplus to the need. This time, I called a meeting, and told the personnel of the decision 6 months in advance of the planned closure, explained the reasons, and the steps that would be taken to ensure they all had as much of an opportunity as possible to move to other sites, or find other jobs. To my surprise, they were pleased that finally they knew their fate rather than being forced to speculate on it, and the timetable. In the following 6 months as operations wound down, productivity went up, attendance went up, product losses went down, and the financials improved markedly.
The lesson, once people know what will happen, and when, why, and how it will impact them with some certainty, they were able to get on with the job without the corrosive impact of uncertainty.
Jul 6, 2009 | Demand chains, Management, Strategy
Newton is one of the real genius’s of history, he promulgated a series of laws that form a key part of the foundation of following scientific success.
However, he did not get it all right.
“To every action, there is an equal and opposite reaction” he said. Any experienced negotiator will tell you this is nonsense in the context of a negotiation, where the reactions to a proposition are rarely opposite or equal to the proposition suggested.
A negotiation is a complex series of interactions that depend on the creation of perceived value, and the reflection of that value in some way, often in monetary terms, but not always.
My sister (in Trinidad) has just swapped a beautiful, highly equipped, 32 foot sloop with some finishing work to do, for a 45 foot steel hulled sloop with little gear, apart from a full suit of sails, but which can cross the Atlantic at will. No money changed hands, but value was created for both parties, because the other had what they each needed at the time, so a deal was done, and it had nothing to do with money. It was however, a complex negotiation about relative value, with the emphasis on what each could bring to the other, and still win.
Isaac did not consider the complications of game theory in his deliberations, but if he had, he may have put some caveats on his laws.
Jul 2, 2009 | Demand chains, Management, Operations
Supply or Value chains are essentially sequential, one activity logically follows the completion of the one prior, and in streamlining the timing and handover parts of a process, you can build great efficiency.
However, great leaps in performance will not come from incremental improvement in a sequential process, but from finding ways to complete activities in parallel, but this will require a whole different set of collaboration tools, to ensure that each parallel activity is working towards the same end point, using information that is consistent and complementary.
The exchange of information through the chain becomes absolutely essential as you move to reduce the cycle time and costs of activity sets in a chain by re-engineering the chain to progressively adopt parallel activities. Without essential information being far more freely available that is necessary in a sequential chain situation the whole exercise will be a disaster.
Simple first steps taken to “parallel process” can offer great improvement, but more importantly, they can be an indicator of what is possible, and a precursor of the sorts of information sharing capabilities that will be necessary to capture the promised performance improvements.
Jul 1, 2009 | Management, Sales, Strategy
A vexed question, and managing customer profitability is as fundamental as managing the P&L, but possibly more complicated.
It is usually unrealistic to measure the profitability of all customers, but most businesses live by the 80/20 rule, so concentrate on the 20, and apply the knowledge gained to the remaining 80, with appropriate caution. Several parameters should be measured, the more the better, in order of importance:
- The basic measure is gross Margin. You know (or should know) the marginal cost of production and delivery of the products they buy , this is the basic measure, and should be done religiously.
- Costs to service the customer need to be considered. Some customers are easy, undemanding, and cause little disruption. Others you may wish to pass to your competitors. This ends up being a combination of data, such as product returns, debtors days, inventory you need to hold, and perhaps others, as well as the harder to measure things like how much time and trouble the sales force, technical support, and other functions need to spend to service the customers needs. Cost to serve is usually obscured from view, and hard to measure, but it is a huge factor in most businesses.
- Customer life time value, measures the value of the customer to you over a period of time. This analysis can be done in conjunction with a discounted cash flow analysis, as a means to better understand the returns that may come from investments in managing the customer.
Measuring customer profitability is a key part of a program of pro-actively managing the investment most businesses make in servicing their customers, but is too often allowed to drift.
A complication is that customers that have the potential to be amongst your top customers have to start somewhere, so the manner in which you measure profitability must be sufficiently flexible and responsive to recognise those that are currently not amongst your top customers, but are nevertheless “key” customers in your planning processes, and for your future.
Jun 30, 2009 | Management, Strategy
Making choices is the stock in trade of any manager, so following are a few questions you can reasonably ask yourself that will force you to consider some of the basic choices every business needs to ask itself.
- Which markets and products are we focused on?
- What is it that will motivate customers in that market to buy our products?
- What are the things we need to be good at to deliver “2” over the long term, and how do we improve our current performance on those things?
Pretty simple really, but how often are you doing something not connected in any way to the answers to any of these questions?
Business is simple, produce something and sell it at greater than your cost, and you will make a profit, the complication is when you add people who do not buy into the answers to the three questions to the mix.
Jun 29, 2009 | Management, Operations
These terms are often used interchangeably, often in my experience muddying the waters in situations where clarity is required.
Efficiency is all about how well you use the status quo, productivity is more about how you leverage gains to be made from changing the status quo.
Controlling costs of a process (efficiency) is far easier than figuring out how to make the process better (productivity), and in the long run is nowhere near as useful.
