Category Archives: Alternatives

Alignment, Alternatives, Customer Management, Customer Relationship, Employees

Self Help

“I love those automated attendants, recorded voice answering machines and the endless opportunities I get to push my own buttons whenever I make a call looking for someone to help me.”

Said no one, ever.

It has been well documented for some time that customer satisfaction is adversely affected whenever a customer has to deal with or must navigate through one of those automated phone answering systems. Normally when they call, they have a question, or need help with an issue. They want to talk to someone. Otherwise they would have just sent a text. Or accessed the company web page and sent an email. But no, they had hit a threshold where this type of technological linking was not good enough. They wanted to ask another human being to help them. And yet despite their need for support and desire for human interaction, they are denied.

The problem is so rampant that there are now commercials by certain companies appearing on network television espousing the point that when you call them, you actually get to speak to “a real human being”. Some companies now feel that it is now a competitive differentiator that they will have a real live human being answer your call and that you actually get to talk to them when you call them. It is interesting how quickly times changed initially to the automated systems, and then just how quickly they are changing back. There can only be one reason for this service technology whiplash.

Money.

Companies originally saw these systems as opportunities to reduce the cost of support by in effect making the customer responsible for some of their own issue or support request. They would need fewer support people if they could make customers work a little bit in the identification of the type of issue they were calling about. Fewer people needed for support equated to reducing the cost of support. This is always thought of as a good idea for the bottom line.

What they learned was that for the most part customers didn’t really like this type of automated system. It may have saved the company money in their support costs, but it made their customers unhappy. And unhappy customers were not as likely to buy more equipment or products from the vendor that made them use an automated attendant system when they needed support. This is normally thought of as a bad thing for both the top and bottom lines.

Companies learned, or actually relearned the old adage:
“Penny wise and Dollar foolish”. (It is actually “Penny wise and Pound Foolish”, but, I live in Texas, USA, so I have taken a foreign exchange liberty here.)

They may have saved a few pennies with the automated systems which enabled them to reduce the number of people required to deliver customer support, but it ended up costing them many dollars in lost sales from their customers who were not particularly impressed or happy with the support that they got.

Now we have companies advertising that they are using people to answer their service calls, just like everyone used to do thirty plus years ago. Go figure.

While it is interesting to discuss the migratory aspects of the types of customer service and support, I think it might be time to discuss a group that may not have fared so well in the evolution of support: The Employee.

It is no secret that companies must spend significant amounts of money, time and effort supporting their own communications and networking needs. Every company has a corporate network. Every employee has a Personal Computer. The employee productivity gains that have been created are enormous and well documented.

It has also put an enormous strain on and demand for corporate Information Technologies (IT) teams for support by these employees. Security and the ability to keep hackers out has almost become an industry unto itself. Requests for networking, applications, upgrades and support continue to grow as the complexity of what is required by the corporate knowledge worker increases. In the age of Virtual Offices (VOs) the demand to deliver these services to locations outside the classic organization structure or office has boomed.

And what is the diametrically opposed force that companies must deal with in this time of burgeoning employee technology demands?

The desire to reduce, or at least limit the growth of Information Technology support costs.

Companies are facing explosive demand for new and innovative Information Technologies applications and services by their own people in order to continue to generate ever better productivity, but are having to temper responding to this demand due to a desire to keep their IT costs in check. There are many innovative ways that companies are dealing with this issue, and unfortunately there are also several ways that may not be considered quite so innovative.

When I was in college, I once had a physics professor who was preparing us for a rather extensive round of midterm exams. He informed us that once the test was passed out that there would be no talking. He also said that if we had any questions we would be encouraged to raise our hands. He noted that by raising our hands above our heads, blood would obey the laws of gravity and flow out of our arms. This would in turn increase blood flow to our brains. This in turn would cause an increase our brain activities in the firing of synapses and neuron transmission, which in turn should enable us to solve the problem on our own.

I am not sure, but I think the gist of his comments were that we were not to ask him questions, because it was a test.

I am concerned that many of the IT leadership of many businesses today seem to ascribe to the same school of thought when it comes to staff support. If you don’t believe me, try and find the internal organizational phone number to call and actually talk to someone real time if you need IT help with you technology based connections. Emails and instant messaging are by far the preferred mode of communication if you need help. And if by some chance you do locate the telephone number for IT support, I think you have guessed it: You get to deal with the corporate IT automated attendant.

It seems that what was once done for you as a valued productivity asset of the company, when it comes to new applications and upgrades, are now being pushed down to you to try and do on your own. The new definition for employee service seems to include unlimited numbers of IT based emails with directions on how to update, upload and upscope the many new, mandatory or desirable IT capabilities.

Sort of a raise your hand and hope for increased blood flow to the brain when it comes to IT support.

I think part of the reason for this internal support shift is that the cost of IT and support is a very identifiable amount. There are direct numbers, budgets and staff associated with it. In budgeting and costing terms, it has become a very identifiable target. There is a defined amount being spent and as such becomes a prime candidate for cost reduction.

The issue that arises is that for every identified and quantified dollar that is saved from the IT budget, there is not a specific quantifiable amount of incremental time or lost productivity that can be identified or captured by the employees, as they are forced to pick up the slack. The measurable IT budget is reduced and a real dollar cost reduction is recognized. But it is far more difficult to measure how much is “spent” when all the additional hours that all the individual employees must now spend completing these IT tasks are totaled up.

An extra hour or two, here and there spent by each employee doing what was once an IT task gets lost in the count. The employee’s work load doesn’t decrease to accommodate this new additional effort. The deadlines aren’t extended because there is now more to do. It’s just another issue to deal with.

Just like happy customers are known to buy more products, happy employees are known to be more productive. However, employee productivity is something of a subjective measurement where IT budgets are very quantitative. This leaves the decision in the realm of reducing a measurable budget, known quantity at the risk of reducing an unmeasurable, unknown employee satisfaction and productivity quantity.

When the cost of cost reductions is reviewed in such a manner, it is best to expect continued pressure on corporate IT budgets for the foreseeable future.

I think it is probably safe to assume that there will be a point where there is a recognition of the value of supporting employee satisfaction and productivity via increased, direct tool and technology support. My guess is that corporations are probably getting close to that tipping point.

When bellwether companies such as Yahoo! and IBM have already decided that there is in fact greater value to the company when employees interact with each other in the office as opposed to the convenience of working via Virtual Offices, it probably isn’t too far a leap to think that they will also recognize that the small, but highly visible investment in the IT resources to support them is also probably money very well spent.

Alternatives, Analysis, Change Management, Differentiators, Product Life Cycle

The End of Maintenance

Service used to be a distinguishing characteristic for a company. You wanted to be known as a great service company. If you were good at it, service was also a pretty profitable way to augment both the top and bottom lines. But that was before customers figured out that they could make do with lower levels of service. Excellent service is now too expensive, and barely acceptable service has become good enough. There are many forces at work in the market, and I think they all point toward the end of maintenance as a viable service or business.

Almost all products come with some sort of maintenance agreement to start. It is normally referred to as the manufacturer’s warranty. This is the period of time after the purchase of the product that the manufacturer guarantees that the product will work. The length of this guarantee can vary and depends on several things.

The age of the technology involved, the stability of the market, the relative dominance of the consumer or the vendor in the market, and the speed with which new technologies or substitutable products are introduced, can all be factors effecting the length of the product guarantee.

Automobiles are a baseline technology that has been around for more than one hundred years. They may be becoming more complex, but their basic components still include engines, seats, wheels and the other basics. One manufacturer’s automobile is readily substitutable for another. Warranties on cars can now extend up to ten years. Manufacturers are now guaranteeing car operation for a decade. Research shows that few people actually own a specific car that long but the guarantee is there.

On the other end of the spectrum telephone companies used to require a twenty-year support guaranty from its suppliers for the products they purchased. It wasn’t initially expected that technology would change at the rate it has evolved to. High reliability and long product life cycles were the norm. Now the carriers can no longer pass along the cost of that type of product and its support to the consumers, so now much shorter product support guarantees are acceptable.

Apple has decided that the warranty on the iPhone will be one year. They have also decided that it is a limited warranty, meaning only certain service repairs will be covered, and that they may repair or replace a broken iPhone with potentially refurbished model or parts. They are Apple. If you want one of their iPhones this is what you get.

So, if the article is about maintenance, why am I spending so much time talking about warranty?

The answer is simple. Once your product comes off warranty you have basically two options for service: You can get a maintenance or extended warranty type contract, or you can hope that your product won’t break, and if it does break you can hope there will be someone out there that can fix it.

Or the third alternative will be that you can go out and buy another, or the next generation of product and then make use of the new product warranty.

I think it is safe to say that business used to be all about the best service possible. It then modified that perception and position by saying it was all about the best service at a reasonable price. It seems it is now more along the lines of the cheapest price for the lowest minimally acceptable service.

Products were engineered to the highest levels of reliability. They were not expected to break. When the product came off warranty customers were expected to purchase post warranty maintenance contracts, just in case something ever did go wrong, they would get the best support possible. Since the products were engineered so well, they didn’t break very often. Maintenance contracts were very profitable for most manufacturers.

It seems that something strange started to affect both ends of this arrangement. Manufacturers could not afford to make such reliable products in the new market. They didn’t have the time required to create them. And if they did, customers were not really interested in paying for them versus slightly less reliable, but much less expensive competitors.

There is a wireless carrier that has recognized this shift in preferences. They have a tag line that asks: “Our network reliability is within one percent of our competitor’s. Why would you pay them twice as much for only a one percent difference in reliability?”

On the other side of the relationship, customers decided that maybe reliability, while nice, wasn’t worth the premium they were paying for it. They started to examine their costs. One that obviously pops up is the high cost of maintenance. The drive started to reduce this cost.

Customers started looking a competitively provided maintenance solutions. Competitors realized that if products were reliable, they could sell maintenance cheaper than the manufacturer with relatively little risk, and still make money. In turn customers demanded that if the manufacturer was going to provide maintenance they would need to match or even better these competitive maintenance price levels.

The race to the bottom was now on.

The speed with which new products were introduced was increased. It would seem that the life cycle of products became ever shorter. Products were developed, introduced and then superseded by the next newer and improved version at an accelerated rate.

The reliability of new products diminished in accordance with the lower prices. As the life cycle, and more importantly the life expectancy of products reduced, they were no longer engineered to last a long time. It seems that they are now engineered to last only slightly longer than their warranty periods. After that, all bets are off.

Customers were more willing to accept reduced maintenance capabilities if they came at commensurately lower prices. It has often been said that we have evolved into a disposable society. What was once retained and repaired is now discarded and replaced. After all, with the new and improved version either already out, or on the cusp of availability, why would you want to repair the old one, when you can get the new one for close to, or possibly only slightly more than the repair price?

Why would you want to repair the old one, when you can get a new and improved one?

When a car comes off warranty it is six to ten years old. At this point in time it will be significantly depreciated in value. Chances are if it needs a repair it will be a significant investment verses the actual residual value of the older car. Probably better to get a new one.

When you buy your iPhone you get a year maintenance. Hopefully it will last just a little longer than that, but it doesn’t matter. The iPhone was released in 2007. There has been a new iteration of the iPhone released every year since then. And people line up every year in advance of the release to get some of the first new ones. Why would you want to fix your old iPhone when the cost of the repair represents a significant portion of the cost of just getting the next generational model?

This same approach is now finding its way into business as well. The demand for reduced maintenance costs by customers and the shorter product life cycles driven by competition are combining to eventually squeeze maintenance out of existence as a viable business for manufacturers.

It will probably become what would be called a “break – fix” type of environment. Customers will look for a warranty on a new product that is commensurate with its expected life cycle. They will probably have an extra one or two around as spares. If one breaks they will implement a spare and then do the cost benefit analysis of either getting the broken one repaired, or just buying a new one from the next generation of products.

It may take time for this apocalyptic vision of maintenance to come to pass, but I do think it is coming. The economics on both the vendor and consumer sides of the value equation are pushing it in this direction. Vendors won’t be able to afford the multiple generations of maintenance staff required by rapid product development and introduction. And customers will not be will to pay the costs of even reduced maintenance contracts if newer and more capable replacement products are rapidly and relatively inexpensively available.

I think we are heading to the point where the warranty and the life expectancy of a product are going to be very close to the same length. Any incremental life that can be squeezed out of any product beyond the warranty period will be looked at as an incremental unexpected benefit. Once the warranty expires, the break-watch will begin. If and when the product should happen to break (remember products will no longer be over engineered to last significant periods) the fix – replace decision will be made.

If it makes sense to repair it, it will be repaired. If it doesn’t make sense to repair it, it will be replaced. I just don’t think that we will see products continue to be under maintenance contracts in the future. Business probably needs to start planning for that eventuality now.

Alternatives, Analysis, Change, Customer Relationship, Decisions, Marketing, Operations, Sales

Future Jobs

This is a tough topic to tackle without sounding too trite or stale. But I now have children entering the job market and I have been continuing to do some networking with several people who are in a job search mode so it is on my mind. As usual I got to thinking about where to go and how to position for the jobs of the future. With the continual drive for cost reductions and all the talk about bringing certain jobs back on shore (as others continue to go off-shore), is there truly a way to future proof what you do for a living? I don’t know for sure, but as usual I do have a few thoughts on the topic.

It must be acknowledged and accepted that the rules of the game are changing. We must adapt or it probably will not end well. There will be those who will stubbornly hold out the hope for a return to the days when this country could manufacture and build its own products, and people could earn a living doing it. This was an ideal and golden time, but as we have all seen, there may be scattered exceptions, but by and large that economic structure has gone.

I think this was only the start. Almost every role that can be defined within an organization, can be subject to the same risk of off-shoring, out-sourcing, or whatever description you may choose to use for being moved to a cheaper labor oriented area. Production was moved off-shore because the labor was cheaper. The quality may not have been as good initially, but that can be and for the most part has been rectified. We all wanted the cheapest products possible, because they were good for the bottom line.

We have already seen instances where financial and accounting functions are being out-sourced and off-shored in the name of reducing costs. These are largely looked at as internal functions. They are usually associated with the overhead costs and functions, and as we know, everyone wants to reduce overhead. There are many people across the globe who are trained in the financial and accounting disciplines that perform these functions cheaper than they can be performed here.

We have already seen many instances where Research and Development, what was once a cornerstone of our growth engine, have been moved off-shore to lower cost countries. It seems that there are also many places with smart people who can write code and create products, with many of them working for significantly lower costs than here.

We have also seen the relocation and / or reduction of some of the Human Resource functions to other locations. Many of the repetitive steps associated with the simple recruiting and support functions can be and have been moved to lower cost countries. There has also been an explosive growth in the utilization of self-help and web portals as replacements for actual people.

Service and support is also similarly questionable. It is possible that this trend specifically associated with service may be reversing, but it is still highly probable that when you call for help or support on many products, your call is directed to an off-shore, low cost call center somewhere else in the world. People who predominantly talk on the phone as a function of their job, can have a phone to talk on in just about any low-cost country.

So, against this type of cost cutting and low cost country focus, what do we do for a living going forward?

I think for starters focus on one word: Customers.

The majority of business functions and disciplines that are at risk in being moved to low cost countries do not interface with customers.

Yes, I know that call centers and service have moved off shore and they deal with customers. And again, by and large customers don’t like it. It has been surveyed and noted as a major customer dissatisfier when it comes to support from vendors. And if given a choice almost every customer would prefer to deal with someone in their own time zone and their own country when it comes to support.

As I said, companies are recognizing what their customers want and this trend may be slowing, if not reversing as some of these service related positions return on-shore.

One of the inviolate axioms of business to business commerce is that “People buy from People”. It used to be the same for business to consumer commerce, but the internet seems to be changing that for commodity type transactions. I’ll get to that part a little bit later.

Selling will always be a function that requires direct customer interface. It will also invariably require face to face exchanges between the seller and the customer. In short, it cannot be off-shored easily, if at all.

As we continue to evolve to a service oriented economy, and as products continue to become more and more complex as well as more commoditized and interchangeable, having people who have the ability communicate specific value propositions, and more importantly be able to sell those value propositions in the new economy will be at a premium.

On the reverse side of the selling to customers, will be the implementation of the complex products and services that have been sold. It doesn’t matter if it is a good or service that has been sold. This brings us to the operations team. The reality is that most customers will not accept a “Do It Yourself” approach to the implementation of the good or service that they have purchased. They are usually going to want the company that sells it, to also be the one that puts it in.

Again, the direct customer interface from the operations team on the implementation of the customer’s purchase will be a key to that customer’s satisfaction, and potential future purchases. It can’t be off-shored and it can’t be minimized in its importance. The best product in the world can be sold, but if it is not implemented well, the customer will not be satisfied. This will be the case with both product and service implementations. Having good customer interfacing operations teams will also be a non-negotiable requirement for the future.

I have looked at specific individual customer interfacing roles up to this point, but what about broader multiple customer roles, such as Marketing?

For the most part in the past I have considered marketing an overhead function with a two-drink minimum. This is said with just a little tongue in cheek. However, if we note that individual customer interfaces are important then it is not too far a leap to expect that individual markets are important as well. Even though there is much written about the “global” economy, I don’t think that goods and services can be positioned and marketed the same way in Canada as they are in Brazil.

No one in Brazil will know what a Tuque is, and I have met very few in Canada who understand the importance of a good Caipirinha. Expecting one marketing approach to work in both regions will probably not be a good recipe for success. I do not think there will be a good or reasonable substitute for local market knowledge, cultural awareness, presence and positioning.

I suppose that the same could be said about lawyers and the specific legal requirements of each market. However, the less said about lawyers, the happier I find myself to be.

So where does that leave the organizational and business jobs of the future?

I think that it will be those outward facing, and customer interfacing roles that will be the jobs of the future. I don’t believe that customers will stand for the out-sourcing and off-shoring of them. It is the personal relationships and the trust that is built by direct customer interface that is the basis of a successful business relationship. There may come a time where that changes, but that may be in the “next” generation of business.

That means that the internal facing business and organizational roles are at risk as a function the eternal drive for lower costs. Accounting, Finance, HR (some of the functions), Research and Development and Production / Manufacturing, all to one level of success or another can be and have been sent to lower cost countries.

What is also interesting to me is that historically a little more than forty percent of CEOs that are hired come out of the finance discipline. In good times this number percentage goes down as growth is a focus and in tougher times it goes up as the bottom line takes on even greater importance. Many others come from the accounting and engineering functions as well. My point is, as many of these internal accounting, finance and engineering functions get out-sourced, where will the future leaders come from?

If these entry level (and other) types of roles and positions are sent elsewhere, where will the future leaders get their starts. It is in these roles that we learn and gain experience. If the roles aren’t there to provide the experience and jumping off points, are companies also off-shoring the development structures that the future leaders have used to get started?

This could mean that in due time, future leaders would predominantly come from those countries that the jobs were off-shored to.

Alternatives, Analysis, Communication, Efficiency, Information, Process

Brevity

I’ll let everyone know up front that this article is going to be somewhat brief, or at least shorter than the average article that I usually post.

It is probably no secret that while I think I may understand and appreciate the concepts and the thought that goes into creating a project and process oriented business (I have a PMP certification to this point), I also recognize that there is the potential for significant overhead and non-productive work to be attracted to this type of business structure. It is easy to say that you have got to take the good with the bad (as the beginning of the famous anonymous quote goes), but I am not so sure that is the case. Project and process structures were created in order to generate efficiencies in business. But who, if not ourselves, is responsible for making sure our projects and processes remain as efficient as possible?

This brings me to my topic: Is it just me, or more accurately, is it just my imagination or have all of business’s documents and presentations been getting longer, more detailed, more complex, and less functionally useful or justifiable?

A process at is simplest is defined as: “a series of actions or steps that are taken to achieve a particular goal”. I couldn’t make that up. It came straight out of the dictionary that way. The idea here being that it is possible to break down a complex work requirement (goal) into a series of simpler tasks and functions. This breaking down process is called “work decomposition”. I didn’t make this one up either. Although somewhat paraphrased, it comes directly from the Project Management Body of Knowledge (PMBoK) handbook.

So the idea of taking the complex and breaking it down into a series of simpler, repeatable steps is the goal of a process. This is a good thing.

So what has this got to do with the burgeoning size of documents and presentations you might ask. I think it has a lot to do with it.

As we continue to try and bring finer and finer granularity to the work requirement, we find ourselves documenting and presenting on ever more specific and smaller topics associated with the overall process and goal. Instead of presenting on sales, we now are discussing the various sales and support team engagement processes and when they come into play in the overall sales process. We don’t necessarily look at orders, but all those functions associated with the order process. Now each team will create documentation and presentations on their specific roles, when they engage and who they hand off to when they are done.

I can remember being asked to review a thirty-one-page document (not presentation, an actual Word document) regarding one of these team’s engagement process. That is correct. Thirty-One pages.

I do not begrudge anyone their function or role, but I am concerned that if it is felt that thirty-one pages are required to try and define one’s role in the greater scheme of a sales process, then it may be just possible that we have reached the point of decreasing returns on the value of the incremental process documentation investment.

The add-on effect of this process granularity can now also be seen in volume of slides and presentations that are now also being generated.

There was a time (long, long ago, in a galaxy far, far away) when overhead slides and overhead projectors were somewhat expensive and cumbersome items. This had the knock-on effect of limiting the size of presentations. Now with the proliferation of personal computers, bandwidth to connect them and the sharing of desk-tops each new image now represents only a slightly greater utilization of an ever more abundant resource. If you think you need more slides, go for it. As the great Yogi Berra once said: “The limitations are limitless”.

It now seems that fifty slide presentations are no longer the exception, but instead have become the norm.

The net here is that we seem to be producing ever greater amounts of documentation, be it written word or image / presentation based, about ever smaller and more specific topics.

It is said that work will expand to fill available time (C. Northcote Parkinson, in one of my favorite books: “Parkinson’s Law”) and that demand will expand to meet available supply. It now seems that the expansion of our ability to share information has also come with the desire and ability to share ever more of that specific information. Now it appears that the volume of what we share has increased in accordance with our ability to share it. Technology has enabled us to share more, in finer and finer detail, to the point where it seems that we may have lost our bearings as to what level of detail represents a useful or appropriate content materiality.

In the African plain faster cheetahs are able to chase down the slower gazelles. That left only the faster gazelles to reproduce the next, faster generation of gazelles. This in turn meant that the slower cheetahs were then not be able to chase them down and did not survive. That left only the still faster cheetahs to reproduce the following even faster generation of cheetahs. On and on it has been going, with both species currently topping out at speeds of approximately seventy miles an hour during the chase. There is a question as to where this evolutionary cycle will lead.

Previous generations of business structures and communication technologies seemed to have had an effect on limiting the number, topic and volume of documents and presentations created and communicated. As the speed and capacity of each succeeding generation of business structure and its communications capability has increased, so it seems has the number, topics and volume of documents and presentations that it has created.

Who can be sure what the future holds for business organizational structures. It is however expected that our ability to connect, share and communicate will continue to expand. This would lead me to the somewhat gloomy supposition and expectation that with this expanded communication capability we should expect to continue to see an expansion in the number and volume of documents and presentations created and shared to fill it.

I think that sooner or later the limitations imposed by each individual’s available time will have to kick in and start to curtail their ability to read or process this information deluge. I would hope that we would then see the pendulum start to swing back toward brevity and the informational value associated with the document or presentation, not its volume.

I have always valued the clear and concise. Fifty-page presentations and thirty-page process guides are usually neither. We seem to be in an age where we create them because we can, not because we need them. We need to get back to sharing the information we need, not all the information we have.

I told you I would be brief, or at least shorter than usual.

Alternatives, Creativity, Customer Relationship, Sales

Arguing With Customers

If you have dealt with customers for any length of time you have probably run into a situation that is similar to this: You have a perfect solution to a customer’s problem. It can involve a product or a service. It can be minimally disruptive or invasive to their organization. It has a good business case and a quick pay-back for the customer. There is only one problem: The customer doesn’t see it your way and wants to do something else that is far less effective, and wants you as the vendor to foot the bill for their solution’s lost efficiency.

And now the argument starts.

The phrase “The customer is always right” was originally coined in 1909 by Harry Gordon Selfridge, the founder of Selfridge’s Department Store in London. It is a mantra that we in business have all had drummed into our collective heads since we left school and started working. So what do we do when we know in our heart of hearts that in this particular instance the customer is most assuredly wrong, or at the very least not as right as they could be?

I think the above quote might be an edited version of Selfridge’s original idea. There is absolutely no proof of the following, but I still feel the original quote probably went along the lines of something like the following:

“Depending on who has last spoken to the customer, and what they personally believe, what time of day it is, what they ate for dinner last night and the recent incidence of sun spot activity, the customer may be misguided, misinformed, misunderstood to the point of being potentially ignorant of all relevant information associated with the topic, but they are always the customer, and therefore that makes them right”.

In case you are wondering, I added the “sun spot” part myself, just for extra impact.

I think you can see why Mr. Selfridge condensed down the original concept into his now famous quote. The original was a bit of a mouth full and probably wasn’t as customer friendly an idea as he was trying to convey. I’m only guessing here as 1909 was a long time ago and Mr. Selfridge is no longer around to confirm or correct my position.

The point still remains however. Since the precept is that the customer is always right, we probably ought to rephrase the question to: What do we do when the customer has not arrived at the correct right answer?

One thing you can be certain of is that there will be no shortage of people trying to tell a customer what to think. Between you, your competitors, the customer’s internal peers and management, family members and pets, just about everyone will be expressing a view as to what the customer’s proper direction should be. Against this type of backdrop, it is easy to see why a direct confrontation or argument with a customer will not be the most beneficial course of action.

The simplest step in this situation is to check and see if that despite the fact that the customer wants something that is different from your most efficient, effective and elegant of solutions, are they correct? As rare as it may seem there are recorded incidences of customers actually knowing what they want and being correct. It does happen more than one might suspect.

If you can prove to your own and your management’s satisfaction that what the customer wants is indeed a wrong solution, then the next step is to determine who the solution is wrong for. Is it wrong for the customer in that it does not adequately solve their problem, or is it wrong for you the vendor in that it for whatever reason it cannot be defined as good business.

Good business is usually defined as a solution that can be provided (as opposed to one that cannot be provided or does not exist), can be provided profitably and within the time-frames desired by the customer. If the vendor cannot provide the solution or cannot provide the customers desired solution profitably, it is probably not good business.

Unfortunately, there are many recorded instances where despite knowing better, vendors have agreed to and accepted business that does not meet the “good business” hurdle as defined above. These not good business decisions are normally defined as “strategic business” opportunities. A good company can normally stand only so many of these types of “strategic” deals.

If the desired solution is in fact the wrong solution for the customer a logical argument can occur. If it can be empirically proven to the customer that the solution does not solve their problem, then a direct approach can be taken. Empirical proof usually involves numbers and financial comparisons, and not so much on the assumptions and estimates. When it comes to assumptions and estimates, unless there is some very good backing data, who is to say that yours are better than anyone else’s, especially the customer’s?

If you can show a customer numbers, and prove that something else might be a better solution, or save them more money, or (more difficultly) provide them increased value, then the pending argument rapidly just becomes a discussion.

If it turns out that the customer desired solution is wrong for the vendor, then the argument gets a little more involved. While much has been written about solution quality and functionality and such things, it seems that in these days of rapid product and solution turnover, price is the primary driving customer decision factor. If there is a vendor profitability issue associated with a customer desired solution, modifying or increasing the solution price is rarely an acceptable approach to resolution.

When I have encountered this situation, and after ascertaining that no amount of logical discussion is going to change the customer’s mind, I have found it best to at least partially change sides in the argument. By that I mean that instead of pitting one solution against another in some sort of winner take all sweepstakes, I have tried to decompose the customer’s preferred solution into its component parts to see which parts may be congruent with my solution, and focus on those as the opportunity to discuss.

Everyone likes to feel that they are right, and by focusing on the points where there is agreement instead of the overall solution where there is not, a vendor can focus on the aspects of the opportunity that can provide them “good business” while accepting that the customer wants a different solution. This approach is essentially the de-scoping of the aspects of the overall solution that cannot be profitably provided. It highlights where there is complete agreement between the customer and the vendor and where there is not. It also clearly, but not in a confrontational manner quantifies what the cost and value of the disagreement is.

I learned some time ago that all mutually healthy dealings between customers and vendors occasionally requires either party to tell the other “no”. Customers can very easily do this by simply selecting another vendor to fulfill their needs. This approach can be a little drastic but it is definitely guaranteed to get a vendor’s attention very quickly. Vendors on the other hand can only afford to act in a similar manner, i.e. firing a customer, if they have the entire market for the desired good or service cornered where they are the only supplier, or they risk such behavior at their own peril.

By breaking down the customer’s desired solution into its component parts it is possible to tell the customer both “yes” and “no” at the same time. A vendor can say yes to what makes sense, and no to what doesn’t.

When there is contention between a customer and a vendor over a solution, look at the subsets of the total solution where there is agreement, instead of the total offered solution where there is not. This approach serves the twin functions of communicating to the customer where the issues are with their desired solution as well keeping focused on the primarily profitable business that is beneficial to the company.

Just be prepared for the phrase “You have to take the bad with the good”, but that will be another discussion. At least at that point you are negotiating.

Alternatives, Customers, Decisions, Differentiators, Sales

A Race to the Bottom

I had a phone call drop the other day. It wasn’t a big deal. In this wireless world I think we have all had phone calls drop. We also get static, interference and garbled messages, but hey, we’ve gotten used to it. The difference was that this call wasn’t a wireless call. It was a call using a land line desk phone. Come to think of it, having a land line call drop isn’t such an uncommon event these days either. I have commented in the past that not quite good enough is now good enough. I think this is just a symptom of what I call a race to the bottom.

Benjamin Franklin once said:

“The bitter taste of poor quality remains long after the sweetness of low price is forgotten”

I think for a very long time this was the case. It was accepted that there was a trade-off between quality and price. However it seems that times have changed. What was once true in a handmade, almost artisanal world does not seem to apply quite so steadfastly in the modern, mass production, readily interchangeable, short life span high technology world of today.

It used to be that you could get things cheaper but they invariably didn’t last as long as the more expensive better made items. This was a period when it took a while to make just about anything, and it was a requirement that it last based on what it cost to acquire. Back then when you bought something you expected to have it for a while. You expected quality almost directly in proportion to the price that was paid. You paid less, you expected less. If it wasn’t high quality you were going to have to live with that mistake for a while. As a manufacturer your reputation rested on every product you made.

I think the new approach today is to ask what is the best “relative” quality available at the absolute lowest price. Now it seems that the search is for as much quality as is obtainable at the lowest price. It is a somewhat subtle change in the relationship between price and quality, but I think it is an important one. I think in today’s world Ben Franklin would be asking what the minimum quality level is that can be endured at the target price point.

We are no longer buying quality. We are buying price and hoping for quality.

I guess that there still is a relationship of sorts between quality and price, it’s just that now it seems almost impossible to up-sell a customer (raise the price) based on quality. If you are not the cheapest, your chances of gaining the sale are probably going to be severely hindered by the other product that is the lowest price. Customers for the most part seem to view products as readily substitutable with each being able to perform essentially the same functions as the next, hence the “why pay more” approach.

I think it can also be traced somewhat to the public perception in the change of relative life expectancy the products. The shorter the life expectancy of a product, the quicker the next generation or replacement product hits the market, the more it seems that there is a tolerance for lower quality. It came out quick so a few bugs are always expected initially. As we have moved into the disposable high technology world, it seems the more tolerant the market is of lower quality, as long as the product is available for cheap.

Just over fifty years ago Gordon Moore noticed that technological capabilities doubled roughly every eighteen months. It seemed everything got either twice as fast or half as small on a very regular basis. This observation strangely enough became known as Moore’s Law. It basically ushered in the era of short product life cycles and rapid product replacement.

I have mentioned several times that I am probably a dinosaur. I remember (vaguely) my parents color television. All twenty three inches of that then massive cathode rate tube screen. Wow, what a monster. I also remember the repairman actually coming out to the house once or twice to repair it. Of course this was across the approximately fourteen years of its operational life in their living room.

Now televisions are huge with many larger than sixty or seventy inches. Unfortunately they are only expected to last a few years. Then they either break and must be replaced since the cost of repair is now so prohibitively high as compared to a new one, or are just replaced by the newer level of product technological advancement.

My point here is that while the absolute cost of the product may have come down in both real and time adjusted costs, I don’t think the total costs across the sample period have actually been reduced. In other words, the total cost of ownership across fourteen years and two repair visits is probably far less than the three to four televisions that might be expected to be purchased across the same time period today. However, it is only fair to note that who can say what the capabilities of a television will be in fourteen years at its current rate of evolution.

It seems again if you have a short technology cycle, short life expectancy, readily substitutable, mass production product, such as televisions, or smart phones, or personal computers, or just about every other electronic platform in the market today, quality is not the concern. Price is. And when that happens it looks like the race to the bottom is on.

The reason that I have gone into such belabored detail on what is obviously a consumer goods example is that it has been the bellwether for the business world as well. Let’s get back to my dropped call scenario.

For the longest time the communications infrastructure was a source of pride. I seem to recall when “five nines” of reliability, no down time, and always being able to place a call were proudly pointed to aspects of both the public and private communications systems. You could not get a higher quality infrastructure.

So you didn’t. You got a cheaper infrastructure. It now experiences issues and outages that in the past were unthinkable. And over time people have accepted it. Quality was sacrificed for price. You don’t hear anybody asking “Can you hear me now?” We all seem to be okay with it. We seem to have lost the drive and desire for “better” and have just settled for “cheaper”.

I don’t know if it is the consumerist behavior driving the business world in this direction or the business world drive for newer and cheaper technology that is stoking the consumerist behavior. As the apparent acceptance by customers for low quality continues, even though there seems to be an inordinate amount of business focus on creating the “relative” quality levels in technology products, price becomes an ever greater decision criterion. This trend can only benefit the low cost producers and providers in the market.

When quality is addressed as a cost as in the “cost of low quality” as it is measured today in business, instead of a generated value to the customer, then I think the bottom may be in sight. Feature, form, fit, function and quality no longer seem to be viable differentiators in the eyes of customers. Price and its financial partner, cost, now seem to be all that matters.

Maybe Ben Franklin was right in his time. I think Kurt Vonnegut may be right in this time. He was the one that said:

“In this world, you get what you pay for.”

The only issue now, is that we don’t seem to be willing to pay for it.

Activities, Alignment, Alternatives, Customers, Leadership

Why Do It

There is a brand out there that struck advertising gold with their catch phrase “Just do it”. We all know who they are, so I will not go there. For sneakers, exercising and sports it was brilliant. How incredibly “Zen”. It truly tapped into the psyche of every would-be athlete on the planet. Like so many other marketing trends in society it seems to have also found its way into our business vernacular. I am not so sure this is a good thing. Like process for process sake, just doing something for the sake of doing it, without examining the value or reason for doing it in business can be a waste.

I think we need to remember what drives organizations and what should cause them to take actions. Organizations exist primarily to bring value to its share holders. It does this by providing value to its customers. It seems that too many times they have a tendency to confuse activity with progress, much the same way that process can be confused with control.

I am convinced that there are three simple driving forces for actions in business. I am sure there are many that would potentially argue this point and say that there are actually a myriad of driving forces for action in business, but stick with me for a moment. When I look at the root cause analyses of all types of actions in business, and boil them down to the basics, I still keep coming back to these three:

Actions can be customer driven.
Actions can be revenue driven.
Actions can be cost driven.

If there are business decisions that result in activities that when analyzed cannot be attributed to one of these categories, I would probably challenge that it is an action or activity whose relevance should be called into question.

In other words, if an organization is doing something that cannot be attributed to one of these causes, I would ask why they are doing it.

Customer driven actions are just that, actions that benefit the customer primarily without regard to any other considerations. This means that they can be actions that are not in the current financial best interests of the business at that time. They are “investments” in the customer relationship which will hopefully produce greater returns to the business at a later date.

These are actions that are the result of externally focused decisions. They are actions designed to further the relationship or build incremental trust with that specific customer. They are usually strategic in nature and are focused on the longer term view of the business, not its immediate profitability.

Revenue driven actions are actions designed to grow the business, either through the acquisition of new customers or the expansion of business with existing customers. Since they don’t specifically focus on business profits or margins (they are looking at the top line, not the bottom line) they can be mixed between external and internal in their business focus.

These actions tend to be shorter term focused than the long term customer driven actions in that there is some consideration to the business results that are input into the decision and action process.

Cost driven actions are specifically internally focused and are used to target shorter term results. They are the result of decisions that are usually focused on the business performance and are designed to directly affect profitability and margins.

Cost driven actions are not solely defined by infrastructure or staff reduction types of actions. Some cost driven actions can be taken as a method of avoiding or reducing known costs. For example, business actions such as corporate wellness activities can also be considered cost driven actions. They are solely internally focused. They are designed to help improve employee productivity by reducing stress and resulting sick days. They also help reduce corporate healthcare costs and insurance premiums by reducing the claims and medical costs of employees who are in general healthier because of them. All of these improvements directly affect the corporate bottom line.

There may be some that believe that some actions are based on meeting legal or regulatory requirements, and should be categorized separately. I would argue that these too are cost based actions based on the argument that they are internal in nature (not affecting customers or revenue) and only affect costs in the form of what it costs to adhere to them, as well as what it will cost if they are not adhered to.

The tradeoffs between these decision drivers and actions are reasonably clear. There are the primarily short term affects of internally focused actions (such as cost cutting), the midterm effects of revenue growth actions (such as sales programs and discounts), and the long term aspects of customer relationship investments (such as faulty product replacements and customer satisfaction actions) and their effects and values to the business. There is the tradeoff between an external (customer needs) focus and an internal (primarily profitability) focus that must be balanced.

It is the business leader’s responsibility to continually monitor and balance the internal and external decision focus, and the short term – long term effects on the business. If they become too focused on the short term business performance, future revenue streams and customer relationships can be negatively affected. If they focus on the longer term and customer relationships, shorter term business performance may suffer due to the increased investments that are required.

Sometimes these decisions and actions can align and be complementary to each other. This alignment between short and long term decision and action, between internal and external focus then becomes relatively simple. Other times they will not be complementary in nature and tradeoffs will have to be made between the performance of the business today and the investment needed for the business to perform tomorrow. Cost actions will need to be balanced against investments in revenue growth and customer relationships.

I think the bottom line here (if you pardon the pun) is that customer focused decisions and actions are what keep any business or organization in business and should be prioritized above the others. After all, it is the customer that supplies the order that gets turned into revenue that ultimately drives profit. Forgetting, or re-prioritizing this axiom can in some instances occur briefly, but probably at the long term peril of the business. There are always other competitors in the market that regardless of their situation who will be willing to make the incremental investment in a customer.

I realize that I have greatly simplified the decision and action criteria here for an organization. However I do think that it is somewhat justified. We do have a tendency to make business as complicated as we want. I seem to have reached the point where I prefer a simpler approach as opposed to a cross functional team creating a new process and program to document the approach.

As I noted at the opening, it seems that too many times organizations undertake actions that don’t seem to support any of these key reasons for taking them. If there was a check and balance arrangement where processes or programs were reviewed with an understanding toward these criteria, they might be modified or removed all together.

Since this would be for all intents and purposes an internal only review, it would probably be classified as a cost base decision criteria and action.

Organizations have a limited number of resources. It seems in many instances they have an almost unlimited number of objectives and desires, many of which are somewhat conflicting. The business’s resources need to be spent or invested on those objectives that keep the customer in the forefront of the decision criteria and can best be aligned to provide the greatest return to the organization. These returns need to be balanced between the short and long terms.

Alternatives, Analysis, Decision Making, Self Analysis

Instinct

It has been a somewhat interesting week. Many items have caught my attention and seemed as though they would be good topics to write about. I may save a few of these ideas for later articles. Some of them are probably better left out or forgotten. I don’t mind wandering off into some potentially arcane or hard to relate to business topics occasionally, but I don’t want to generate just another rant about this topic or that one and then try to relate it to business.

What I thought that was interesting today was the idea of instinct. I think we all have a basic idea of what instinct is, but since I am eventually going to relate it to business I think I may want to start out at a reasonable baseline. May favorite way of doing that is to go out to Merriam-Webster and retrieve the following “simple” definition of instinct:

“Something you know without learning it or thinking about it”.

Okay, a couple things here. First, when did Merriam-Webster start providing a “simple definition”? Really? Have we actually come to the point where we are abridging our definitions into the simplest of vernacular? I couldn’t make this up. There is now a “simple” and a “full” definition. I fear for where our society is going at this point, but I promised not to propeller off into some sort of a rant.

Second, I think I’ll go with the “full” definition, because I guess I am just that kind of person:

“A natural or inherent aptitude, impulse, or capacity”

Either way, I think you get my point. We have all met people in business that just seem to know what to do and when to do it. They make good business decisions. They can extrapolate limited data and input it into very good solutions. They make smart choices. They are said to have good instincts. But do they really?

We usually hear of “good instincts” as it applies to athletes. It seems to be some sort of method for describing why an athlete who is not biggest, fastest or most imposing physical specimen is so good at what they do.

I have mentioned in the past that I have become something of a hockey fan. Even I find this rather interesting since I grew up in the desert southwest and currently live in Texas, which as we all know is not considered a hotbed of hockey fandom. Go figure.

With that in mind, the best example of this good instincts phenomenon that I can think of is the hockey player Wayne Gretzky. The leading scorer in the history of the National Hockey League. The man who’s nick-named “The Great One”. The measuring stick for all other great hockey players.

He was not particularly big as hockey players go. He was not the fastest skater, nor did he have the hardest shot. He just scored, a lot. When he was asked how he did it, he said he didn’t go to where the puck was, but where he thought the puck would be. Based on his success it looks like he had great instincts.

Or did he? I’ll get back to this a little later as well.

Let’s fast forward to the opening day of the National Football league and the first game of the season for the Dallas Cowboys. I am not a particular Dallas Cowboys fan. That person in our house would be my wife. I am however wise enough to sit on the couch quietly while she cheers her team on. I guess it is our version of “together” time.

The game in question was a see-saw affair and was reasonably exciting. It was coming down to the last few seconds when a field goal could steal a victory for Dallas. With no time outs and just a handful of seconds left on the clock a pass was thrown to the Dallas receiver on the sidelines. All he needed to do was step out of bounds and stop the clock.

But this is where his instincts kicked in.

Instead of stepping out of bounds and stopping the clock, which in this instance was the most limited resource in the situation, the receiver turned and tried to run up field and gain a few more yards. I don’t blame him (my wife does however) because every receiver’s instinct is to maximize the gain on each individual play. Needless to say he was tackled in bounds, time ran out and Dallas lost.

It is apparent that in this instance his instincts were wrong.

Time was in fact the most importance aspect of the situation. He needed to understand that and adjust his behavior appropriately. He needed to think about where he was and the situation he, and the team were in and act accordingly.

This is easy enough to say when you are sitting on a couch next to someone who is cheering wildly, and not down on the field actually competing.

Now let’s go back to Wayne Gretzky. He gave us the definition of his “instinct”. He thought about where the puck was going to be and went there to meet it. Was the puck there every time he went to where he thought it would be? No. But he was right enough to become the leading scorer in the history of professional hockey.

The point here is that as he said, he “thought” about it. It was not instinct as we currently like and want to define it. He was able to process the game situation, formulate a plan and implement it in such a way as to be in the right place at the right time in order to score. He did not just skate around waiting for people to pass him the puck. He was always aware of the situation and adjusted accordingly.

It seems to me that Gretzky’s “instinct” was more related to the way he saw and thought about the game as he played it. He was able to process the various locations and movements on the ice and anticipate where he thought the puck would be. Then he would go there. Since hockey is a game of split second decisions as I said he wasn’t right all the time, but he was right more often than anyone else.

Now let’s talk about business. Businesses love predictability. When things are predictable, just about anyone can anticipate what is going to happen.

In hockey this would be the equivalent of everyone knowing where the puck was going with the result that all of the players would be clustered around Gretzky waiting for the puck.

But in business, like hockey, not everything is predictable. Most everyone thinks in different ways and reacts differently to different inputs. For every Wayne Gretzky or Steve Jobs, there are a number of different elite players or leaders in the game. After all, someone else had to pass Gretzky the puck in order for him to score.

I think “instinct” whether in sports or in business is not some unseen or unconscious force associated with performance, but rather the ability to process and make connections between multiple inputs and variables that result in good decisions. It is the ability to think, sometimes faster than your competition, and most times more accurately than your competition.

Knowing where to go to meet the puck, or when to get out of bounds instead of turning and running up field, or when to invest in a new product or technology comes from understanding the multiple inputs associated with each situation, thinking through the alternatives, selecting and acting upon the best one.

As I said, Gretzky did it a lot. Jobs seemed to do it more often than not. We all remember the iPod, Mac and iPad. Does anyone remember NeXT computer or the Apple Lisa? Just asking. I am sure the Dallas receiver has made many more good game play decisions than bad ones. It’s just that his last bad one had such an immediate and visible result.

Not everyone makes the right decision every time. Instincts or not, business is very much like every other game out there: How quickly can you get to the right decision. How people think and process information obviously has a great deal to do with the decisions that they make. Different situations call for different types of thinking and decisions.

I think it is our natural instinct to migrate towards people who think and act like we do. This is a normal sort of reinforcement behavior. We tend to like people who agree with us as it reinforces the decisions we make. We need to think a little more about that. I think we need to actively encourage contrary behavior and thought processes. I don’t think we should view this behavior as open defiance or insubordination, but more as a check sum verification.

In looking at a replay of the Dallas receiver’s last play of the game, one of his team mates can be clearly seen trying to get him to run out of bounds instead of up field. It seems he didn’t see him or if he did, he didn’t pay attention to him. Either way it was obvious someone else had thought about the game situation and come up with a different decision for that situation.

As I have said, not everyone makes the right decision every time. And sometimes our instincts are wrong. It’s always good to listen to and think about other possible solutions before relying on instinct and turning and running up field.

Accountability, Alternatives, Business, Decision Making, Risk and Return

Business Cases

“My mind is aglow with whirling, transient nodes of thought careening through a cosmic vapor of invention. My mind is a raging torrent, flooded with rivulets of thought, cascading into a waterfall of creative alternatives…”

(Hedley (not Hedy) Lamarr in Mel Brooks’ “Blazing Saddles”.)

Ditto.
Extra points if you knew who said that as well as who uttered the response.

I seem to have costs on my mind (as well as a lot of other things, apparently) these days. I didn’t know what I wanted to address in this posting: Cost Reduction, Business Cases, Business Predictability all seemed to have been foremost in my mind among the possible group of posting topics. It seemed like the best thing to do was get started and see where it went. It went to “Blazing Saddles”. I don’t know if it is recoverable from there, but I will try.

Since this is nominally a Business Blog, and I did at least tangentially address cost reduction as one of the primary growth industries in business in my last posting, I think that I will head over into business cases. However, do not lament the transition away from cost reduction entirely, as costs do play an important role in the creation of any good business case.

It appears that creating or generating a really good business case is becoming a lost art. Coming up with an idea, specifying the investment parameters, analyzing the markets and demands, and ultimately defining the returns and value to the company are some of the building blocks of a successful business. It is a rigorous process (and it should be) because it deals with the lifeblood of the business – money.

This is not going to be some sort of a “how to” do a business case primer. It’s more about what they are and why they’re needed. Simply put, a business case is the justification package that you put together when you want the company or organization to invest in something. This is a very high level definition. The “something” to be invested in can be almost anything: research and development for new products, production automation equipment to reduce the labor component associated with manufacturing, additional sales people in an effort to expand the addressable market and grow sales, are just a few of the fun ones that come to mind.

Business cases are all about what the company should invest in. Investing is all about money, specifically when you spend it, how much of it you spend, when you get it back and how much more of it you get back. Businesses are in business to make money. Like every good investor, when money is spent or invested, a return is expected on that money or investment. If that does not seem to be the case, then the business case process has probably broken down.

I do not claim to be a business case guru. I have put several of them together and have found a few topics that I look for in every good business case. If you want to find out all that should be included in a business case, just Google “Business Case Template”. I think you will get a little more than eight million results.

In my experience, every good business case should have the following three major components:

What is it that is wanted?
What are you asking for and how much is it going to cost? Every business case is about asking for money. In the examples I cited above you would be asking for a specific amount of money for either research and development (people, lab space, lab equipment, etc.), money for manufacturing equipment for automated production, or money for salaries for incremental sales people. This amount is known as the investment.

What is it that you get for the money?
Why would the organization or business want to give you this money? What are they going to get in return? If it is for research and development, what products are they going to get and how will they positively affect the growth of the company. If it is for an automated production line, how much are production costs going to be decreased. If it is for additional sales people, how much are sales going to increase.

When do they get their money back?
No, the organization is not “giving” you money. Think of it as a loan. Every loan needs to be paid back, with interest. This interest is usually in the form of increased profits for the company, either in the form of margins from increased sales or reduced costs. If you don’t believe me on this repayment with interest thing, just ask the bank or financing company the next time you want to invest in a car or house. I think they will be quite specific regarding the interest you will be paying on the loan and the expected repayment schedule that they will require you to comply with. This money that is given back to the company is known as the return on investment.

Business Case Tip #1.
One of the guiding principles of a good business case is that the return on investment should be greater than the investment itself was.

I don’t think there are many (any?) other business case tips that can be given that have the same importance as this one. A proper business case requests a specific amount of money. It defines what the money will be used for (spent on). It specifies what will be produced (new products, cost reductions, increased sales, etc.). It also forecasts when and how much the returns will be. It is all about the numbers.

It is this last part which is especially important. When are they going to get their money back. It is during this discussion when you may hear a term such as “pay-back”. Pay-back is when they get all of their original investment back. This is the break-even point. After this, everything that is returned to the company is a benefit or profit.

Business Case Tip #2
No matter how soon or how quickly the business case hits the “pay-back” point, it will not be soon enough.

Contrary to what some may believe, money in a company is not free. A company must pay for its money, one way or the other. A company can fund a business case investment via either debt or equity financing. In debt financing it is the interest and overheads that it must pay on the loan (debt) it takes out to get the money. In equity financing it is the relative risk and return it must pay in the form of stock appreciation or dividends to the equity investor in order to attract them. This is called “the cost of capital”. It is in effect the interest or discount rate that the company must use in the business case when it looks at the future returns on its investment.

The longer it takes to reach pay back to the company, the more the amount of discount that is applied to the return. The greater the discount, the more difficult it should be to make the business case work.

Remember that there is a limited amount of investment money that is available to any company. There is only so much that the company can borrow before the financial position of the company is adversely affected by its debt position and only so much stock that can be issued before the market adversely affects the equity price and expectation for the stock.

There are also other businesses and organizations within the company that would like to invest in their opportunities as well. That will create a competition for those investment funds. So how should the company decide where to invest?

There are usually two instances where a company will invest. One of the easiest is to invest only in those business cases that provide the greatest return on the investment. That would be those opportunities that have the best business cases. You have just seen above what should be expected at a high level for a good business case.

The second place that a company usually invests is in those strategic initiatives that may not provide the best return but are required for the long term health of the company. What are these strategic initiatives you may ask? That’s a good question. I have found business cases to try to define themselves as a strategic initiative when they contain a request for funding that does not show a reasonable return on the requested investment.

That’s probably not entirely true. There are investments for things such as core technologies that other products are built from that could be defined as strategic (among the many others of this type) as well as initiatives outside of the financially definable realm such as the reduction of carbon footprints or diversity that may not contribute directly to the financial well being of the company, but should be done none the less for the greater good of the company.

Companies expect and need to make money. Otherwise they normally do not get to remain companies for very long. I think a great deal of any company’s success can probably be attributed to how strong their business case process is, and how well they adhere to it. Having people who understand what a good business case is can go a long way to attaining that success.

Accountability, Alternatives, Budgets, Decisions, Finances, Leadership

Growth Industry

I think it is safe to say that most everyone is looking for their next career opportunity. What do they do next? Where do they go next? What is the next step in their career progression? When I have been asked in the past what someone’s next career step might ought to be I have invariably said that everyone should spend some time in sales, and that everyone should do whatever they can to be able to understand the business numbers.

I am not going to back away from that comment. Good leadership needs to understand what it takes (and just how difficult it is) to generate a top line. No matter what everyone who has not been in sales may think, I have found that it is just not that easy to get someone to give you their money, regardless of how good the product or service is that you are selling. (Apple products don’t count here. I truly believe that customer set has been brain washed.) Even so, I think we have all been in situations where management has predicated all of their well scripted strategies for sales growth, regardless of product, business or market conditions, only to miss those growth targets and then try to deal with the business consequences.

I also stand by the assertion that numbers, and derivation of such numbers (or in some cases the divination of said numbers) is required for business and organizational operation. I have cited several quotes on numbers in the past. Robert Heinlein said “If it can’t be expressed in numbers it is opinion not science.” Mark Twain said “There are lies, damn lies, and then there are statistics.” A leader’s long term (and short term) success will be based on their ability to understand and communicate what the business’ numbers are, and why they are what they are.

What I think I am now going to add to these two suggested experiential requirement sets is that leadership needs to spend some time in what my experience has proven to be the only consistent growth industry that I have seen across all industries, markets and businesses: Cost Reduction.

In business there are many things that can (hopefully) be influenced in business performance, but very few things that can truly be controlled. Businesses can try and influence the market to perceive them differently. They can employ various media and advertizing to try and create a progressive image in the market for their goods and services. They are in essence trying to convince the market of their particular product or service advantages and benefits.

Whether or not the market accepts, agrees or is influenced by this positioning is outside the direct control of the business. The business will always try and craft its market message in the most beneficial light possible, but it is the market which gets to decide which parts if any in the message and value proposition are accepted. Entire industries of analysts and consultants have grown up around this market value proposition analysis in efforts to try and actually decipher the facts associated with these messages.

Whether individual customers accept or agree with the proposed business value proposition is also somewhat outside the control of the business. The business can employ dedicated sales staffs and teams to tailor the message specifically to each customer as well as work to identify the value of the solution to that customer. This provides greater input and positioning for the business, but yet again it is the customer that ultimately controls the relative success of the business proposition. They get to say “yes” or “no” to the proposition.

The point here is that a business can do absolutely everything right in the dissemination of its message to the market and its pursuit of the ever elusive customer order, and still fail, sometimes for reasons that are entirely outside the control of the business. They can work and influence and sell in every way imaginable and still not get the order, or enjoy the top line growth they have planned for and need.

Herein lays the rub.

Senior management doesn’t really care about that. A plan has been made and the numbers have been committed. Those numbers have been combined with the overall organization’s other business’s numbers and an total organizational plan has been committed to the corporate leadership. You don’t get to easily miss your financial commitments to the organization.

Where do you think all those ideas for those colorful punishments on your favorite Game of Thrones or Walking Dead television shows came from? Exactly, people who missed their planned or forecasted targets.

While it may be generally frowned upon by senior management to miss the top line plans and forecasts for growth, it is wholly unacceptable and more than likely to be a punishable offense to miss the business profitability and earnings commitments. Herein lies the squeeze: While the top line may not be achieving the required heights, the profitability and earnings commitments to the organization cannot be reduced proportionately, if at all.

The only solution is to cost reduce.

I don’t want to make it sound as if cost reduction is only something to be taken on in times of business stress or top line under performance. It may have once been that way, although I cannot remember it. Suffice it to say in today’s day and age that for a healthy business cost reduction is both a growth business and a never ending process. If you are not doing it now, you had better get started because it will probably be necessary sooner rather than later.

It is well known that the sooner you can make adjustments of any kind in a business year, the less drastic the adjustments need to be. If you can recognize in month two that there is an issue, you have ten months to correct. If the issue is not recognized until month seven, you only have five months to correct, and now the correction must be twice as large.

What I mean here is that if there is a one million dollar short fall in the earnings commitment / forecast and it is recognized in February, you can correct spending (costs) to the tune of one hundred thousand dollars a month. If the same one million dollar issue is recognized in July, you will need to reduce costs by two hundred thousand dollars a month to recoup the same million dollar correction.

Remember that. The later you wait, the more drastic the cost reduction action will have to be. Plan early, act early. Hoping things that are not fully within your control (sales) will improve usually results in much more painful activities associated with those things that you can in fact control – costs.

There are all kinds of costs associated with a business, not just people costs. Here is where knowing the numbers thing comes into play. What are these costs? How do you control or reduce them? And, almost more importantly, how long will it take to implement the changes associated with reducing them?

We have probably all seen these knee-jerk cost reduction actions:

Travel bans – which basically just limited the people who should be traveling and not so much reducing the number of people who shouldn’t have been traveling in the first place. Travel is not a light switch with only the “On” and “Off” positions.

Hiring Freezes – that really aren’t freezes because there will always be the need for the flow of the life blood of new talent that every organization requires.

I have even seen the removal of coffee and other amenities from the corporate break rooms. I don’t know how much was saved, but it did succeed in generating a significant number of grumpy people.

There are any number of other “cost reductions” of these types, but they are for the most part superficial. They do not address the specific issue that the business’s basic cost structure does not match its revenue and hence earnings positions. True cost reduction comes from addressing the long term and fixed costs associated with a business. Can fixed assets be reduced? If so, how and how long till they are affected? Is there outsourcing or off shoring that may be needed? Not everyone can be the best at everything, so looking for external help may be a potential solution. Are there allocations or other programs that need to be reviewed? The list goes on, but the costs must be dug out, isolated and analyzed before action can or should be taken.

This activity will serve to teach the leader, or would be leader what the costs are, in human terms or otherwise, associated with cost reduction. Changing the course or the costs associated with a business is much more fundamental than just freezing travel or hiring. It is also much more invasive. It’s not easy. You have to challenge yourself, your team and your business to change, and that is never easy. No preconceptions regarding business costs should be exempt. All costs should be questioned. When addressing cost reduction, remember what Sun Tzu said about war (as in this case they will be somewhat similar):

“The art of war is of vital importance to the State. It is a matter of life and death, a road either to safety or to ruin. Hence it is a subject of inquiry which can on no account be neglected.”

So is the art of cost reduction.