Welcome to another new year! In 2017, are you returning to school?
Over the coming weeks, many apprentice human beings will be getting ready to embark on their education journey whilst the older kids will “dread” the return to school.
How do you view the coming year? Is 2017 your return to school or is it “just” more of the same?
Over the past decades, we’ve seen many businesses where the plan for the new year consisted of “last year plus 5%”. Is that you?
Why not change your view and your approach?
There are some absolutely fantastic new platforms available now which make it incredibly easy for people to access useful and timely information relating to their business. Are you using it or do you have access to this? If not, why not? By having the information more readily available, you are better placed to use it to make far better decisions and inform your analysis with more meaningful and timely data.
Couple this with the seamless integration with some really sexy cashflow and profit modelling tools and you have the capacity to radically change how you have used your financial information to what you’ve been doing in the past. We’ve been using some of the platforms for quite some time now and they are amazing.
I don’t know about you, but I was always more excited about getting ready to go to school than I was actually returning. All the new books, the new uniform stuff and new pens and stationery – all prepared for another year of learning. Have you prepared yourself for the new year or are you just dusting off the same old stuff you’ve been using for years?
There is one thing that I have found out over the years – the better prepared you are, the more likely it is that you will succeed. So have you prepared to return to school?
One thing about this aspect of launching into the new year is having your mind open to learning and developing new skills and greater understanding. You knew when you went back to school that you were going to expand on your knowledge and be challenged to try new and different things. What would happen if you adopted this approach – consciously – this year?
Your “First Day”
Remember the first day back at school? There were new kids in class. There was a new timetable. There were new teachers for different subjects. There was greater expectation placed on you. There were different lockers. There were different sports teams and times. But you adapted and made good. And you got through.
How did you approach your first day back this year? Was it with anticipation? Was it with excitement? Or was it with a sense of resignation and “ho-hum”?
What would happen if you were to recast and re-run your first day again this year? What would you change about your approach and your view?
Don’t we just love the media? Lots of stories about Trump, Brexit and the like. Depending on which media you consume, it’s either absolutely terrible or fantastic. The environment for 2017 is certainly going to be different to 2016. And that’s a good thing.
Using your new-found ability to access useful information from your financials, your preparedness to expand your horizons and your re-jigged approach to your first day, you will be in a far better mindset to position yourself to take advantage of the opportunities that will arise this year [Hint: they are always there].
If I can ask you to do one thing this year – spend the time to have more interaction with people face-to-face. Don’t do it two dimensionally (on a computer), make it personal. People appreciate it so much more and you’ll feel better doing it. Diverting off a bit here – it seems that the more connected the world gets, the less true connections you have in your life. Make the effort – you will be glad you did!
2017 is upon us – are you returning to school?
MTA has a range of services that can assist you and your business return to school really well. From financial reporting and analysis through to helping you identify and exploit the opportunities that abound, we can help you make this your best year yet. To find out more, give us a call – we’d love to meet up and discuss your needs.
What, really, is the cost of replacing staff in your business?
In many businesses, the major issues impacting the “health” of the business revolve around their people. The culture within a business is often a significant driver to results. Show me a good culture, and I will show you a great business. As the late, great Peter Drucker is often quoted: “Culture eats strategy for breakfast”
I reflected on this after reading one of Theo Winter’s recent posts. Theo is a terrific writer and thinker and I encourage you to regularly visit the DTS site.
Anyway, back to the issue – what is the cost of replacing staff? According to the study Theo had linked to, the cost can be up to 213% of their annual salary. This seems a tad high for mine, however I do believe the costs of replacing team members can be significant. We are often reminded that “people don’t leave jobs, they leave managers”. This may well be true (hence it hurts when I reflect on the staff who have been and gone through my business over the years!)
How do you minimise the chance of people leaving your business? We have found that by understanding how best to communicate with them and work with them will make a significant difference. We understand how important it is to work with people in a way that works for them.
How do you get to this level of knowledge?
Using a range of behavioural/communication tools with our customers for many years has delivered great success. The tools identify what styles of communication work for the people concerned and highlight how they are better able to be effective in what and how they communicate with each other. We’re doing some work with a really progressive business at the moment – the knowledge they have already gained is making a difference not only internally, but in how they are communicating with their customers. End result? Better results.
Think about what the impact would be if you knew how to be more effective in your communication with your team. What would be the impact of your team understanding what approaches work best with your different customers. Ultimately, what’s impact if, having this knowledge and investing in your team, they stayed and you didn’t have to replace them.
Through investing in your people and helping them be more effective internally and externally, you will be able to achieve far more, improve the culture markedly and enable your people to thrive. Whilst you are doing this, you’re also saving money as they are staying with your business!
I have previously posted about the success we have experienced in one of our more recent engagements. Imagine what the impact would be for you?
The best bit? The price for undertaking this work is very reasonable. Put it this way – for our most recent engagement, the total price for developing the whole team, doing their reports, debriefing them on their results and undertaking a group training and development session is WAY less than the cost of replacing just one person within that business.
To save your business money and develop the culture, why not get in touch and have a chat about what can be achieved in your operation?
I suppose the only thing you have to lose if you don’t is your staff.
“I get the figures, but I’m just not that happy” – so said the Engineer customer to me recently when we were discussing a range of issues impacting on him and his business. His three-plus decades of professional training and practice have been based around detailed analysis of numbers and formulae. Very clinical, very precise and, to his mind, now very wrong.
Sure, he can outline margin, profitability, ROI and all sorts of easily measurable results. Some years they are up, some years they are down. That’s business – and he knows that. He knows why his margin has dropped, he understands why the ROI sits where it sits and he can detail precisely his asset utilisation rates. Perfect.
He is able to rationalise all this based around the numbers, however the answer he is getting from undertaking this process isn’t the one he is looking for. It’s not that he’s asking the wrong question, he is looking in the wrong spot for the answer – because it is where he has always looked.
As we delved further into his thinking, we started getting into the “why” questions and that “what” drivers. I found it very sad that his answer to the question “when was the last time you drove into the office really looking forward to the day ahead” was “never”. How soul destroying!
The process many people adopt in reviewing their position and opportunities tend to revolve around the same approaches they have taken in the past. They tend to adopt the same metrics to analyse and assess their “success” each month, quarter, half-year or year. The results are a scoreboard which tends to drive how they “feel” about their performance.
My experience has been that having assessments which are based on metrics that don’t resonate with satisfaction or happiness tend to be low-value.
For example, as I discussed in a recent podcast I did with the guys from Grow My Accounting Practice in the US, the feeling of being “happy” or “satisfied” rarely has anything to do with hard, numerically-based metrics. Satisfaction comes from achieving things that mean something to you. Sure, I acknowledge that there are metrics that can inform this, but you’re unlikely to have the feeling of deep satisfaction purely based on a margin improvement!
When we bring up kids, we don’t measure our success or failure as parents based on their academic scores. To do so removes the focus from where (I believe) it should be. You cannot objectively measure the things that really matter in your role as a parent. I know from the various posts I see on social media that when people post things about their kids, they aren’t about their test results. They are about instances where the kid has demonstrated care, concern and love. Not getting into a heavy theoretical/philosophical discussion here, but how do you measure love? And what, exactly, is a “good kid”?
In talking through the issues with my customer, we covered a lot of ground which had to do with his thinking about and approaches to what actually mattered in his life. His concerns were around his family, his kids’ education and his staff. Hard to objectively measure.
As he indicated to me during the conversation, he finds it difficult to assess how the really important things are going in his life but can be really precise about the looking-backwards results and his forward budgeting. Once he has done his budget, they try their level best to achieve it, but, given the industry he operates in, it is difficult to drive additional revenue or improve margin by “throwing things at them”. And, at the end of the day, the results the business achieves are only relevant in so far as they enable him to do the things outside of his business that are important to him.
Focus on business yes, but realise that it is only a stepping stone/tool to fund the important things that you want to achieve. Of course we want to make sure our businesses operate well, but is that the end game? My argument is that it’s not.
After a very enjoyable meal and nice bottle of red wine, we decided that he would spend some time thinking about the things that really mattered to him and where he could increase his level of satisfaction. He is going to gain a better idea as to what he does and work out the things he loves doing. This will then inform our planning as to what he keeps doing and what he stops doing.
The analysis process he had adopted caused him to direct his focus on metrics that resulted in him losing sight of the bigger picture. As part of our discussions, we worked out that there were available and easily exploitable opportunities for him to more than double his profit each year. Because he had fallen into the rut of using the same metrics that were precise and he was comfortable with, he had not seen the opportunities that are, quite literally, sitting on his doorstep (actually, inside his office).
Beware of too much focus on analysis – the old adage “paralysis by analysis” was proved to work in our discussions as it had given my customer a tunnel vision that fed his dissatisfaction and unhappiness with his position.
When it is just about the numbers, the meaning is lost.
Speaking with one of my crew recently and he made the very sage comment with regard to a strategic issue we’re dealing with at the moment:
It’s a case of addition by subtraction
I’d never heard this phrase before and I asked him for a translation. The guts of the issue is that you can often get a lot better by removing things that clog you up or hold you back. In effect and expanding the analogy, the removal of a cancer has a positive impact on your health!
This can the in the form of processes, procedures, people, clients or whatever.
Thinking further about that phrase, I realise just how powerful it is – often times you become more welded to the process or context rather than focusing on the outcome you’re striving to achieve. It can be that you’ve always done “stuff” so you keep doing it, your loyalty to people (as staff or customers) or a supplier with whom you have dealt with for years makes you unable to see beyond your own version of reality.
You become blind to the issue and don’t take action when you really know that you should.
Reading “Leading Teams” by Ray McLean has alerted me to the fact that, as leaders, we need to listen to the feedback from our people (and our gut) when things start going wobbly. It is also imperative that action is taken sooner rather than later to deal with the issue.
We recently had an issue where we changed suppliers in our business. The effect of the change has been revolutionary – we’re getting better service, more personalised information and tailored reporting for our needs. We’ve also gained access to a truck-load more options that were available through our previous supplier that, for whatever reason, they had decided to withhold from us. This has enabled us to increase our offering and provide a greater range of solutions to our customers than were were able to before – not because they weren’t there, but because they weren’t made available to us. Outcome? Far more sales for us and our supplier, happier customers and better outcomes for all concerned.
We have subtracted, and it has lead to addition.
Similarly, over the years, we have found that where there is a change in staff, the outcome can be exceptionally positive. I recall once occasion in our business where we acted too slowly to remove a “cancer” from the business. By not acting more quickly, the damage they created was significant and took some time to repair. I must admit though, that once they had gone, the reflection with the rest of us was “we should have done that sooner”.
Due to our loyalty to them and wish for the person concerned to take the opportunities to develop and become the best version of themselves, we stayed in the situation far too long. It ended up that their best version of themselves wasn’t what we needed/wanted!
Can you see opportunities for addition by subtraction in your business? Are there areas where you’re “blind” and unable to see beyond your version of reality?
You are not alone.
You can do something about it.
Sun Tzu is familiar to most of us over 25 years of age who have been in and around business. A General in ancient China, he is credited as authoring “The Art of War”.
Reading through some information the other day, I came across a quote of his which is eminently applicable to our modern approach to business (and possibly, life):
Thus we may know that there are five essentials for victory:
1 He will win who knows when to fight and when not to fight;
2 He will win who knows how to handle both superior and inferior forces;
3 He will win whose army is animated by the same spirit throughout all its ranks;
4 He will win who, prepared himself, waits to take the enemy unprepared;
5 He will win who has military capacity and is not interfered with by the sovereign.
Reflecting on the passage, it became obvious that, in our busy lives, we can often forget that patience and culture can count for a hell of a lot when addressing the challenges we face.
Breaking down the components of the quote, the application to your business may well be seen as follows:
He will win who knows when to fight and when not to fight
A bit like picking your battles – there are some times when opportunities in business arise and you’re just not prepared to take them. Or, you decide to take them but risk the whole operation in pursuit of the new goal.
There are always three options available when opportunities or challenges present themselves:
- Take it;
- Actively retreat from it; or
- Do nothing.
Where you determine your course of action, it is essential that you marshal your resources to give yourself the greatest chance of success. If you don’t have the requisite resources (people, financial, fixed assets), then unless you can get hold of them in a hurry, the chance of a successful expansion are significantly lessened. I have often seen businesses who lurch into a new area or operation or activity that offers great potential but they go too early.
Taking the opportunity is the “easiest” course of action, however you need to consider fully the impact that this will have on your existing business and its resources. Effective planning and implementation around this needs to occur to ensure that you don’t kill the golden goose.
Actively retreating from the opportunity can be a very powerful but less intuitive approach. How do you do this? You might (for example), pass the opportunity off to a more appropriately resourced competitor who can exploit it. They can take it on, and you can gain some flow of profit share by structuring the deal effectively. This helps to ensure that you gain something from the opportunity rather than nothing. There are many possible ways of doing this – they are somewhat limited only by your imagination! It can often be a very powerful approach to maximise your returns whilst limiting your potential downside.
On numerous occasions over the years, I have suggested to customers that they don’t pursue an opportunity because they simply don’t have the capacity to take on the extra business and/or they are not positioned to undertake the development required to fully exploit the opportunity. The “do nothing” option is always alive. People often feel the need to “do something” and then rationalise it afterwards. This can lead to very adverse outcomes as they will lurch forward without proper assessment and planning.
He will win who knows how to handle both superior and inferior forces
Working out the strengths and weaknesses of your team are vital to enabling you to make better judgments and more strategically utilise the strengths you have. I have often heard the argument “but we’re too small”. They may well perceive themselves as being too small, however the strength that comes from being small is agility and responsiveness.
Playing to your strengths can be a very powerful tool – along with playing on your preferred “patch”. The David and Goliath story is a great metaphor in this regard. By understanding your strengths and your opponents weaknesses, you are better able to play a game that will result in victory. In many senses, the sheer size of a larger competitor can be a weakness as they are generally slower to react and marshal their resources to deliver a competitive response in time. Their size actually conspires against them.
Playing to your strengths rather than trying to mitigate your weaknesses is a more positive and effective approach. By trying to deal with your weaknesses, you will actually reduce the capacity of your strengths. Marcus Buckingham has put it exceedingly well in this video.
He will win whose army is animated by the same spirit throughout all its ranks
Drucker wrote: “Culture eats strategy for breakfast”.
Where your culture is one which encourages and supports the growth and development of your people, you will have a business that is going to be far more effective and resilient than your competitors who have better technology or products but a disengaged workforce.
I have written much previously on the impact of positive and negative culture and encourage you to review the posts on this topic.
The video of Marcus Buckingham as linked above touches on this subject and you can see the effect of great cultures in some of the leading organisations today – Southwest Airlines, Disneyland and so on.
It comes down, at its essence, to trust. If you provide your people with the tools and support to do their job then trust them to do it, they will perform far more effectively than where you “sit on them” and micro-manage them.
Are you adopting the most effective approach in managing your team?
He will win who, prepared himself, waits to take the enemy unprepared
Again, waiting for the opportune time rather than rushing into the fray can be a very powerful strategy.
Time is only a measure that we have invented – the real value in knowing your own team and knowing your competition is that you are better placed to exploit the opportunities that arise at a time that suits you. If you progress forward at a time that suits them, you’re not giving your business the best chance of success.
Reacting to situations is a function of this. By not feeling that you need to react to situations gives you the power to respond appropriately at a time of your own choosing. This can give you a massive strategic advantage.
He will win who has military capacity and is not interfered with by the sovereign
Depending on the style of the leader of your organisation, they might or might not be the most qualified or appropriate person to lead new program delivery/opportunity exploitation.
Often times, the leader might feel they need to be at the front of the queue to deliver the strategy or implement the program. This can be very demotivating to the team who has developed the strategy. It can be seen as the leader taking all the glory.
Best to let the person/team who has developed the opportunity to run with it rather than come in at the last minute and usurp their role. Chances are, they will be far better informed and capable than some “johnny come lately” who is seeking glory.
For a leader to swan in and try and deliver something they are not fully briefed on can be incredibly dangerous. They will often miss vital parts of the puzzle or make the wrong moves/decisions/communications that end up derailing the project.
Sun Tzu may have detailed his thinking some 2,500 years ago, but it is highly relevant and applicable today.
Each week brings new challenges and, occasionally, provides illumination into a world where you wonder where a business model actually comes from and on what ethical platform it is based.
This week has got off to a great start – on return to the office yesterday, I was greeted by a chorus from the team telling me how they had been approached by a “Professional Services Recruitment Consultant” wanting a “confidential discussion” about “…some opportunities that are available”. Based on the subsequent discussions with the crew and our GM, there is nothing professional or ethically “good” about him.
Given the apparent carpet-bombing approach to people within my business, a phone call to the “consultant” was called for. His argument went along the lines of “that’s business”. Fair enough. I pointed out to him that his business model was based on trying to market and place the people he destabilises to, well, people like me.
The ironic and sad issue (for him and his employer) in all this is that he is currently wanting to speak with our GM about placing a “candidate” from another local firm into our organisation! Great tactics Einstein! Try and poach our crew whilst trying to “market” someone else’s staff to us.
Spectacular business model – until you get found out.
According to the firm’s representatives (spoke to the body-pusher and his Manager), their electronic communication and website, they are an “elite” brand. It all comes down to how you define “elite”. I note on review of the various dictionary definitions, there is no reference to ethical. There is also no mention of the word “ethics” on their website.
Later that afternoon, I had cause to have a discussion about ethics with one of my crew. It was interesting, engaging and high-value. Ethics is something that is inherently about doing what is “right”. I like the following definition from the British Dictionary:
If you believe it is ethical to try and destablise a person from their job to place them into another one where you are trying then to create a “gap” that needs filling by taking someone from that business, are you really any different from a slave trader? Is there really any inherent value in this process or is it just about levying fees and costs, disruption and bad feelings? As Ron Baker, an Ethics Teacher and Founder of the Verasage Institute put it to me:
I’ve always thought “headhunters” were a notch below used car salesman
If you have staff who are unhappy, they need to let you know and you need to address their concerns or they will leave. The culture you create in your business is critical and will serve to keep your people engaged and developing. My view is that you should speak with each of your team regularly, one-on-one, to give them the opportunity to bring up issues they are unhappy with early rather than when it’s too late. As I say to them “If I don’t know, I can’t do anything about it”.
In all of this, returning to the question “is this good?” is imperative, Thinking about the afternoon and events that unfolded, my further education into ethics has been good – I have further clarified what conduct is right, good and ethically supported and what is not.
I will be informing all of my colleagues in Ballarat as to the approach of this particular organisation to let them determine how they will ethically deal with this “elite business”.
If anyone would like to know the name of the firm, please contact me – happy to share.
Organisational culture is a nebulous thing.
In many discussions over the years with customers, colleagues and others, the issue of what is a “good” culture is the hub of the conversation. Everyone wants to work in or with a business which has a great culture. Not surprising really, but what does that actually mean?
One of the most interesting conversations on this topic was with a colleague a number of years ago. He viewed our business as having a “great culture” and wanted to replicate this in his own business. Fantastic.
Even though he is a competitor, I wanted to see him have a wonderful culture in his operation as this would make him, his people, his customers – and us, better. Why? Because, as his business improved, he would provide more and better competition to us which ensures that we keep ourselves sharp, challenged and developing. This can only be a good thing. I have always found that where you develop everyone around you, you improve yourself.
In our discussions about how to undertake this, he wanted to know what we did and how we did it. That’s fine, but you need to remember that you cannot copy a culture. It is something unique to every group (business, social, sporting etc) and what works for one will not work for another.
I have just read a very interesting article on this topic by Steve Tobak in Entrepreneur. In short, I agree with his thinking, but believe that trying to copy what works in one organisation won’t work in yours. Take the lesson, not the method.
Getting back to my discussions from some time ago, we were discussing how our approach is that we try our best to “set our people free”. This means that we empower them to take their own path and develop in ways that matter to them. If this is broadly in line with the organisational vision and purpose, this has to be a good thing. Where you sit on them and ride the hell out of them, life becomes that much more difficult.
In discussing the management style in my colleague’s firm, he explained that he was a micro-manager. In effect, he was showing his crew that he didn’t trust them, that he was fearful that they might go “off reservation” and that his issue was one where he needed to feel in control at all times.
Not sure about you, but I could not work in an environment like that. Tried it decades ago when I started by accounting career and it was so stifling that I had to get out. It doesn’t instill enthusiasm (in fact it kills it), severely constrains innovation and creates an environment which people want to leave.
This past week, I have revisited a TEDx presentation by the great Ricardo Semler. He gets the idea and has been practicing the approach for decades. Yet most organisational leaders are fearful of adopting the approach which he did in his organisations. In most respects, they are the same as my colleague – unable to make the leap of faith in their people to enable the culture that they desire to have a chance of living.
We must remember that the vast majority of people in the world want to do good. They want to be involved in an organisation that exists to deliver something and provide some value to the world. Not wanting to get philosophical here, but it is part of the human condition.
By not trusting your people, by sitting on top of them and communicating (through words, actions and example) that they aren’t good enough, you’re getting the desired outcome – they will believe they’re not good enough. Then they will leave. Or, worse still, they will stay.
You need to release yourself from the thinking that holds you and your business back if you are going to truly lead. Simon Sinek, in his inimitable style, puts it beautifully.
Near the end of our discussion, my mate asked me when I knew the culture in my organisation was good. I told him that I didn’t. But I did know when things weren’t right as the “feel” of the place changed and became less “flow-like”.
If you want to create a superb culture in your organisation, you need to get out of your own way. That’s not nebulous.
And so it all begins again.
The past year has been an “interesting” one on a number of fronts and we have seen some of our customers make significant progress in a range of areas. Their progress has been due to some detailed planning, decision-making and accountability across their organisations and it is exceedingly pleasing to see the results that reward the consistent effort they and their teams have put in.
The major notables can be summarised as follows (and this is not an exhaustive list):
- clarity around the “why” of the business;
- effective communication with and engagement of their teams;
- focus being driven in the areas of their business that offer the greatest opportunities (niche);
- planning, implementation of the plan and review of results against expectations; and
- being prepared to try new things and approaches.
Funny isn’t it – the things that have delivered terrific outcomes for business are the things that everyone knows that they need to do? So, why don’t they do it? I call it being uncomfortably comfortable – you’re OK, you know things can be better, but you’re pretty comfortable and don’t want to stop being comfortable.
This issue is one we constantly battle with in discussions with customers who we know can be better – they are so busy being operational, they forget/avoid to be strategic. And they are comfortable.
In many respects, they have traded off their vision and focus on purpose to being servants of something that doesn’t really matter to them – because it’s easier. It is also far less fulfilling.
In one of my discussions with a customer prior to Christmas, he came in, sat down and said “I’m just really happy”. This same customer has undertaken some massive changes in his business – all as a result of effective questions, looking at the broader economic environment and considering what he really, deeply values and where his skills lie. He has brought his team along with him. He and his business are now far better, more agile and responsive than they have ever been. And they are ideally placed to take advantage of the changes that are going on in their industry.
In the current environment where there is so much disruption going on – across nearly every industry, the need to adopt a more strategic approach is essential. The commitment to do this can be hard and challenging, but it is necessary to enable the business to thrive and continue to deliver on what it is there to do. Avoidance of the work required will see you wonder why you can’t seem to keep getting the results and outcomes that you desire.
On Saturday morning, I was invited to do an interview with some guys in the USA about what advisory work should look like – it will be up on a podcast in a couple of weeks. The guts of the discussion really turned on the fact that, as a business owner, you need to ask better questions. The types of questions that really dig into the opportunities and challenges that confront your organisation. By thinking about and answering these “better” questions, you then create a planning template which can be implemented in your operation to make sure the changes that are required actually get done.
The New Year promises to be a challenging and exciting time for all of us. There is a lot of stuff going on the world at the moment which, whilst remote from Australia, will have an impact on us. Things like the slow-down in the Chinese economy, the migration issues within Europe and the coming Presidential election in the USA. Each of these things can have an impact on your organisation (believe me, they do) and you need to consider how you’re placed to take advantage of the opportunities that do present themselves.
By way of example, think about the issues going on in China at the moment. The well-reported slow-down of their economy is unlikely to directly impact on you unless you are exporting into that market. However, the impact of that slowing economy will be felt in Australia through lower export demand, greater uncertainty and a loss of the confidence that “China is there” that has supported the growth of our economy over the past decade or so. We have seen the impact of the downturn in the mining industry over here. What was once “boom time” is now not so. The flow-on effect of this has had a marked impact on a number of regions around Australia. It is impacting on home prices (did you know that the banks have a number of postcodes where they won’t undertake any mortgage lending?), employment levels and subsequent demand for goods, products and services. This challenge then flows out beyond those regions into the organisations that support the businesses that were operating at “full tilt” in those regions.
Consider the impact on the airline industry – fewer jobs and increased closures of mines means fewer fly-in-fly-out employees. The airlines have specifically geared up to deliver the services required to meet the FIFO demand from the mines – now, much of that equipment is sitting idle and/or being used far less. This means that the airlines therefore have less cashflow to support their commitments for the planes, staff and support crews. They can either try and get rid of the excess capacity, or pass the increased costs through to the other customers through less discounting/higher pricing. Have you noticed how there are fewer discounts being offered of late? I’m not blaming everything here on the Chinese economy, but I am trying to demonstrate how a global event that seems far-removed from your operations, can actually have a trickle-down impact on your business.
Over 2015, those organisations that have thought further and harder, who have asked themselves the challenging questions and have gained greater clarity about not only their operations but the industry they work in and the broader economic environment have flourished. Because they have done the work.
How are you placed for 2016? Are you prepared to ask yourself the right questions (or, better still, do you know what questions to ask?) to create the outcomes you desire? If you’re not, then you might well be bound to repeat the success or otherwise of the past year.
One of my favourite quotes come from Albert Einstein:
To make the coming year as effective as possible in delivering things that really matter to you, please don’t go insane! The change in approach is challenging and requires work, but it actually isn’t that hard. You just need to make up your mind to do it.
Thinking about this further, it came to me that the high performing sports teams and businesses in the world don’t necessarily look at the scores to see how they are going (and by this, I mean that the scores are considered, but it is the valuable inputs that result in the scores that are more vital).
For example, at a recent football game, I was invited to sit in the Coaches Box. The information the coaches were interested in related more to the particular areas of performance that were important in achieving the goals of the team – the effectiveness of kicking, turn-overs, inside 50’s (it was Australian Rules footy) and, especially, the “1%-ers”. These things are the efforts that the team made to help the team get to the outcome they wanted. And the things the coaches were most eager to see and make a “song and dance” about? The 1%-ers that members of the team did that didn’t have a metric but helped things along and served as examples to and for the rest of the team. These were the things that had a lot of impact. By highlighting them and praising loudly, they encouraged the behaviour they wanted to see.
If the focus had been only on the scoreboard, that wouldn’t have told them anything about how the score was achieved. And it is the high-value/high pay-off activities that create the score.
We often see in businesses that people focus so much on the outcome (profit especially) they lose sight of what actually created the profit. Asking themselves the most powerful question about the profit or metric of choice (you know, the one starting with “Why”) gives a lot more valuable and actionable information than just looking at the result.
Understanding the activities that did or didn’t get you to where you have got is important – focusing on those that get the results you want is critical as you can encourage and repeat those that work and refine/stop those that don’t. This analysis process isn’t purely about numbers – it’s about the effort that went in to achieving those numbers.
For many years, I have adopted the view that reviewing a set of financials is like driving your car using the rear vision mirror – it will tell you where you have been, but won’t inform you much on where you are going. This is the reason why our firm encourages people to plan forward and anticipate. Look at what is coming up and adapt to the changes in the economy, market, competitive landscape etc (there are heaps of things that can be considered).
Don’t get me wrong, you need some understanding of the numbers, however my argument is that they should not be the sole focus of attention. Where you do have the total numbers focus, you lose sight of the bigger game. The measuring and assessment process should be on the Key Performance Indicators (or, as Ron Baker likes to say “Key Predictive Indicators”) that impact the outcomes. Just like the football team which highlighted the 1%-ers.
Going back to my hackneyed argument – why-fore the timesheet? It only measures inputs and doesn’t have a damned thing to do with outcomes or results. Are you measuring things in your business that have little or no impact on the results your business achieves?
There is a statement often (inaccurately) ascribed to Peter Drucker – “What you can measure you can manage”. His views were actually different to this and are nicely summarised here. But, does the fact that you can measure something make it worth measuring? Does the information you obtain from the measurement actually add to your analysis or decision making? Unfortunately, I often find that “better” measurements don’t lead to better outcomes.
It has been argued that one of the most important factors in “good” management is sound judgement. How do you measure that?
Judgement is a skill that is built up over years – to try and measure it, we would need to ascribe a value to the “inputs” and then value the “outputs”. How exactly? What exactly is the return on investment when we cannot realistically “value” the investment?
The judgement the football players showed the other week in the way they carried out the 1%-ers, the focus on the activities that mattered to the outcome rather than the score, helped highlight that the measurement game is a little subjective (!) and requires less quantification in some respects. It appears to me that qualitative is far better than quantitative on the things that really matter in whatever you do. I will take effective over efficient any day of the week, but effective is a bit more difficult to measure/quantify.
So, at the end of the day, after the rain had passed, with the sun setting and the wind cutting through me, the Coaches Box was pretty happy. They had been effective in delivering the things that actually mattered to them playing the opposition. They had done more 1%-ers than the other team. And they won – by about 70 points.
I think the only time the score was mentioned was late in the final quarter – the coaches wanted the the team to get in excess of 100 points – not that they told the players that – it would have taken their focus off where it needed to be.
Every so often in a meeting, you find out information that makes you shake your head in wonder. I had one such meeting this morning.
Our customers have been requested to provide a price for some work to a large Australian, publicly listed company. Great.
The issue is that the price they put in was some 55% over the price the company had received from another business.
OK, but, when you receive two prices that are aboutthe same from different providers and another price that is significantly lower than them (over $500,000 less), you would more than likely pause to consider whether the significantly lower price was, well, realistic. Or whether the price was submitted to get the job in the hope that other work will crop up once the contractor is entrenched on site..
The trouble is, the managers of this publicly listed company are incentivised to under-spend their capital budgets each year – the more money they save against their budget, the bigger bonus they get.
As our customer said this morning – “they will end up with a pile of crap that won’t do the job but the manager doesn’t care as he got his bonus”.
The incentive program any business uses needs to align itself to the needs of the business and the staff but also, fundamentally, to the long term goals and strategies of the business. Where there is no alignment, you run in to significant problems on a number of fronts.
Firstly, you want the incentive to encourage the type of behaviour you want to see. If short term profit is the focus on the business, build your incentives around that. However, the focus on short term profit is, to my way of thinking, myopic. Getting a longer term strategy is far better for everyone concerned. There are some notable people who like longer term strategies. People like Warren Buffett.
Secondly, the incentive needs to match the motivators of the person being incentivised. Using cash bonuses is fantastic however, the bonus can take other forms which might not cost as much but which may be far more highly valued than cash. By aligning the bonus to what actually matters to your people you are also showing that you care for them as people rather than using a blunt force (cash) for everyone. For example, a cash bonus is terrific but if you were to pay for a family holiday for your staff member, or give them some extra time off as a bonus (especially when they have a young family), this can have far higher value to them than anything else.
Finally, think about how you might face your shareholders/financiers where you had to explain how your business was so focused on short term thinking and behaviour that the investment decision made in plant and equipment spend was solely based on price and not quality or longevity.
They might, on hearing this information (however it is packaged) cause to question your thinking and ability to act as a custodian for their interests. I seem to recall a similar approach was adopted by some banking institutions during the 2000’s. That really didn’t end well.
The current business environment is very challenging for a lot of businesses. There is a lot of competitive pressure due to a lack of consistent activity – especially in commercial construction. This causes many businesses to try and “buy” work – price it with little or no (or, occasionally, negative) margin. All they succeed in doing is making their exit from the market more rapid and they tend to deliver incomplete jobs as they go broke before the job is finished.
If your incentive program gives your team tacit or explicit approval to seek lower and lower prices – at any price, the quality of what you purchase will decline and will end up costing you more.
A friend put it beautifully many years ago “I am not rich enough to buy second best”. When you are designing and implementing your incentive program, make sure it delivers what you really want – not a facsimile of what you think you might like.