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 5, 2009 | Marketing, Sales, Strategy
It used to be word of mouth, it still is in its essence, but the need for face to face contact has been removed by the emergence of the web tools now in front of everyone.
Ideas spread on the web like a virus, even quicker than “pig-flu,” a good idea spreads logarithmically, gathering momentum as it goes, or conversely, just disappearing without trace if it does not attract an audience prepared to be an advocate by passing it on.
This simple notion of brand advocates, rather than simply demographic and psychographic profiles of people to whom, your advertising is directed radically changes the dynamics of brand building, from a mass advertising effort, to an effort turned 180 degrees towards engaging customers in the value the brand delivers to them on a very personal level.
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 28, 2009 | Management, Strategy
I am sometimes asked the differences between Lean and Six Sigma. The “toolboxes” for operational improvement represented by these two approaches contain substantial overlap, particularly at the relatively basic level where most improvement initiatives start.
Lean seeks to maximise the value of a process to an end customer by elimination of waste in the process, waste being defined as anything that does not add value to the consumer, whereas Six Sigma seeks to achieve stability in a process by the elimination of variation through the process by the use of statistical improvement tools.
The overlap occurs because a wasteful process always suffers from variation.
It can also be argued that the Lean approach is a more macro approach that includes the management of human resources as very important to the improvement, whereas Six Sigma focuses on a more micro, quantitative approach to improvement.
The final irony in any discussion about lean, 6 sigma, and the TPS, is that it all comes from Henry Ford, who evolved a management system using the principals espoused in all three approaches, subsequently lost when he died, and his various writings ignored until the Japanese, post WW11 looking to rebuild their shattered economy came across them. If you did not click the hyperlink above, I suggest you do now for a brief history.
Jun 25, 2009 | Demand chains, Management, Strategy
Three things constitute the basis of decision making in most enterprises, Risk, Cost and Reward. Boiled down, this is what it is all about.
In a supply chain, each participant does its own assessment and comes to a conclusion about the balance between RC&R in their situation, and acts accordingly.
For a chain to work with maximum productivity, each of the participants needs to come to a bunch of conclusions that complement all the others in the chain, and rarely will this happen on its own.
In some manner, control needs to be exercised through the chain, and as most managers know, managing the things over which we have so called control is usually hard enough, without setting out to manage things over which we have no control.
The control cannot be applied, it must be accepted as consequence of being a part of the larger entity, the chain, which is a part of maximising the RC&R matrix for the business.
