The getting of wisdom

The getting of wisdom

Oct 16, 2017 | Governance, Leadership, Management, Strategy

As I get older, the world seems smaller, more complicated, but smaller. This is not just the technology we all now have that has shrunk all the boundaries of our world over the last 20 years, putting the all the  information anyone has ever had at our fingertips, that is different.

It is one thing to have all  the information, it is quite another to be able to make sense of it.

There has been a progression from data to information, to knowledge that has been recognised and widely leveraged, but now there is another level to the cake, wisdom.

We all have access to the same information, can find those who have the knowledge to use it, but it is wisdom, born of experience and breadth of thinking that delivers the wisdom now so rare, but so sorely needed.

I like very much the philosophy of Charlie Munger who talks about mental models, ways of assembling knowledge and sifting through it, reorganising it to be seen from different perspectives that offer a different view. The more mental models you can bring to bear on a topic and body of knowledge, the greater the chance that there will be some insight that emerges unexpected from the model.

Charlie speaks of his mental models, and their source often, a man of few words, leaving most of them to his mate of 50 years Warren Buffet. However, in 1994 he wrote what has become a staple of business thinking , his ‘Worldly wisdom’ speech.

As a kid, we learnt stuff by experience, and using mnemonics,  devices to assist us to remember things. Rhymes, associations, colours can all play a role. Wisdom seems to me to be the opposite end of the mnemonic, the ability to see connections between seemingly unconnected pieces of information, and it is our mental models that enable these connections to be made.

By contrast what we have often these days are unrelated facts presented as a cause and effect, or a set of actions that worked in one place being expected to work in another, which may seem similar, but at a deeper level are not sufficiency similar to enable the actions to deliver the same outcomes.

We tend to be a society that believes, or wants to believe  in miracles, perhaps cargo cults, because it is easier than doing the hard thinking yards.

As someone who gives advice for a living, it is incumbent on me to have a clear framework from which to distil the information to have into advice that is tailored to the needs of those being advised. As often as not, the advice is not heeded, or taken in parts which sometimes hurts, as it reflects poorly on the end result, but it is the reality of making real change.

To be able to deliver the unwelcome news with confidence that it will hold, I need to have a range of mental models, models that come from the work done over 45 years in marketing, sales, operations, leadership, logistics and accounting, and be able to filter the information in front of me through the range of models in a routine and organised manner. Each model gives a slightly different interpretation of the facts, a different slant that requires consideration, so that each outcome is slightly different to the past, but best fitted to the situation to hand.

When you need a bit of wisdom, give me a call, perhaps I can help.

For context, vital in the consideration of Wisdom, the blurry photo is of a group of islanders in the Pacific at the end of the war. People on remote islands had become used to planes going overhead and dropping supplies to the troops. When the war ended, so did the dropping of supplies, an outcome not anticipated or understood by islanders. Physicist Richard Feynman gave it the name we all know: ‘Cargo Cult ‘in a speech in 1948. 

 

The three drivers of an effective business improvement project 

The three drivers of an effective business improvement project 

Sep 26, 2017 | Governance, Management, Strategy

 

For the last 22 years since leaving corporate life, I have worked at the intersection of Revenue generation, Operations and Performance improvement of medium sized manufacturing businesses.

My entry point is almost always sales and marketing. Businesses are struggling, and see the solution as more sales, so they look for someone who can wave a magic sales wand, and generate more revenue out of the ether.

Almost never happens that way.

Originally I studied to become an accountant. I got a piece of paper, but that did not make me an accountant. Luckily, I realised my mistake before it was too late, and moved across into marketing, in the days before anyone had really heard of it. Mostly they still do not know what it is, but these days, at least they have heard of it.

I found it was easy, and I was very  good at it, so had a corporate career starting in marketing and sales that covered all functional roles, except accounting, including general management with bottom line accountability for a substantial divisional business, reporting to the group MD .

However, I was a lousy employee, because while I got stuff done, made lots of money, I was a pest who would not play the corporate game of bullshit to the left, arse cover to the right, and never admit it when you  may be wrong.

So, 22 years ago I hung my shingle as a contractor, intellectual capital for hire, wisdom on 2 feet, and promised myself, ‘no more corporate bullshit’.

I believe that unless we actually make stuff, physically produce the products others want to buy, because it adds value to their lives in some way, generally by solving a problem of some sort, we will be stuffed in the long term.

After all, how many baristas do we really need?

My corporate and subsequent experience in revenue generation, which is what I choose to call Sales and marketing, operations, numbers, logistics, and general management of manufacturing businesses gives me a platform of experience that small and medium manufacturers in this country are sorely lacking, for a range of reasons.

I look for 3 things when I go into a business as an advisor, contractor, saviour, and occasionally ‘head-kicker’.

When you go to the doctor for a check-up, feeling a bit off, he checks your blood pressure, temperature, looks in your eyes and down your throat, anything not within the normal range, he digs one level deeper.

That is what I do when assessing a business.

I look for three things:

  • Business Architecture.
  • Rhythm & Flow
  • Culture

Get these three things right, and aligned, and there will  be superior performance.

A StrategyAudit business improvement project is all about these three things, and the manner in which they can be defined, analysed and brought together to deliver the improved performance required.

So, let me explain them, or at least my view of them.

 

Business Architecture.

This is where most people and advisors spend most of their time, where all the things you can get data on reside, so to some extent they are predictable, and as improvement is made, you can see it in the numbers.

It is relatively simple, but I see it as a pyramid, which I will explain.

Architecture is how the business is built, and managed. A business is like a building, it needs  foundations, upon which the infrastructure of  the business is built.

This pyramid broken up into the four segments reflects the sequence I follow to drive improvement programs.

Foundations.

This is the stuff that no matter what else you do, the foundations must be in place for success.

A lot of it is ‘underground’ as most foundations are, nevertheless, without a solid foundation, whatever else you build, it will  not last.

Operational accounts: cash flow, P&L, Break even calculations, your ‘Why’, regulatory requirements, Business Model, Resource availability and capability, and CASH,

Different businesses require different foundation structures.

If you are going into child care, the regulatory stuff is very challenging, not so challenging if you want to be a business coach.

However, one is absolutely essential, the number one in every foundation, one word: Cash.

It is also true that the foundations wear out, become depreciated, and without renewal, which is a continuous process, you will still fail.

The advent of digital has changed forever a number of these elements and I would contend is continuing to change them. However, the reality is that the principals remain the same, it is just that the speed at which everything happens has accelerated at unprecedented rates, and continues to do so.

Revenue generation.

Marketing & sales by another name, which brushes off the silo mentality prevalent to date, and highlights the importance.

Everybody knows that no business survives without sales, but the key is to be able to generate revenue by creating value for someone else, at a cost that for them is less than the value they receive, but for you is greater than the cost to provide it.

You would be astonished to see how many businesses did not know their cost of sales, or used some ancient absorption costing method pushed by accountants that became redundant as Jesus moved to the Bethlehem first grade side.

Customer profiling, lead generation and conversion, NPD & C, customer service, Key account management, value proposition, advertising, market research,  and the many other outward facing activities fall into this bucket.

Leverage & scalability

This is where the fun really starts.

Once the foundation is in place, and the revenue generation machine is humming along, you can realistically start to think about leveraging and scaling the successful operations you already have.

Leveraging and scaling existing operational and process capabilities into new markets, addressing the needs of new customers, and perhaps launching genuinely new products will deliver great rewards when done well. It is where mergers, acquisitions, and joint ventures become contributors to business value rather than consumers of value. There is still risk involved, but from a solid base, growth can be substantial delivering great rewards.

Sustainability.

Sustainability occurs when the supporting three levels are working well, and working together. Most owners of medium sized businesses look forward to the day when they can take 6 months off, and come back to the business still humming along, not missing them at all.

The much touted ‘laptop lifestyle’ touted by get rich quick internet salesmen always allude to the day when you can be anywhere in the world with the laptop, and just check in, perhaps do a bit between sips of Pimms beside the tropical pool. This may be the objective, but it is rarely attained without the grind of building the business architecture.

 

Rhythm & Flow.

Rhythm & Flow is all about how  the management processes work to facilitate the delivery of value to customers in a commercially sustainable manner.

The development and deployment of strategy, the conversion of a lead to an order, the operational processes that manufacture products, the Customer facing processes, and so on, are all optimised when the flow is even and predictable.

Business might be organised vertically, but the processes that generate leads, service customers, and build products are all horizontal, cross functional. Your customers are not interested on your structure, unless they want to see the CEO to complain. They are more interested on getting the product they ordered on time, in spec, and at the price they expected, all horizontal processes.

At the intersection of the processes and organisational silo boundaries, you always get interruptions to the smooth flow of information and product, and a bit like rapids in a river, the intersection creates a little pool of chaos, too many of them and all you have is whitewater.

You would all have heard of Henry Winslow Taylor, and scientific management. While Taylors views of the people involved at an operational level are absolutely wrong, his ideas on the standardisation and optimisation of the flow through a factory are absolutely right. They formed the basis of the Toyota production System, which has led the transformation of manufacturing around the world over the last 35 years.

I seek to identify anything that interrupts the flow, creates a rapid, as in a river, which is just a small piece of chaos, and remove it, restoring a smooth flow.

 

Culture.

Culture is where it really gets interesting.

Culture is the way we do things around here, the mindset of the business, as reflected in the way people go about doing their jobs, setting their priorities, interacting with customers, suppliers, and their co-workers.

Culture trumps everything else, and is hard to define, almost impossible to predict, and minor irritations in one place can have major ramifications elsewhere.

The butterfly effect.

Measuring culture in any short term way is a waste of time, but over the long term, the value becomes obvious.

It is a bit like motherhood.

We all know we individually benefit, and society benefits when parenting is done well, but how do you measure it?

You cannot over the short term, but the impact is obvious over the long term.

The way I do it is to engage at all levels in as many ways as possible, finding my way into the nooks and crannies that exist in every business, to really understand how it all works, what people think, why they think and behave as they do, and evolve some strategies for improvement.

This is not meant to be a comprehensive review, it just represents the headlines from which a StrategyAudit investigation starts. Every assignment is different, every set of recommendations is tailored towards the solutions for  the specific problems and opportunities encountered during the investigation, and every change program tailored to the needs and capabilities of the organisation.

Cartoon credit: Hugh McLeod at Gapingvoid.com

Is being ‘sticky’ the key to success.

Is being ‘sticky’ the key to success.

Sep 18, 2017 | Branding, Marketing, Strategy

Those flogging business coaching to the owners of medium sized businesses seem to focus on one of the oldest sales techniques in the book, the ‘Before &  After’ pitch.

Describe the current situation, and make it as down and dirty as possible, then describe the new world, the joy of the state achieved by the application of their great coaching/technology/process, whatever it is they are selling.

No mention of the challenge in the middle, abracadabra, all is well, just $109/month, less than the cost of coffee and a roll every day and you are on your way to the ‘laptop lifestyle’.

Tangled up in the bullshit, never articulated, at least  to my hearing is a very valid notion, that of ‘Critical Mass’.

The critical mass in a nuclear reaction is the point at which the process becomes self- sustaining. It may take only a nanosecond, but there is that critical point, below which the process is not self-sustaining, and past which, it is.

At what point does a cloud, which is just an accumulation of moisture, suddenly change from being a cloud to dropping rain?

For small business owners, the point of critical mass, from where the business is self-sustaining, is usually that point from where they can take time out of the business, and enjoy the financial rewards of success.  The road to that point will be different in every case, and most in my experience never actually consider what the elements of critical mass may be in their particular business, and how they might influence them.

I think it might be about how ‘sticky’ you can become.

‘Sticky’ is not a term often seen in any form of business writing, it is more usual in kids books, but how is this for a definition:

‘Stickiness’ in business is the function of: Share of Wallet  X Propensity of customers to advocate for you.

The stickier you are, the more likely you will be to have your customers buy from you everything you can reasonably provide, and then go one step further and tell their friends, peers, and wider networks.

If you are  not sticky enough, you will be sub self-sustaining, but pass that sticky test, and the business will sustain itself, with some ongoing tweaking, which is different from the 80 hour weeks most small  business owners put in, to make a living, but often  not have a life.

 

Cartoon credit: Hugh McLeod and Gapingvoid.com.

 

 

 

9 questions for a ‘quick and dirty’ StrategyAudit.

9 questions for a ‘quick and dirty’ StrategyAudit.

Aug 9, 2017 | Small business, Strategy

In 1712 the British government started taxing newspapers by the number of pages they printed. The predictable response was that newspapers started printing on what became known as ‘Broadsheet’ paper to minimise their tax. A rational commercial response, but by the time the tax was abolished in  1855, people had forgotten why they needed these huge, unwieldy pages, and somehow they became  a sign of a ‘serious’ newspaper.

Had the Sydney Morning Herald asked any commuter who still bought their broadsheet paper before March 2013,  would they prefer a smaller format, they would have answered with one word: Please.  Common sense caught up with them and the change was finally made, it only took 170 years.

This is just one example of thousands of a key strategic question that should always be asked, ‘Why do it that way”. When I get an answer to the question that sounds anything like, ‘because that is the way it has always been,’ I shudder, and when that say ‘customers prefer it that way’ I ask to see the research, which in most cases has been chewed by the dog.

There are 8 more common questions I work into conversations early on that give me a rough idea of the problems they face, and the ‘shape’ of  an assignment, should it eventuate.

  • What would a VC investor do? Those who put up capital with a view to an exit at a profit at an early date look for the 20% of every business that produces the 80% of profits, and having found it, tend to remove as much of the 80% of activity as they can in order to generate their return. It can be a bloody exercise when done by an outsider, but turning a managements mind to the question almost always opens up their minds to a far more critical analysis of their current business that had otherwise been done.

 

  • Are the organisation structure and capabilities capable of delivering the strategic outcomes planned?. There is a trick in the question, as many businesses do  not have a clear idea of their strategy, so are unable to articulate how the organisation can deliver on it. The correct sequence is to have a robust strategy based on the “why” or values of the business, however you choose to express it, followed by an analysis of  the structure and capabilities required to deliver. Which is the cart and which is the horse should be very clear.

 

  • Which pieces do not fit? To some degree, this is a similar question to the one about what a VC would do, just a bit less intimidating, and more sensitive to the cultural and operational shape of the business, and its capabilities. There are always bits that do not fit, that do not carry their own weight. Each part of a  business should add to the whole in a manner that is greater than just the sum of the parts. If a part does not add to the greater sum, either get rid of it, or  improve its performance very quickly so that it does.

 

  • What does the long term look like? I ask this question at all levels, hoping to find consistent answers, which is a great sign, but unfortunately as rare as hens teeth. Assessing every major decision against the framework of the desired long term objective ensures at least some degree of alignment and consistency in decision making.

 

  • Why do customers do business with you? It always surprises how often the answer to that question is either “price” or “they always come back”. Neither is a sufficient answer. If you are the cheapest around, that is a good way to go broke eventually, and if you cannot articulate why someone does business with you, in other words, repeat back to you your value proposition, you are equally in trouble.

 

  • How much business comes from repeat customers, and what is your share of their wallet? Servicing an existing customer in any market is cheaper than finding a new one, so cherish the ones you have. Similarly, if you have a 10% share of wallet, the most effective way to increase sales is to increase your share of their wallet. When there is no credible answer, to either question, it is a danger neon sign.

 

  • Who are your major and potential competitors? Knowing your current major competitors and their capabilities is essential to survival in competitive markets, and in many, being able to see over the horizon sufficiently to see who the potential competitors may be is a great sign of strategic awareness.

 

  • What is the exit strategy? In most cases, public companies do not have one, and it is really not necessary for them, what they really need is a comprehensive succession plan, with the associated capability development activities. For everyone else, the lack of an exit strategy signals a lack of focus on outcomes. Even when the owners, who are generally also the managers in most of my clients, intend to work ‘forever,’ there needs to be an exit strategy as part of the strategic planning exercise, and often the succession planning is how to bring along young ‘Georgie’ the son/daughter of the owner, who might not make it in a meritocracy.

When you would like to have a conversation that goes a bit deeper, give me a call.

Image via Pinterest

 

 

Amazon, Whole Foods and the future of supermarkets in Australia

Amazon, Whole Foods and the future of supermarkets in Australia

Jul 26, 2017 | Category, Change, retail, Strategy

Amazon would not have paid $13.8 Billion for Whole foods without a plan. The purchase came as a surprise to most, but it should not have, they have been evolving into bricks and mortar for some time, with books, Amazon Go, The Washington Post,  and a few other dabbles.

Most commentators look at Amazon as a digital retailer, but when you think about it, they are not: they are a Platform that manages supply chains. Those supply chains just happen to end with consumers, rather than a B2B transaction.

Looking at the purchase of Whole Foods through the lens of a supermarket retailer will lead you to wrong conclusions, as you will be looking for the efficiencies that can be squeezed out of the existing model, with a few wrinkles added in.

Wrong lens, wrong model.

Amazon will reinvent the Whole Foods supply chains, and extend them straight to consumers, probably using Blockchain technology. Wal-mart is experimenting with Blockchain in their Pork and Mango supply chains, and I would be astonished if the work Amazon has been doing developing Blockchain technology in finance markets leveraging Amazon web services in collaboration with IBM was not applied very quickly to Whole Foods.

Amazons success (I predict) with Whole Foods  will be enabled by their efficient systems, great technology, engaged workforce and all the other stuff parroted around, but the real reason is far more strategic.

In the ‘old world,’  whether it referred to supermarkets, newspapers, personal transport, or accommodation, success came with the control of supply, which required capital to be in the game. In the digital world, success comes from the control of demand.

Amazon has demonstrated its mastery of demand management, and has demonstrated that this mastery can be leveraged backwards into the physical world, as they deliver a huge range of goods from their warehouses.

The mission statement on Amazons site states:  “Our vision is to be earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online.”  No mention I can see of digital, or technology, just customers!

By any measure, Bricks and mortar is on the slide, but on-line sales still amounts to a small proportion of retail. Just what the percentage is depends on whose numbers, and what they classify as retail, but it is less than 10%, 8.3% according to this study but will be more based on the huge number of filings for bankruptcy current in the US. According to this 2017 Nielsen study, online sales of FMCG accounts for 8% of dollars.

 

 

The split sales between on line and in store is very wide across different categories, but the growth of 80% in digital while off a modest base, is a statistic that should scare the pants off Coles, Woolworths, and other ‘traditional supermarkets around the world. Sainsburys in the UK has suffered in the share price stakes as their profitability has slipped, while they seem to have done a pretty good job with home delivery, and digital generally. Amazon could buy them from cash flow. Just a thought!

 

What will the digital/bricks & mortar split be in 20 years?

Will the current 90/10 reverse itself?

Perhaps not, but 50/50 would not seem to be outrageous when you think of the developments in Virtual reality emerging, where you will be able to visit your supermarket from the convenience of your couch at home.

The future is in personalisation, we all seem to accept that. However, the existing supermarket business model is intent on homogenising the experience in the pursuit of low costs.

Do you see a paradox emerging in this? Retailers are doing exactly what consumers do not want, at least outside commodity categories, as is evident in the foregoing graph.

I think  the era of big box retail is coming to an end, and in its place will be experiential retail. Alibaba, the Chinese version of the combination of Amazon and Ebay has stayed away from owning anything beyond the platform that enables connection and sales, but that is also changing. There are now 13 Hema supermarkets around Shanghai, delivering a step towards experiential retail, and using technology to drive then enable the transactions.

If I was running Coles, I would be experimenting with ‘MasterChef’  sections in some stores. Have a chef, cooking the fresh produce in  the stores, simple recipes that shoppers can see in use, and certainly purchase pre packed bundles that have all  the ingredients along with prep notes. Similarly in the Coles owned Bunnings I would have workshops teaching ‘do it yourselfers’ how to use the tools and materials, running classes that use them to make something. Customers  can then buy the tools, blueprints and product packs to make a work bench, toys for the kids, or whatever they wish. In Bunnings currently, if you want to be stocked, you need to have merchandisers that fill the shelves. The next logical stage is to have branded sub stores, where there is only branded product on sale, and with an ‘advisor’ paid by the supplier, on hand.

A shop within a shop if you like, which is not a new idea, department stores have had fashion brands running sections in their stores for years. Experiential retail.

The supermarkets are going in the opposite direction, commoditising everything in the name of efficiency.

The industry has consolidated and consolidated, fewer brands, retail options, and producers. Perhaps there is a tipping point, and we are just passing it.

The consumer is increasingly looking for natural, local, assured provenance, and  environmentally sustainable product, all mixed in with a new shape of ‘value’ less dominated by price than has been in the past. Communicating and delivering these attributes are the foundations of branding, and the delivery of ‘value’ to a purchaser.

Woolworths will live to regret the closure of Thomas Dux,  but it is just another in a long line of strategic blunders. it started so well. Their in store  ‘Foodies’ were a hit in the stores I visited, but the weight of the Woolworths machine drowned them. Bring it back I say, it may be your saviour, or try and buy Harris Farm again before Amazon come in and offer the Harris family enough to retire in gilded luxury to Monaco.

I like Ray Kurzweil’s observation that ‘The future comes very slowly, then all at once’.

This is classically the emergence of AI and combined with the Gartner Hype cycle makes a compelling case. Gartner’s 2016 Hype cycle has several technologies that relate to and are integral to the development of all the AI and VR stuff being hyped. Amazon has the grunt to bring all this to the table and disrupt the comfortable supermarket duopoly that exists in Australasia.

If nothing else, it will be fascinating to watch

 

Header photo credit: Eli Christman via Flikr.

How big is the Strategic deficit of Australian FMCG retailers?

How big is the Strategic deficit of Australian FMCG retailers?

Jul 7, 2017 | Customers, retail, Strategy

Strategic deficit is the amount of time, capability, commitment, and energy necessary to bridge the gap from where you may be right now, compared to the most advanced of your current and potential competitors.

A few weeks ago, if asked the question of Australian retailers, particularly the FMCG retail gorillas,  Woolworths and Coles, I would have said several years and more resources than they seem to be prepared to allocate, but more importantly, there is a complete shift in mindset that is required.

Now, if asked the same question, with the news last week of the $US13.8 billion purchase of Whole foods by Amazon, I would suggest the strategic deficit has just doubled, perhaps tripled overnight. Not only has the deficit blown out, but  the rate at which it is accumulating is accelerating given the huge $16 billion investment Amazon made in ‘Technology and Content’ in 2016, the horse has not just bolted, it is over the hill. Not all of that $16 billion will be directly impacting their ability to deliver groceries, but a fair chunk of it will be applicable, and the rest will be learning in other areas that they will be able to leverage over time.

Back in August 2013 when Jeff Bezos bought the Washington Post for $250 million cash, many were asking “What does he know about the newspaper business’?

The Post had been one of the icons of journalistic excellence, one of the true ‘newspapers’, but had crashed into successive losses in the face of digital disruption.

Bezos bought the Post, not for Amazon, but from his own funds, it is a personal investment, and therefore perhaps better even that Amazon itself as a signpost of his commitment and what may come elsewhere.

In this National Public Radio report on progress at the Post, there are some useful signposts that may be applicable to Amazons recent purchase of Whole Foods. However, it can be summarised into a few words:

Technology that makes the customer the absolute focus of every single decision and action is the essential foundation for success.

Now, many of the same people are asking ‘What does Amazon know about the fresh produce retail business?  My response is ‘Wait for the implementation of  Amazons brand of technology directed at the produce consumer, and we will find out”.  I would be pretty sure that Amazon has a range of pretty good ideas to be tested at Whole Foods, that will see the hurdles of home delivery of fresh and frozen food overcome.

I am sure Coles and Woollies will be watching, but so was the newspaper business watching technology eat its lunch for a decade before they had any idea of how to address the challenge, and even now, seem incapable of doing anything about it.