Sep 3, 2021 | Governance, Strategy
The first is to have a monopoly, preferably a regulated one, such as a public asset that has been privatised.
Sydney’s Kingsford Smith airport was flogged off by the government to a private operator who makes obscene profits, not just from the landing rights, but parking, retail concessions, and every other opportunity to gouge. What are your options… catch a train to Singapore?
The second is to be in a market where the person shelling out the money for your product is not the decision maker in the purchase.
My dog does not care how much the food I deliver to her/him costs, the marketer is selling the stuff to me on the basis that my dog will prefer it, and it is better for them, and I am a bad person if I deprive my beloved pet of the best care possible.
The Australian publicly funded pharmaceutical benefits scheme is similar.
Once on the list, the pharma companies sell to the doctors, persuade them to prescribe their magic to their patients, who pay a consistent subsidised cost whatever the price of the drug to the public purse. Perhaps inconsistently, I am in favor of this scheme, despite the obvious rorting that goes on.
I am always caught between amazed laughter and despair when I hear a politician whining about the prices of some commodity, the ownership of which they have flogged off to private enterprise, who then proceeds to make a profit, because they can.
Just look at what has happened to power prices since the privatisation of the poles and wires, done in a strategic vacuum for short term political gain.
No matter the words used, what they have done is subsidise private profit from the public purse.
One that should get a mention but does not despite the disruption over the last couple of years is the takeover of Healthscope, the operator of the new French’s Forest hospital in Sydney’s north, by Canadian group, Brookfield in June 2019. Brookfield held a featured place in the Panama and Paradise papers as protagonists in tax avoidance via trusts located in tax havens.
The state government poured 2 billion dollars into the hospital in a so called partnership with Healthscope previously an ASX listed company, and closed the alternatives in the area, Mona Vale and Manly hospitals.
So much for the competition, and for the tax on the resulting profits.
Aug 25, 2021 | Communication, Customers, Marketing, Strategy
The first QR code I remember seeing was in the early 2000’s, I think. It was a video taken in New York Zoo that showed people clicking on what looked like a square of code in front of an enclosure, and getting way more than the usual summarised information about the animal typically printed on boards. It gave detailed and varied information, linking to videos of the animals in the wild, anatomy, physiology, and the lines from which they had descended, all of which could be selected and viewed as you stood there, watching the animals in the enclosure.
This will change the world I thought. Then, almost nothing, for years.
Until Covid struck.
QR codes were invented by Toyota subsidiary Denso Wave in 1994 as a means to keep track of inventory. The problem was that a barcode could only be read one way, and carried limited information, whereas a two-dimensional QR code can carry 31,329 datapoints arranged in rows of up to 177 X 177. As a result, they can carry a huge range of information, the QR code acting as both gatekeeper and curator of the information.
The combination of the availability of QR code readers on smartphones and Covid has resulted in all sorts of creative ways people are using them to register, and engage in a whole range of information delivery processes.
This level of detail is highly applicable to B2B selling. Send a prospect an engaging letter via ‘Snail mail’ which has an almost 100% open rate, that had a QR code providing access to all the information a potential customer may want. Who would not click on it, even if just for curiosity?
I am nearly 70, so not looking for a job. However, if I was, a personal QR code would be all I would need.
Such a resume could include video of me speaking to a group, engaging in group activity, coaching a team member, playing sport, as well as giving the details of various achievements, spoken by referees. It would be a customisable digital asset that could be tailored to the job for which I was applying. Even better, it might serve to create a new job in an organisation for whom I had decided I would like to work. It would take a bit more work than the standard written resume, but would carry geometrically more weight.
If I was back in my FMCG days, I would be putting QR codes on all products offering information on ingredients and their sources, recipes, supply chains, video that enhanced the authenticity of the end product. At some point, the two retail gorillas will demand it, so you may as well get in front of the game.
Toyota has given the world a bank of manufacturing and process management capabilities through their wide publication of the tools and techniques of the Toyota Production System. To that bank you can add the QR code. They elected to make the technology freely available, rather than enforcing their patent rights. As a result, we have at our disposal what has become a vital tool for the management of Covid.
Imagine the revenue they have foregone in the public good, even if they had extracted a royalty of fractions of a cent every time someone clicked on a QR code.
Jul 30, 2021 | Governance, Innovation, Strategy
The old saying that ‘he who pays the piper calls the tune‘ is almost always true.
The piper in this case has been the orthodoxy prevailing over the past 40 years in Australian manufacturing.
I have been actively observing the trend towards outsourcing for a long time, deeply concerned that as a country we were collectively making a huge mistake, by focussing on lowering costs by outsourcing. By slicing off the things that are not deemed to be ‘core’ in some way to your profitability, you can reduce costs while maintaining revenue.
I guess it is much easier than being truly creative, taking risks, betting on a future different to the present.
As a result, manufacturing businesses in this country have progressively outsourced manufacture of sub-components, then whole components, then manufacture and assembly of finished products, and finally, because the manufacturers in China, Vietnam, or Thailand are closer to the technology, the design.
All Australian manufacturers, those few that have survived so far, are left with is a brand, with nothing to support it.
A brand without the supporting ‘brand infrastructure’ is a bit like a heavily inflated balloon. At some point a bugger with a pin will come along and, ‘bang’, you have nothing left.
The bugger with the pin proved to be a virus.
Supply chains have been ‘kneecapped’ and there is suddenly a recognition of the need for ‘sovereign manufacturing’.
Being driven by short term profit at the expense of long-term commercial sustainability has been a dumb choice.
I understand how it has happened.
Along with outsourcing manufacturing, we outsourced good old common sense to the educated but inexperienced crowd who applied IRR (Internal rate of return) and RONA (return on net assets) models shoved down their throats in MBA classes. These led to incremental investments in little, short term things at the expense of longer term and less certain but potentially bigger returns, to satisfy IRR hurdles. Reductions in the denominator in ROI calculations by flogging off productive assets made them look good by increasing RONA numbers.
They forgot that cash, and intellectual capital are not ratios, you either have them or you do not. Without cash you will be dead tomorrow, without the intellectual capital underpinning operations, you will be dead by a slower route, but just as dead.
Covid has awakened us to the effects of those decisions made over an extended period. Question is, do we have the resources and resolve left to start playing a different tune, one that common sense rather than capital ratios dictates?
I truly hope so for the sake of my grandchildren.
Header cartoon courtesy www.Gapingvoid.com
Jun 15, 2021 | Branding, Marketing, Strategy
A few weeks ago, Apple released an upgrade of their operating system, iOS 15. This release includes a (potentially) monumental change in the digital world of communication. Its default is to turn off the ability of a third party to track your online activity. If you are relaxed about being tracked, you can opt in and continue to be tracked.
This will be an opening shot in a war between very powerful vested interests.
For years there has been genuine and rapidly increasing concerns about the volume and use of the data collected by apps, and the privacy invasion and leverage that data can generate. As the concerns grew, so did the mumbling from the advertising industry about the value of targeted ads, and soothing bullshit from Facebook.
Apple has gone in hard by making opt-out of tracking the default of the new release. I suspect Apple sees it as a point of competitive leverage that they can exploit. Their advertising is making this differentiation not just clear, but an explicit reason to move to Apple.
I think it is an absolute game-changer.
There are several dimensions to the vested interest battles I expect:
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- Facebook Vs Apple. The business model that has made Mark Zuckerberg one of the world’s richest men, and arguably one of the most powerful, is based on the ability of Facebook to track activity and market their ad services based on that ability to target. Removing that ability will compromise that model, and Zuckerberg has not demonstrated any sort of tolerance to any interference to his ability to accumulate more and more billions.
- Apple Vs Android. For many consumers, the ability to turn off tracking will deliver a valuable competitive advantage to Apple over Android. This presents Google, the owner of the Android system with a dilemma. Do they follow and compromise their own ad business, or allow Apple to retain such an advantage in mobile computing? Indeed, is the attraction of an automatic ‘No cookie’ environment as strong as I anticipate?
- Regulators Vs Tech. For the past 5 years or so, regulators have been suggesting that some sort of regulatory framework was necessary to protect the privacy of consumers from the rampages of ad targeting. At the same time, regulators have demonstrated a rancid inability to even understand the basics of the challenges that such regulation will face in implementation, enforcement and unintended consequences.
- Advertisers Vs Ad fraudsters. The emergence of ad fraud because of so called ‘programmatic’ digital advertising, has offered fraudsters the opportunity to milk billions out of the system unhindered. Advertisers controlling large budgets have been largely unwilling, and perhaps unable to stem these losses, so just paper them over with cliches and bullshit. In a 2017 presentation to the IAB, Marc Pritchard the CMO of P&G publicly took a stand against the ‘crap’ as he called it spawned by digital channels. Crap ads, and the fraud perpetrated by those who assembled digital advertising inventory. The P&G initiative to stop advertising in the absence of hard data about the reach to humans rather than bots, and the location of ads placed, was followed by several other major advertisers. Sadly, the words were more hollow than substantial, as the fraud continues. The fraudsters will not go quietly, and based on performance to date, advertisers are too timid, or seduced by the seeming ease of reach, to do much. Dr Augustine Fou in his research highlights the tactics, breadth and depth of the fraud being accepted by advertisers.
- Consumers Vs advertisers. Marketers have found their ability to communicate compromised by the never-ending demand for new and different content to throw at the digital channels. They no longer have the time, and increasingly the inclination, to do the foundation work that leads to creativity and advertising cut-through.
Apple’s advertising revenue is very modest, by comparison to Google and Facebook. It has little to lose from this change. Facebook and Google by contrast have huge ad revenues. In Facebooks case, advertising is 98% of its total revenue, for Google the number is about 80%.
This change by Apple, if it creates a surge of iOS market share from its current 15% will compromise these revenues, and erode the business model of both Facebook and Google.
It certainly creates a strategic dilemma for the Google owned Android software, powering around 85% of mobile devices currently. Do they follow Apple, or take another route?
For marketers who understand ‘marketing’ as distinct from the digital ‘new shiny thing’ syndrome, who treat ‘marketing’ as an integral part of their investment in future prosperity, it will be a boon. They will be much better placed to leverage real marketing skills that the large businesses have lost.
To the question posed in the headline: the degree to which consumers demonstrate they value privacy, will be measured by the rate at which they will switch to Apple to protect it. Alternatively, if Google decides to follow with Android, game over.
Note, an hour after publishing: I omitted to mention above that Google pays Apple something around 12 billion a year to remain the default search engine on iOS and Safari. This is so Google can collect information on your searches on Apple. For Apple, it is money for jam. If I am right, and there is a significant move towards the auto opt out in the new iOS upgrade, this 12 billion will erode over time, so Apple does have a bit more skin in the game than noted above.
Header cartoon credit: Dilbert explains tracking codes.
Jun 2, 2021 | Governance, Leadership, Strategy
Successful businesses in my experience have several things in common, and in general do most of them well.
Focus.
They are sufficiently disciplined to be able to assemble and deploy resources against a limited number of objectives and opportunities. This requires that there is a robust strategy in place, as they have made a series of choices about what they will do, and what they will not, which are all clearly understood throughout the business. Being all things to all people is never an achievable outcome, so they leave it alone.
Niche.
In one way or another, all successful businesses I have seen operate in a niche, where they have sufficient scale to be relevant to their selected customer base. This is the same for a small local business as it is for a multinational, each in their own way have defined a niche and set about owning it. Of great value is the niche that others do not recognise, where competition does not exist, or is marginal.
Leverage.
Leverage is doing more with less, so it follows that the greater the leverage of assets, the greater the success. Of course, when taken in purely financial terms, leverage can lead to disaster, as leverage also increases risk, but when looked at from the lens of human capabilities it works. It also works when you consider outsourcing as leverage, keeping your most valuable assets doing jobs that deliver greater returns. In successful companies, the jobs that just must be done to keep the machine grinding, are broken down to repeatable processes and done at the least cost, so the assets released can be deployed to deliver optimised results.
Differentiation.
In the absence of some sort of differentiation that increases the value of an offering to a group of customers, all you have is price. When price is all you have, you will, eventually, lose.
External sensitivity.
Being able to ‘feel’ the changes as they happen in their competitive environment and react before others marks not simply good businesses, but ones that have the DNA to be sustainable, as they incorporate in their DNA the ability to change early, and often. This does not imply a moveable feast of strategy, rather an agility in the implementation, which requires a considerable dose of leadership.
To my mind, businesses that are able to keep themselves in front of the ‘market Takt time’ are well placed to prosper.
Robust and shared culture.
‘Culture’ has become the rallying cry of all sorts of pundits, and self-proclaimed experts, but is clearly a major differentiating factor in good businesses. The cliches of all rowing in time and in the same direction apply, but the best definition is still Michael Porters definition: ‘Culture is the way we do it around here’ holds. In addition, when setting out to measure culture, as we are increasingly trying to do, I have yet to see any measure of culture that make a lot of sense beyond the simplest, ‘bad news travels quickly, & untainted, to the top’. When I see that, I know there is a robust culture in place.
Collaboration.
Part of superior performance is understanding where your capabilities are best deployed, and from time to time, a collaboration makes sense as a means to leverage both yours and another’s capabilities into an outcome neither could hope to achieve on their own. Collaboration is a really challenging thing to pull off, as it requires that both the businesses and all the personnel understand that their own best interests are best served by serving the best interests of the partners.
They have a detailed understanding of their strategically important customers.
This may not always be their biggest, although that helps, but those that will deliver sustainable profits into the future. Every large and important customer started as a small one, the trick is to pick those that will, long term, make a difference to your business, which can only be done when you can make a difference to theirs. This implies some sort of key account strategy is in place.
Robust financial management.
It should not need to be said, but sadly, genuinely robust financial management is not all that common. Anyone can deliver the statutory accounts required, but it takes creativity and understanding of the complexity of customers and markets to produce useable management reports that reflect the current, and more importantly forecasts of the state of the business.
Of all the reports, cash is the most important. All the sophisticated marketing, procedures, and cultural initiatives become redundant in the absence of cash.
Header cartoon credit: Hugh McLeod at www.gagingvoid.com nails it.
May 24, 2021 | Change, Strategy
The product lifecycle is a well understood concept. Introduction, growth, maturity, decline, illustrated usually with a nice even normal curve, which almost never reflects what happens in the real world.
Despite its distance from the real world, it remains a central core of many strategic planning exercises.
However, it is not the only cycle to impact on the commercial sustainability of enterprises.
The life cycle of enterprises is shortening radically. Many of the dominating companies in the Dow Jones top 100 were not there 20 years ago. A number had not even been born. The emergence of tech companies into the top of share market valuation has been astonishingly quick, as has the demise of many of those that were the standard bearers 20 years ago.
The hand-over has been driven by the emergence of a host of new business models. No matter how great your product, loyal your customers, deep your IP and brand protection, how actively marketed, when the business model erodes, everything else goes with it.
Amazon killed off bookstores in quick time. The bookstore business model became obsolete as they watched. Air BnB is an entirely new business model to that successfully leveraged by hotels for 50 years, themselves a business model that killed off the local tavern as a place a traveller could get a meal, a drink, and a bed. Perhaps the most telling is the end of encyclopaedias, which seemed to happen in the blink of an eye. Microsoft first launched their Encarta digital encyclopaedia on CD in 1993. Encarta was itself disrupted and destroyed by Wikipedia in 2001.
The leadership challenge is how to manage the portfolio of eroding and potentially emerging business models that will support growth in the future, while also managing the contracting and often conflicting lifecycles of their product and product development portfolios.
The leadership of enterprises spends the bulk of its time in one way or another searching to maximise the leverage it can build from finite resources. So, what happens when someone comes along and suggests that they take some of those resources, and allocate them to some new thing, that is inefficient, scrappy, and will deliver lower returns, if any at all, than the existing business? It gets canned, few managers will proceed, it is against the existing ethos of maximising efficiency.
The net result is that the incumbent enterprise tend to ‘pass’ on taking up the very things that will replace them.
I have a client, an emerging SME in a market that is in its early stages, growing rapidly, with very few ‘rules’ beyond the expectations set by the incumbent industry players, backed by regulation. At some point the pressure to revise the regulations will become irresistible, and the dominant existing business and manufacturing model will become compromised almost overnight.
I was in the dairy industry in the leadup to deregulation in NSW. I clearly remember the resistance to change, and the resulting organisational and financial chaos when it did arrive. The chickens did not just come home to roost, they crapped all over the pre-deregulation incumbents, and none of the major businesses survived in any form that resembled the pre-deregulation organisation.
The evolution of often competing business and product models happening in real time, creating a raft of organisational, cultural, and financial conflicts is unprecedented. It will also open up opportunities galore for the agile, and crevasses for those less nimble to stumble into.
The demand for strategic creativity and an action-oriented culture have never been greater.
