Category Archives: Business

They Don’t Have to Buy

Sales is a very interesting profession. It may not require a specific type of person, but I think it requires a specific type of mind-set. It has been shown that people more readily buy from people that they trust. You have to fully believe in and be committed to what you are selling in order to gain that customer trust. You must be the first to be convinced of what you are selling, before you have any kind of a chance of convincing a customer. If not, you have a tendency to come off as an archetypal used-car salesperson, and no one seems to trust them.

There was some research done some time ago that showed that there actually was a “smell of fear” that could occur. When scared the body does emit chemicals that that can be sensed by others. (https://www.telegraph.co.uk/news/science/3545435/The-smell-of-fear-is-real-claim-scientists.html)

I think that there probably also exists a “smell of insincerity”. Just as it may be possible to sense fear in others, it is probably also possible to sense insincerity in others. And for a sales person, insincerity is probably the worst thing for a customer to sense. There is that trust thing again.

That means that the first person that a sales person must convince of the benefit of the product or service that they are selling is themselves.

Having been in sales I can vouch for the fact that it is difficult enough to sell anything in the face of competition, let alone sell a product that you are not fully convinced of or believe in. And if you don’t fully believe in what you are selling, you will come across as insincere. And as I said, like fear customers can sense insincerity.

So, why am I going into all this discussion regarding sincerity and trust, and whether or not a sales person has convinced themselves that they believe in the benefit of the product or service that they are selling? There are a couple of reasons. The first is as I said good sales people are convinced of the benefit of their product or service. This is a good thing.

The second is that just because the salesperson is convinced of the benefit of the product or service they are selling, does not mean that the customer will be convinced of the value.

First, let’s do a few definitions. Today’s source will be the Merriam-Webster dictionary:

Definition of benefit: Something that produces good or helpful results or effects or that promotes well-being (https://www.merriam-webster.com/dictionary/benefit)

Definition of value: The monetary worth of something (https://www.merriam-webster.com/dictionary/value)

So, while the first step in a successful sales process is convincing the sales person (or sales team) of the benefit of a product or service, the second step is convincing the customer that the benefit of the product or service is at least worth the cost required to obtain it. That would mean that the monetary worth of the benefit is greater than the amount that they are paying for it. This is the value.

Too many times I have heard and seen sales people who have been convinced of the benefit, and who have communicated this benefit to the customer, believe that their job is then done. This point in the sales process is usually denoted by when the salesperson utters the phrase:

“They have got to buy.”

This phrase is usually accompanied by qualifiers along the lines of:

“The customer’s competition is doing…” or

“The market is moving or responding…” or

“The technology is ready…”

These are all non-commercial, or non-value related reasons as to why a customer should make a positive buying decision. Let me illustrate with an example:

Let’s say you are looking to buy a new car. You have your own set of reasons for wanting a new car. Perhaps your old car is worn out. Perhaps you have decided you now need a sedan instead of a coupe. What would your response be if you heard the following when you went to the car dealership:

“All of your neighbors are buying exotic sports cars.”

“The car market is moving toward and responding to exotic sports cars.”
“The technology associated with exotic sports cars is the best and highest available.”

I’m guessing that unless you were going to the dealership with a specific interest in buying an exotic sports car, it really wouldn’t mean that much to you, and depending on the approach and ferocity of the sales person, it might actually dissuade you from buying anything from that dealership.

Yet it is an approach that many marketing people and teams create for their goods and services, and it is belief that many sales people and teams seem to adopt.

The point I am making is that no customer has to do anything. Just like the car buyer in the example above doesn’t “have” to buy a car. (My guess is that they used a perfectly viable car to get to the dealership in the first place.) Most customers are looking for something that they deem, using their specific product priorities, to be better than what they currently have.

However, the “better” or the benefit of the new product or service buying decision is still only half of the Cost – Benefit equation, which results in value. Just as exotic sports cars may be able to go twice as fast as other cars, there may be question regarding their value if they cost ten times as much as those other cars.

There will be a market segment that is interested in going twice as fast as everyone else. These will be the customers that will look at the twice as fast for ten times as much value equation and find it acceptable. But just because this segment sees the value does not mean that the rest of the car buying market will as well. That is why there seem to be so few high-speed exotic sports cars on the road.

It is very risky to extrapolate market niche applications into market wide acceptance.

With most products, it is usually technology and its evolution, that drives new products into the market. The idea that the new technology can create greater benefits can be a significant market force. But just like the new car replacement question, new technology must replace and supplant the existing technology in the market.

This means that there (usually) already exists a viable product and technology in the market. The new technology must create a greater benefit at a price point that makes sense for the customer, or they will not make the positive new buying decision.

This is not the case for “new” product-technologies with no existing capability or analog. Examples of this would be items such as Ford’s Model T (replacing the horse), Sony’s Walkman (possibly replacing the boom box – now there is an old phrase), Apple’s iPod (replacing the Walkman), or more recently Cellular Phones (replacing radio phones). These are products that created new markets, but once created they followed the technology evolution path with a good example being the iPod’s displacement of the Walkman as a personal music listening platform.

Much has been written about this technology evolution-replacement-benefit relationship. Roy Amara was an American researcher, scientist, futurist and president of the Institute for the Future best known for coining Amara’s law on the effect of technology. He coined what has become known as Amara’s Law. It goes:

“We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” (https://en.wikipedia.org/wiki/Roy_Amara)

This law has become known as the basis for what has been called the “hype cycle”, as coined by the Gartner Group, to represent the maturity, adoption, and social application of specific technologies. The hype cycle provides a graphical and conceptual presentation of the maturity of emerging technologies…. (https://en.wikipedia.org/wiki/Hype_cycle) It is depicted as follows:

Circling back around to sales people and their selling of products, it would seem that they are the first group to go through the Hype Cycle since they are the first group that must be “sold” on the product or service before it hits the market. They are the first to see the benefits and experience inflated expectations. But since they are selling instead of buying, that is all they can truly define as they do not initially have good information on the relative costs and values of purchase in the customer value equation.

Unless it is a new market defining product, all defined benefits are “relative”. That means that the existing product in the market already has established a baseline of customer benefits. Each new iteration or generation of the product (hopefully) brings incremental benefits. The value equation for each customer is the balancing of the incremental benefits of the new product versus the incremental cost of obtaining it.

Sometimes the value of the benefit outweighs its cost and buying occurs. Sometimes it does not. Regardless, it is a very rare instance where a customer “has” to buy a product.

With this in mind, I would suggest that most buying decisions can probably be delayed by all customers for an extended period without their experiencing much if any deterioration in their market position. In today’s economically uncertain business environment, I would not be surprised if significant purchases of any kind are delayed, even if only for a little while. This may be due to the realization by customers that in today’s environment they do not have to buy every iteration of new technology to remain competitive.

I suspect that I too will probably be delaying on my desire to buy a new car in the near future as well, mainly because right now I don’t have to buy one.

Moving

Moving, or changing offices by and large, is usually not very much fun. In business it entails gathering up all your stuff, putting it into standard moving boxes, which are not much more than over-sized, glorified shoe boxes, and going somewhere else. It can be in the same building or across the country. You are essentially out of commission from the time you start putting your stuff into the boxes, until the time that you have taken it out and reconnected to the network. It adds stress to an already crowded calendar.

Long ago, when I first joined the corporate world, I read that on average you moved or changed offices every two to three years. I actually tried to look up this article to properly cite it, but, alas I couldn’t find it. Perhaps it has passed from fact, to just something that everyone knows.

You either changed roles, or business units, or assignments, or were promoted, or any number of other events that resulted in you having a new place to sit while doing your job. This was back in the days when you came into the office to work. Everybody came to the office to work. Working at home wasn’t so much of an option then.

The idea back then was to generate synergy in an organization by having groups of similarly focused individuals sit together and regularly interact in the expectation that they would be more efficient, creative and powerful as a group then they would be as discrete individuals. It seemed to work, at least back then.

I think a lot of this idea was based on the sports analogy where it was demonstrated that having all members of the same team, working together and running the same plays, were far more effective than if they all acted as just talented individuals and did what each thought was best. It was widely accepted that the best teams won, not necessarily those that just had the most talented athletes. However, I think it was Roy Williams, the basketball coach at the University of North Carolina, who said: “I can coach them to play better basketball. I can’t coach them to be seven feet tall.” So, talented athletes are still very desirable.

There were many positives and some negatives associated with this co-located and hence almost constant office moving phenomenon, for both the individual and the business. As I said earlier there is a disruption to your ability to execute your responsibilities while you are moving. This affects your, and those that are dependent on your productivity. At least for a while. This was and, in some instances, still is debatable based on some roles and activities that I have seen.

On the business side there is the cost. There are two basic costs associated with all this moving. The lost productivity that I have already noted, and the cost of the team and staff of resources that were constantly planning and executing these moves. Depending on the size of the business location, there had to be a small army of people available to bring boxes, and then move and transport boxes to the new location. There had to be a logistics team working with the Information technology team to make sure that connectivity and communications were available, at the appropriate time at the new office (or cube) location.

Moving was not cheap. Therefore, it was expected that the synergy that co-location generated had to be good enough to offset this cost. For the most part it seemed that it was.

Another good thing about moving was that it presented the opportunity to go through your stuff, take stock of what you needed and throw away all the rest. It was sort of a forced purging opportunity. As an aside, I have a friend who used to take pride in the thirty to forty boxes of stuff that he took with him whenever he moved. He is an engineer and believes that there will come a day when he will need some of the documents or calculations that he has created over the last decade plus for something else he may be working on.

It hasn’t happened yet, but I am sure he will be prepared. Like I said, engineer.

The periodic purging associated with a move was the opportunity to get rid of stuff, primarily paper-based communications and documentation, when it was no longer needed. I have hit the point that if I haven’t looked at something in the last year or two, then I don’t need it. I think this is probably a good rule of thumb for everyone. Also, with the increase in machine and cloud storage capabilities, a hard copy of just about anything can seem to be a little bit of overkill.

You don’t know how much it pains me to say that. But just as I have had to change with the times and move from the tactical joy reading of actual physical books to using an e-reader, I have gone to reading a screen instead of printing a document. And they said that dinosaurs couldn’t evolve.

Organizations have also done their part in trying to reduce the costs associated with moving. Initially they started limiting the number of boxes that you could have / they would move. Now as we continue to move toward more and more of an “open office” concept, where no one has a defined office, there is also the requisite limitation on the amount of stuff that you can have based on what has now become a limitation on the amount of physical storage that is available.

If you don’t have any place to put it or store it, then you are forced to get rid of it.

The result is that what used to happen every two to three years, and cost both the individual and the corporation a lot of money in employee discomfort and lost productivity, as well as the maintenance of a staff the size of a small army to assist in making these moves, are now both essentially gone. In the open office environment there is no defined office to move either from or to. Storage for the physical accoutrements of an office have been so minimized, and document retention has now been virtualized that there is no longer any significant amount that ever needs to be moved.

The office itself has also been virtualized. There are now both remote offices and home offices in addition to the open offices. It seems now that if you want to keep any “stuff” you will probably have to keep it in your home office. I tried this once. Then my wife complained about all my clutter. I told her it was what I needed to captain industry. She told me to get rid of it.

I personally think she was in cahoots with the corporate Workplace Resources group in this regard. Though, admittedly the home office does look cleaner.

But, I can’t help but wonder, if businesses saw such a value in the concept of having everybody actually physically work together, to the point that it outweighed the costs associated with making sure that they could work together, what happened to that value? Economics teaches us that there is no free lunch. The cost – benefit analysis of business is based on the same principles. There is a cost or investment for every benefit you get. 

Has someone, somewhere gone through the analysis associated with virtual / home / open offices and compared the hard, recognizable cost savings with the somewhat softer and much harder to quantify lost synergy values. In the past it was believed that the synergies outweighed the costs. Was everyone wrong for so long and now those ideas no longer hold true?

I think the answer lies in the “hard” cost and “soft” value equation that I mentioned earlier. It is easy to define how much is saved when most of the costs associated with moving offices are eliminated. It is a number. It exists in a budget. When it is reduced or cut, it can be tracked.

The same cannot be said for the values generated by having people work together in the same office as opposed to “virtually”. I think everyone believes there is a value associated with that type of working environment, but I is almost impossible to quantitatively put a hard number to that value.

You can estimate it, but that is never as good as a well-defined cost reduction. The result is that a definable cost has been reduced, and an undefinable value has also been reduced. But since the value was undefinable in the first place, the amount of reduction to it is also undefinable.

I really didn’t like moving offices all those times that I had to do it in the past. I think that we are going to dislike what we may have lost by not having to move anymore.

Conflicting Internal Forces

I have talked in the past about the three internal organizational resources required for business success, and their trade-offs and interrelationships: Time, People and Money. The idea that if you have less time than desired to achieve a goal, it will require the expenditure of more people and more money to achieve it. If you have fewer people for the goal it will require more time and money. And so on.

I am now going to talk about the driving internal functional forces that are acting upon desired organizational goals. There are again three of them and to put them at their simplest, they are Sales, Finance and Engineering. I think in order to be a little more accurate it would be better to look at the conflicting goals of each of these functions with respect to the desired goal of the organization, instead of just the function itself.

The goal of sales is to get orders. There may be additional sub-requirements placed on them, but it is almost always quota attainment, as it pertains to orders, that is the measuring stick for sales. Achieve your sales order goal as a salesperson, and you get money, fame, glory, respect and most importantly, you get to keep your job. Fail to achieve your sales order goal and you don’t get the money, fame, glory or respect. More importantly, perhaps the first time you fail you may get a pass on keeping your job, but probably not the second time.

Sales in general doesn’t really care about finance or engineering. This is primarily because they are not paid to care about them. They are paid (usually in the form of commissions) to get orders. Sales usually wants the highest quality and lowest price possible as this helps enable their sales. The greater profitability desired by finance usually means a higher price, which usually makes sales more difficult. Sales will usually align with engineering on generating the highest quality solution but diverge when the costs of such solutions are taken into account.

The goal of Finance is margin or profitability. Again, there may be other sub-requirements, but finance’s primary role is to make sure that the organization brings in more money than it spends. Finance keeps score. It’s not enough to just bring in more than you spend. Finance quantifies how much more money needs to be brought in than is spent so that the business’s ongoing and future success can be assured. Future investments and corporate overheads (as well as salespeople’s salaries and commissions, etc.) have to be paid for.

Finance is usually focused on what could be called the margin percentage versus margin value balancing act. It is desirable to have a high margin percentage and high profitability on each sale. However, having high margins with low volumes will not generate enough profit to drive the business forward. Just as a high volume of sales with low margins will not generate the desired margin value. There is a desired financial equilibrium where both margin percentages and values are maximized.

The goal of Engineering is to make sure that everything gets done right. Engineering makes sure that products and solutions are configured properly. They make sure that components and solutions are available in the desired time frames. They make sure that services are costed and allocated correctly. In short, they make sure that the organization can in fact do whatever the salespeople are trying to sell.

Engineers are also believe that they are the primary group responsible for doing the people, time, money, analysis. Engineers are not usually interested in the sales aspect, other than recognizing if there are no sales there is no need for engineers. And they are not particularly focused on finances, as margin and profitability again have little direct effect on them. They are usually focused on the accuracy of the solution and will include whatever they deem appropriate (the people, time, money resources) to that solution to make it ever more accurate.

Of the three functions, sales is probably the most difficult. Sales is competing with external entities for each order, in addition to trying to balance the internal goals associated with the financial and engineering functions. Finance and engineering are only associated with internal functions, including sales. There is no competing engineering or finance function claiming that their financial wizardry or engineering prowess is superior. When they are forced to deal with external forces, it usually only through sales.

When these internal functions, and their associated goals are in balance, an organization can operate at near its peak efficiency. Sales pushes for orders, finance makes sure the sale is profitable and engineering makes sure that the sold solution is done correctly. Life can be good.

It is when an organization gets out of balance that we start to see significant issues. When an organization becomes too sales focused, margins and profitability can begin to slip as the quickest way to increase sales is to reduce price (this is just baseline economic theory). We saw an example of this some time ago when some stocks started being valued based on the assumptions of future sales and sales growth instead of the more standard stock and organizational valuation criteria. These stocks eventually came crashing down when it was realized that they would in fact have to start making money if they wanted to stay in business, regardless of how much they sold.

When an organization becomes too financially focused, growth, expansion and development can slow, again causing issues for the organization. Strategic opportunities can be missed because they may be deemed to either represent too much risk, or not enough return (margin) to be pursued. Being too safe from a financial point of view can be just as deadly to an organization as being too risky and focused only on sales.

With the increased global awareness and focus on the “cost of non-quality”, or more accurately the cost of not doing things right, there seems to now be an organizational drift toward becoming more engineering focused, since they are the organizational force associated with doing things right. I also think that this approach potentially has the greatest capacity for generating corporate issues in the future.

When an organization becomes engineering focused it has a tendency to lose sight of both sales and finance. With decreased input and parameter focus from sales and finance, engineering will continue to focus on accuracy and reducing the risk of an incorrectly engineered solution, almost to the point of trying to generate perfection in its solutions.

The issue here is that perfection usually comes at a very high cost.

Finance will continue to try to demand specific margin levels, while sales will want lower prices to enable the generation of orders. This is the recipe for the perfect organizational storm. Engineering generated increasing costs, finance generated desired margin levels, and sales generated reduced pricing demands to meet the market competition.

The point here is that the market, more or less, sets the market price for the organization’s goods or services. There can be some variations, sometimes based on the quality of your sales team, sometimes based on the quality of your solution, and sometimes it is based on other factors (such as the regulatory exclusion of a competitor from the market, etc.). If you raise your prices too much in response to the engineered increase in costs, sales volumes and hence margin values will decline. If you reduce margin percentages, again margin values can decline. This can become a lose-lose situation.

The organization won’t make any mistakes, but it may not generate enough business, or margins to survive for very long.

In allowing an organization to become engineering focused, you start down the road to becoming a cost-up pricing organization. This is the least market responsive type of organization. Since engineering nominally has no focus or interest in sales or margin, when an organization becomes engineering focused, it becomes almost entirely internally focused.

It is usually the position of the market that an organization that loses its focus on the customer or the market, doesn’t get to enjoy the benefits of that customer or market for very long.

Engineering in an organization is about reducing the risk associated with achieving a goal. But like everything else, this risk avoidance comes with a cost. It is not enough to tell engineering to make sure that the solution is correct. This direction invariably leads to the inclusion of all kinds of failure avoidance constructs, and their costs to be included in the solution. And since engineering can be a complex function, there are few outside of the engineering function that can understand or question it.

In the long past world of “Five Nines” of reliability, this was once the recipe for success, but in today’s “short life-cycle” disposable product world, few can afford it, and even fewer are willing to pay for it.

I mentioned earlier that engineers see themselves as the group that is responsible for solving the Time, Money, People resource equation. It is obvious that when none of these parameters are set, the solution is much easier to obtain. And without limits to these parameters, the costs of the risk-adverse solution can grow quite large. Organizations need to understand that the Time, Money, People equation requires parameters to be set. Time frames and budgets need to always be set before being handed to engineers to configure a solution.

Engineering is a key component to any solution. The functional internal conflicts between sales, finance and engineering will always come into play, and must always be balanced out. As organizations seem to continue to drift into a little more of an engineering-centric approach to customers and solutions, it should be safe to assume that left unchecked, the commercial and financial aspects of these solutions will re-emerge in the customer decision making process.

It is safe to say that you do indeed get what you pay for, but it is also safe to say that sales will have difficulty selling, and customers are probably not going to be willing to pay for an over-engineered solution of any type that does not take into account their commercial needs.

Esoteric Value

“Don’t sell the steak. Sell the sizzle.” is a sales canon that dates back to The New Yorker Magazine in 1938. Elmer Wheeler is the man credited with coining it. It seems Mr. Wheeler was one of the first pioneers in persuasive selling. He was one of the first to recognize the value in presenting a customer the choice in buying one thing or another thing (something and something) instead of the choice of buying or not buying (something and nothing). He was successful. Sales teams have been trying to emulate him, and his success since.

His approach works well when dealing with an end-user customer. The person buying the steak, or getting their oil checked, or buying a malted milk (these were actual examples in the 1938 article) can readily be replaced by those purchasing Mobile Phone packages, automobiles or Television / Internet packages for their homes. It is still about buying one thing or another, not about buying or not buying. These are consumers making discretionary purchase decisions.

For the most part these are all examples of Business-to-Consumer selling opportunities. The person buying is the person using the capability being sold. It is when you start looking at the idea of Business-to-Business selling that the concept of “sizzle” can become a little more esoteric. In business, there are very few discretionary purchase decisions that get made. It is usually decided that you can use it to make money or save money, or you don’t buy it.

Businesses for the most part are financially or profit driven. I say for the most part as there are several that purport to serve the greater good, and by their designation as a “Non-Profit” organization enjoy a different tax treatment. There are also those that are regulated as to how much they are actually allowed to charge and or make as a profit. Even so, these regulated firms are also somewhat profit driven.

What they are not is “sizzle” driven.

Yes, it is true that organizations are made up of people that can be influenced by something other than profitability, but the organization as a whole, through is management structure, its purchasing process and more importantly in many instances, its stock price will not be “sizzle” driven. Being fashionable or exciting or being a market or technology leader is interesting. It may have some ephemeral effect on the organization, or how the market perceives it, but in the end, it will be the financial performance of the company that dictates how it ultimately is perceived.

If you want to stay in business, profitability will be key. It is about making money, and about how those things that the organization purchases can be used to make more of it, this quarter, this month, today.

Steve Jobs is famous for many quotes. Part of one of his more famous quotes contains the following line:

“Our job is to figure out what they’re going to want before they do”

This is spoken like a true technology genius, especially when he is referring to a set of consumers and end-user customers that are not technology geniuses. Jobs was brilliant at anticipating consumer “wants” (as opposed to needs – no one “needs” an iPhone, or an iPod, etc.) and then putting together a product package that would then create a new market.

He identified what you would want and then created the package that you wanted it in. Like I said, he was a genius.

However, when you are working with businesses, it is somewhat different. The businesses normally require something called a “business case” (see what I did there? Business – business case? It’s important.) before they are going to spend money on anything, whether it is a new hire, an internal development, or an externally supplied product or service. It has to make business sense, or more simply put, it needs to generate more value for the business than it costs the business to do.

There is a myriad of ways to describe the generation value for a business, but I have found that they can usually be simplified down into one of two categories: Value can be created by enabling the customer to generate more revenue, or value can be generated by enabling the customer to reduce their costs. Both of which usually result in greater earnings and profits, which ultimately increases the value of the company (usually in the eyes of the shareholders or owners).

Many times, companies like to tout their future capabilities when selling to other companies. It is important to have a direction and strategy for the future when talking to customers. They too want to know where their suppliers are going and what they expect the market to need or want in the future. But there is a significant gap between the value of a business case for today, and the value of a business case for the future.

The business case of today involves products and services designed to meet defined requirements, solve existing issues and deliver present value in the form of increased sales or reduced costs. The needs exist. The products exist. And the relationship between them can be well defined. The amount spent, and the value received, either immediately or over the defined period of the business case can be calculated. It is truly the decision between buying one vendor’s solution and buying another vendor’s solution (again, the decision between buying something and buying something else).

It is when new products or capabilities are introduced ahead of or in anticipation of the business customer’s need, that the business case relationship can become somewhat esoteric.

When trying to anticipate the business customer’s future needs, the impetus is on convincing them that your specific view of the future is to correct one. They must then balance that out against their customers needs, wants and desires to see if that anticipation makes sense in the form of a business case.

Many times, there can be a general consensus among the supplier organizations about what the future state of an industry may look like, but unless that vision can be quickly converted into increased customer revenues, or reduced operating expenses, the future solution will have to wait. Most organizations can no longer afford to spend money in anticipation of what they think their customers will need or want. They would rather wait and make sure it is what they need or want.

Remember present value is always better than future value.

Part of the issue with “future” products is that they don’t necessarily translate to definable value. They are usually described as “platforms” for the future, or that they will enable “future applications”. In short, they don’t clearly define and quantify how the business customer is going to generate new revenues and how much those revenues might be, or how they are going to reduce their costs and how much those cost reductions might be. They have only half of a defined business case. The purchase or the cost half.

They do not have the benefit half of the business case defined.

Without the definition of those future applications or services or values or cost reductions it is difficult to make a case where an organization will feel comfortable spending today’s money on an undefined future value. In short, very few businesses will gamble today’s money on an undefined future value. It makes much more sense for them to actually wait on the future than to bet on the future.

As I said earlier, companies are in business primarily to bring value to their shareholders and their owners. The do this by generating earnings and profits. They do that generating greater value on products and projects that the money they spend executing them. They make more money than they spend on these ventures.

When a business is trying to sell a good or service that cannot clearly define the value that it will generate for the customer, either in the present or the future, it always makes more sense for the customer to wait on that particular buying decisions. This is the definition of deciding between buying something and not buying (buying nothing).

Regardless of the sizzle that a company may claim that accompanies their product or service, in the case of buying today based on predicted future needs and capabilities, the steak, and its relatively definable value will usually be of much more interest to the business customer. Especially when it comes time to review the value generated for the customer. And even more so when that sizzle is still just a future sizzle.

Time Cards

Time cards have been a symbol of manufacturing productive efficiency for years. I think we have all seen images of production and manufacturing associates dutifully standing in line to “punch in” at their appointed shift on the time clock. It seemed to be a marvelous mechanism to maintain, measure and direct those resources associated with production, in the most efficient manner. It is where the phrase “on the clock” originated. You came in and they started paying you when you “clocked in” and they stopped paying you when you “clocked out”. It was efficient.

By the way, the “Time Clock” that has become so universal when talking about clocking in and clocking out, first made its appearance on the business scene in the late nineteenth century.

” An early and influential time clock, sometimes described as the first, was invented on November 20, 1888, by Willard Le Grand Bundy, a jeweler in Auburn, New York. His patent of 1890 speaks of mechanical time recorders for workers in terms that suggest that earlier recorders already existed, but Bundy’s had various improvements; for example, each worker had his own key. A year later his brother, Harlow Bundy, organized the Bundy Manufacturing Company, and began mass-producing time clocks.” https://en.wikipedia.org/wiki/Time_clock

There then arose the dichotomy in business where there were those that were “paid by the hour” (those on the clock), or waged employees, and those that were paid a set amount per period of time, or salaried employees. Waged employees were referred to as Non-Exempt and Salaried employees were referred to as Exempt. These definitions were laid down in 1938 by the Fair Labor Standards Act.  https://www.investopedia.com/terms/e/exempt-employee.asp

Below is a brief comparison of the differences between the two:

So, why am I talking about one hundred and thirty year old inventions (Time Clocks) and eighty year old employee definitions (Fair Labor Standards Act)?

The reason is pretty simple. As the production and standardization processes that have been used in manufacturing have found their ways into the other disciplines and aspects of business, so has the cost tracking and charging of those resources responsible for doing the manufacturing.

We are now asking our exempt employees to fill out time cards associated with the work they are doing. This in and of itself is probably not a bad thing, however it engenders a new and different behavior in the exempt employee. It is this new “Time Card” behavior in exempt employees that can a detrimental effect on the business.

For lack of a better definition, exempt employees are paid by the “job” as opposed to by the “hour”. If an exempt employee must work late hours and weekends to complete their assignment, they do not get paid any more. They do however get the satisfaction of knowing the completed their task, regardless of how long it took them.

The idea of having exempt / salaried employees track their time, was to better associate costs directly with specific projects or activities. This association gave rise to the exempt employees who could directly associate their activities with specific items or revenue producing functions, and those that could not associate their work with specific items. Those that could be directly associated with specific products, projects and functions were called “Direct” labor, and those that could not be directly associated were called “Indirect” labor.

“The essential difference between direct costs and indirect costs is that only direct costs can be traced to specific cost objects. A cost object is something for which a cost is compiled, such as a product, service, customer, project, or activity. These costs are usually only classified as direct or indirect costs if they are for production activities, not for administrative activities (which are considered period costs).

The concept is critical when determining the cost of a specific product or activity, since direct costs are always used to compile the cost of something, while indirect costs may not be assigned to such a cost analysis. It can be too difficult to derive a cost-effective methodology for the assignment of indirect costs; the result is that many of these costs are considered part of corporate overhead or production overhead, which will exist even if a specific product is not created or an activity does not occur.” https://www.accountingtools.com/articles/the-difference-between-direct-costs-and-indirect-costs.html

The following as a good way to think about this. I promise I will get to my point about Time Cards and why this is important soon.

So, all of this work associated with slicing and dicing the time that salaried employees spend on their various activities is being done to understand what portion of their work can be directly associated with a cost object (Direct) and what portion cannot (Indirect). Why is this important anyway? It’s pretty simple.

All businesses want to reduce, minimize and otherwise exit overhead or indirect costs from the business equation.

Every business has the objective of reducing indirect costs, otherwise known as “Overhead”. As noted, these are the costs that cannot be directly associated with revenue production.

So, when Exempt, salaried employees are asked to fill out time cards, and they have multiple options, both “Direct” and “Indirect” to associate their time with, which are they going to choose? Knowing the corporate desire to minimize, reduce and exit Indirect and overhead costs from the business, they will naturally migrate their time charging to “Direct” functions and charges.

On the surface this might seem like a wonderful way for companies to reduce overhead, and in some instances, it will work. However, if you have the financial responsibility for one of these cost objects, you will want to be able to closely monitor the number of people and the amount they can charge to your cost object. This monitoring, or policing activity and capability again creates an incremental overhead.

It is essentially a transference of the overhead responsibility from the labor pool owner (of salaried, exempt employees), to the Cost Object owner.

Labor pool owners are always going to try and minimize the amount of their labor that is not directly associated with a revenue producing cost object. They will want to show the preponderance of their time, as reported by time cards, as being directly associated with a revenue producing function. Engineering groups, development groups, support groups and just about every other group will begin to display this behavior once time cards are utilized in this fashion.

The fear for them is that if they show too much time spent on overhead functions, they will be subject to a cost reduction activity in an effort to reduce overhead.

The results of this “Time Card” behavior are manifold:

  • With the pressure to be associated with, and charge to only Direct costs, the direct costs associated with specific cost objects can become inflated by excessive charging. Since direct costs are “above the line” in accounting and margin terms, this could result in inflated and non-competitive prices.
  • There will now be a somewhat adversarial relationship in place between those groups wanting to charge directly to cost objects, and those groups that are responsible for maintaining those cost object budgets, and the corporate inefficiencies and friction that this creates. There is also the non-productive time that will be spent challenging, changing and rectifying those charges as they come in.
  • There is non-productive time, effort and cost for increasingly capable corporate tools to maintain, monitor and control this type of charging effort. How do you control who should and should not charge to a cost object?

Time cards, like process can be a good thing. But like process, they should not be viewed as a replacement for judgement. When you move costs associated with time cards from indirect labor to direct labor, it may solve a corporate desire to reduce perceived overhead and indirect labor expenses, but it also creates several new issues and expenses associated with monitoring and controlling those charges. Due to how costs are accounted for in direct versus overhead items, it can also change both the cost profiles, margins and ultimately pricing profiles in the market.

Time cards in the salaried or exempt employee environment can and will change behaviors. Labor resource groups will increase their focus on having cost objects to charge to as opposed to understanding that there is to be expected a certain amount of slack time that they will have. Instead of the labor resource pool manager managing this slack level, time cards in essence transfer this issue to the cost object owners to try and control and manage.

Time cards for salaried and exempt employees can provide a better level of visibility into how time is spent and what employees are working on. It does however carry with it what is known as “The Observer Effect”.

I always try to sneak a little physics into any discussion.

“Observer effect (physics) In physics, the observer effect is the theory that simply observing a situation or phenomenon necessarily changes that phenomenon. This is often the result of instruments that, by necessity, alter the state of what they measure in some manner.”    https://en.wikipedia.org/wiki/Observer_effect_(physics)

As long as business is aware of how behaviors are changed, and what may need to be done to compensate for these changes, there can be value in them. However, without those considerations they can create an entire new set of issues for a business to deal with, and may result in little to no efficiency gains.

Presenting

Like it or not, sooner or later you are going to have to stand up in front of somebody, or maybe a group of somebodies, and convey some sort of information to them. This is called “presenting”. This event usually occurs when it is deemed that you know more about a certain topic than those in your audience do. Sometimes it is actually the case, and sometimes it is best to study hard and do some research beforehand so that again it can be the case. Regardless, how you perform on this stage, conveying information to other people, can determine a great deal regarding your opportunities to continue progressing in your business career.

Laurence J. Peter is the author of the book the “Peter Principle”. In it he states:

”…that people in a hierarchy tend to rise to their “level of incompetence”. In other words, employees are promoted based on their success in previous jobs until they reach a level at which they are no longer competent, as skills in one job do not necessarily translate to another.”

Understand that the ability to cogently present and convey information to others is a baseline, table stakes capability in business. If you are not good at it, you can assume that you are at your current level of incompetence and will remain there until your presentation skills improve.

Also understand that technical competence, or mastery of the topic is only part of the requirement for making successful presentations. In other words, you may know what you are talking about, but that doesn’t mean that you will be successful at getting your point across to others on the topic. I’ll try to go through a few items that you should keep in mind when you are presenting. Many should be obvious, however some maybe not so much so.

Who is your audience?
Believe it or not, this is important. Not everyone is going to be interested in what you have to say. Who are the people in the room that will be listening to you, and why are they there? Your presentation needs to match their expectations. Management will want general trends and overviews. Individual contributors may want more specifics. Sales, engineering and finance all have different expectations regarding the presentations they see. Sales wants to know how whatever you are talking about will help them sell more. If this aspect is not addressed, for them it will be wasted time. Likewise, finance will want to know about the costs, revenue, profitability of the topic. Telling them about how it will help them sell more will at best be only marginally acceptable.

What is the “Thesis Statement” for your presentation?
What is the purpose of your presentation? Why is this presentation important to them? Is it just to report on the progress of an internal company project? Is it a customer product or service presentation as part of an ongoing customer sales engagement? Are you trying to get management to agree to fund development of a new product?

The point here is that a presentation is usually used to convince somebody about something. Whether it is that progress is actually occurring on a project, or that your product is superior to the competition’s, you should have either a specific or implicit thesis, or reason for your presentation. This will help keep you on topic, and again it will help limit the amount of extraneous information that may try and creep into your presentation.

How much time do you have?

As Gary Larson has shown, time is money. People have only a certain amount of time that they can devote to certain activities. You may have the most import, or most interesting topic to talk about, but you will never have all the time that you will feel that you will need to be able to comfortably talk about it.

“One well-known formulation for PowerPoint presentations is the 10/20/30 rule. This rule dictates that you should use about ten slides for a twenty minute presentation, and each slide should utilize thirty point font. In other words, each slide should be about two minutes in length.”
https://www.wikihow.com/Choose-the-Right-Number-of-Slides-for-a-Powerpoint-Presentation

Needless to say, most presentations do not adhere to this information, and as such, most presentations today, in my opinion are often not very good. If you can’t say it succinctly in twenty to thirty minutes with ten to fifteen slides, at most, then you have too much non-critical information in your presentation. Be succinct.

Proof read your presentation. Several times.
With today’s spelling and grammatical checking capabilities, there is no excuse for misspelled words, improper grammar, improper punctuation or improper word usage (their, there, they’re).
End of story.
How can you be perceived as an expert, leader, or in this case imparter of information and wisdom if you cannot deliver the message free of mechanical errors. Having them undermines the intended message.

Simplify everything associated with your presentation.
Not everyone will have your level of knowledge regarding the topic. Specifically define any acronyms you may choose to use. You are presenting slides, not writing a book. Bulletize everything possible. It will help break up the slide. It will make it easier for the audience to follow. It will force you to be concise in what you say. Remember, you are not having a conversation. You are presenting.

Do not read your slides to the audience.
There is a very good chance that everyone in your audience can read. You don’t need to read to them.

“A picture is worth a thousand words” is an English language-idiom. It refers to the notion that a complex idea can be conveyed with just a single picture, this picture conveys its meaning or essence more effectively than a description does.
https://en.wikipedia.org/wiki/A_picture_is_worth_a_thousand_words

Convey the essence of your topic with the slide and let the verbal aspect of your presentation deliver any necessary specifics to fill in the story.

Unless you are specifically presenting a detailed topic, such as tabulated data, or specific engineering or performance metrics, etc, the less verbiage on a slide, the better. As I said, you can speak to the slide to impart the specifics. It also enables you to manipulate your time allotment by speaking more to certain slides and less to others, and still stay within your time allotment.

Respect other people’s time.

Be ready to start on time. Set the standard for answering any questions either during (interactive presenting) or at the end of the presentation. Do not run longer than your allotted time. There may be instances where the consensus is that you should take more time, depending on the topic and audience, but in general, you need to be prepared to finish within your allotted time.

As business continues to get more complex, it is many times an easy trap to fall into in making our presentations also more complex. We have the technical capabilities to edit and manipulate both data and image to the point where we can have far more data on a single slide than can either be presented or understood quickly. We continue to generate more complex data and then use more complex means to convey it.

It seems that both the amount of data per slide, and the number of slides per presentation continues to expand. It takes us longer and longer to present the information, and many times we end up spending time presenting to an audience that has a marginal interest in the topic to begin with.

Presentations of all types are an integral part of business. With the continued acceleration of the velocity of business, we need to be ever more mindful of both the time we spend presenting a topic, as well as the time we spend preparing the presentation on the topic. Shorter and more focused presentations are a far more preferable means to convey and convince than the seemingly more prevalent, long and detailed ones that appear to be in vogue today.

Expertise is more better displayed by making the complex simple and easy to understand than it is by making the presentation more complex, and longer, to match the topic.

Process Purpose

With the continued increase of the process-oriented approach to all facets of business, a new phrase has found its way into almost every business conversation and lexicon: “How do we fix the process?”. Immediately upon hearing this, it is not uncommon for multiple teams to set up multiple cross functional calls, across multiple geographies and time zones to discuss the problems. Multiple issues will be defined with the process, and multiple action items will be assigned.

We are no longer fixing business problems or issues. We are fixing processes. Much of the generated activity and churn associated with fixing the process might be avoided with the simple act of stepping back and first correctly understanding what the purpose of the process is.

Many times, we all take it for granted that the process is there to help employees perform their required tasks. We associate processes with making things go faster. Making tasks easier to complete. Sometimes this is the case. Many times, however, maybe not. I’ll provide a few generic examples.

Long ago, in a galaxy far, far away, back when I was relatively new to business, I remember there used to be a very special place where companies, business units, groups, teams, etc., kept a very special resource known as supplies. Supplies usually consisted of the little things that made it easier for employees to do their jobs, such as pens, pencils, paper, notebooks, staplers, tape and tape dispensers, highlighters and the like. When people needed these supplies, they would go find the person that had the key to the supply location, get access to it and select the supplies that they needed to continue efficiently performing their job.

As time passed and costs and cash flows continued to draw greater and greater attention from the company’s financial community, it was decided that this anachronistic way of providing employees supplies was not in the company’s best interest. It may have been efficient for the employee, but not for the company. Seemingly random and untracked amounts of money were being spent on supplies, and then these supplies would just sit idle (reference to the utility of money and cash flow) somewhere, waiting for someone to come by and use them. And then there was no specific process or methodology to be able to track who was actually using these supplies.

Unaccounted for money and expense was sitting in supply cabinets everywhere.

The result was that associated support teams and their supply budgets were reduced. And usually in their place a new process was created where individual employees would then have to access the on-line purchasing systems themselves where they could then order their required supplies.

Now admittedly the preceding topic has created an exacerbated issue in that it does require a change in employee behaviors. In the past, an employee would wait until their pen ran out of ink, or they used their last piece of paper before going to the supply location and getting more. Now they had to take into account the added time and complication of gaining access to the supply ordering system, and the delay associated with the supply provider delivering the desired supplies, and the internal delivery system to get desired supplies from the loading dock to their office.

What used to be a simple walk to the supply location to get any required supplies, had now become a multi-day, multi-system, multi-approval ordering process.

Now a days, if you need supplies, you had better plan ahead. Or you can just run by the office supply store yourself, and buy your own supplies. Either way, the corporate goal of the new office supplies process has been achieved: the amount of money the company spends on supplies has been reduced.

The point I am making here is that the supply ordering process was not implemented to make it easier to order supplies. It was put in place to reduce the amount spent on supplies. It was put in place to reduce the amount of money the company has tied up in supplies, sitting in some supply cabinet, waiting for someone to come by and get them.

The same can now be said just about any process that involves the expenditure of company funds. Travel approval policies are not there to make it easier for people to travel. Hiring processes are not there to make it easier to hire people. These processes are not put in place not to make it easier, or faster to perform these functions. They are in place for corporate tracking and control.

Just because they take extra time and require multiple approvals does not mean they are broken processes. In many instances it means that they are working as planned.

On the other side of the coin, we can look at those processes that are associated with the provision of the product or service that the company sells in its selected markets.

Sales people inherently understand that the relatively cheaper a product is versus its competition, the easier it is to sell and the greater the probability for a successful sale. Companies that vest too much uncontrolled authority in the sales arm have a tendency to experience lower margins and profitability, as sales tries to press for lower prices.

As proof of this point, would you be willing to go to the gas station across the street to buy their gasoline if it was five cents a gallon cheaper? How about two cents a gallon? There is always a point where convenience and timing can outweigh price differential, but in today’s cost intensive world price always plays a key role in everyone’s purchase decisions.

Sales and pricing processes are then normally put in place to enable business management to have greater influence on pricing in an effort to achieve desired profit levels. These are not processes designed to make it easier to create quotes and provide lower prices. These are processes designed to put checks and balances in place that protect the company’s profitability.

If you are a sales person attempting to compete for a customer’s order, they are an impediment and hindrance to your potential success. They are a broken process that is making it more difficult for you to obtain the order.

They are also probably the result of someone (or multiple someone’s) demonstrating bad judgement. Somewhere, sometime, someone probably knew that a price that was supplied to a customer was probably not in the best interest of the company as a whole, but did it anyway in order to get an order. The individual goal was achieved, but the corporate profitability suffered.

I have said many times that process is implemented as a substitute for judgement. In this case, bad judgement.

Sales people inherently know that the company must be profitable, if it is to continue in business. Margins must be at sufficient levels to meet the numerous business objectives such as paying for expenses, investing in new product development, paying sales commissions and providing a reasonable return to its investors.

Unfortunately, most sales incentive plans are focused solely on obtaining a top line order level. This is the objective that drives sales people to try and drive prices down, thereby making it easier for them to sell. It is also contrary to business objectives listed above.

In this situation there would be two key aspects of the business structure creating friction. The physics definition of friction is:

“… the resistance to motion of one object moving relative to another.” https://www.livescience.com/37161-what-is-friction.html

One trying to move price down, and one trying to increase prices. Process or not, this is inefficient for the company and creates waste.

Instead of creating a process to govern a function that generates corporate friction, which I would liken to the “stick” approach to problem resolution, (removing independent thought and decision making capability from those closest to the customer) I would suggest that It might be better to implement incentives that encourage the desired behaviors, or the “carrot” approach.

What might happen if the company offered the incentive of increased commissions to sales with higher margins, and at the same time offered the deterrent of significantly reduced commissions on sales with lower margins?

Instead of creating a process that can become an obstacle to the desired event (getting office supplies, or generating competitive customer offers and proposals…) which must be dealt with, or in some instances overcome, why not reexamine the event (and judgement point) that is driving the creation of the proposed process? Aligning individual, business unit and corporate goals, with appropriate incentives and deterrents for specific behaviors could be a much more efficient way of dealing with the issue.

With this approach in mind, it might be found that much of the effort that may be currently spent on “fixing the process” can be refocused on solving the underlying business issue and need. This is because, as has just been demonstrated, just because a process is not helping the individual be more effective and efficient at doing their job, does not mean that it is a broken process.

Question Everything

One of my favorite shows just started its eleventh season. It is the X-Files. Watching agents Moulder and Scully deal with various supposed conspiracies, monsters and other abnormal behavior associated with aliens (the science fiction ones, not the terrestrial, international border crossing ones), the various hidden agendas and conspiracy leaders obviously got me to thinking about all the parallels that can be drawn between the television show and what actually goes on in business. In the X-Files it is said that “the truth is out there”. That may not truly be the case in business, although one would hope so. With that being said, when searching for answers out there in business, it may be best to remember this little gem: Question Everything.

Since we are crossing the science fiction with the business schools of management here, we probably ought to start with a quote from one of the greatest science fiction writers of all time, Robert Heinlein. He said:

“If “everybody knows” such-and-such, then it ain’t so, by at least ten thousand to one.”

There have been many instances in my career where I have taken on a new role where the phrase “Challenge and opportunity” was involved. At first, I thought this was a management code phrase for a bad thing because that was what those around told me it was. They all knew that the issues and challenges plaguing the operation were deep rooted, endemic and impossible to fix. Many had gone before me and none had been successful.

What I learned was that these challenges and opportunities really are opportunities. They should be sought out, not avoided. They are not easily solved or corrected, but few issues in business ever are. The truth that was out there, was that the solution was not to be found in fixing the issues that others had supposedly identified and already (unsuccessfully) dealt with. Everybody knew that those were the only real issues, and everybody knew that none of the solutions that had been applied worked.

And as Heinlein noted everybody was usually wrong.

When I first take on a new opportunity and challenge, I probably ask a bunch of dumb questions. There are many who think that is the only type of question I am capable of asking. I could see the exasperation on the faces of those that I asked. I was new to the role. I wasn’t fully experienced in it. My questions were probably dumb. It is not a bad thing to own the truth.

That was okay. As I got smarter about the situation, so did my questions.

Invariably I ended up coming back to the original dumb questions. These were the ones that were usually answered with lines such as “That’s the way we do it” or “That process evolved over time” or “It was the result of an event that occurred several years ago”. These were in effect the “everybody knows” we do it that way response.

The eventual solutions invariably came from questioning these “everybody knows” basic tenets of the unit’s operation. Just because that was the way it has been done, doesn’t mean it is the correct, or proper way to do it.

I found that most issues associated with the “challenge and opportunity” performance of a business stemmed from the basics of how the business was set up to run. Too many times it is the symptoms associated with the improper basic assumptions or alignments of an organization that are focused on. These are the easiest things to see, and hence the most visible to treat.

Notice that I said treat, not cure.

If a business performance issue is large enough to be visible to management to the extent that it is felt that a change is needed, it is usually not a superficial, easily recognizable symptom, that is the cause. It usually relates to a basic way that the business is done. Treating a symptom does not cure the problem.

When it comes to this level of business examination, everybody becomes a stakeholder. Everybody has agreed to do it “that way”. And as a result, there will be resistance from everybody when it comes to questioning, and even changing what has been viewed by so many as basic to the way the business has been run.

This means that when questioning everything, be sure to do it on an individual level. When digging in to any organizational or operational can of worms it is best to do it on an individual basis. Jumping back to our science fiction, alien based school of business management thought, Tommy Lee Jones summed up this phenomenon best when he was discussing whether or not to let everyone on earth know that the earth was in danger of being destroyed by aliens in the first Men in Black (MiB) movie. He said:

“A person is smart. People are dumb, panicky, dangerous animals, and you know it!”

He was pointing out that people in a group will do, say and act differently than they do as an individual. There is much that has been written about the psychology of groups (and mobs). Most of what has been written is succinctly summed up in what the quote from MiB.

This is no different in business. Almost every individual, will separately acknowledge that a change must be implemented, However, when the individuals are placed in a group, the group will almost always unanimously state that no change is possible, or if change is in fact needed, it is the other groups, and not theirs that must change. This is the group fear of change and the unknown.

We have to remember that science fiction and change in business actually have a lot in common. I think Arthur C. Clarke, another great science fiction writer put it best. He said:

“…science fiction is something that could happen – but usually you wouldn’t want it to.”

When it comes to change in business, it can also be described as something that could happen, but usually most people don’t really want it to. Change means incrementing in risk on both an individual and group level. It is doing something that hasn’t been done before. It requires leaving the current comfort zone. It is as Captain Kirk intoned in the prolog to Star Trek (both the original series and the movies):

“To boldly go where no one has gone before….”

Not everybody is built to be that adventurous. Either in space exploration, or business. That is why process has been created, introduced, and flourished in business. Process is designed to reduce the need for judgment, and add predictability and hence comfort. It in effect, tries to remove the adventure from business.

As such, it also adds impedance and resistance to the need, introduction and acceptance of change. If everyone in the process knows and accepts their role in the process, then any change introduced to the fundamental functions associated with the business will probably affect all of their roles. No one likes to have their role affected by an external entity, regardless of who or what that entity is. Hence, they will either directly or indirectly resist or impede the proposed change.

This effect is usually the genesis of the everyone knows it can’t be done phenomenon.

This brings us to the final intersection between business and science fiction (at least in this article). Terry Pratchett, author of the satirical and humorous “Discworld” series of books put it best:

“It is well known that a vital ingredient of success is not knowing that what you’re attempting can’t be done.”

Not knowing that an issue “can’t be fixed” is probably the key to fixing it. If everyone knows that is the way that things are done, then it is probably a very good place to start looking for solutions. If everyone is resistant to change, then it is probably a good bet that change is what is needed most in that organization.

When changing, you have to question everything. Especially those topics which everyone believes don’t need to be questioned. This is precisely because all the topics that everyone does believe need to be questioned, have probably already been questioned, and didn’t provide the solution. The truth is probably out there, but if you don’t question everything, there is a very good chance that you will miss it in favor of the more easily digested and implemented symptomatic solution, which is probably the one that everybody knows is the right one.

And remember what Heinlein said about what everybody knows…..

The Short Horizon

As the pace of business continues to accelerate, there seems to be one aspect of the business process model that is struggling to keep up: The Business Case. There was a time where capital expenditures were looked upon as long term investments by the business. The life-cycle and pay-back processes, as well as the accounting amortization of these investments, were expected to last years, and in some instances, even decades. The average business case became attuned to these norms.

But those days are long gone. As the speed with which technology has changed has continued, by necessity the business case used to justify the new or incremental investment has needed to become shorter. If Moore’s law of eighteen-month capability doubling (it was actually Intel executive David House, who predicted that chip performance would double every 18 months. Gordon Moore, for whom the law is named, was the co-founder of Fairchild Semiconductor and Intel, and whose 1965 paper described a doubling every two years in the number of transistors per integrated circuit was the basis for the coining of the “law”) is to be believed, then the asymptote for the length of an acceptable business case should approach that eighteen month to two year limit as well.

That doesn’t mean that a product’s useful life is only limited to eighteen months. I think quite the contrary. There are aspects of the Public Switched Telephone Network (PSTN) that have been in place for more than fifty years, and are still providing beneficial service to the communications carriers and their subscribers alike.

On the other hand, people are known to line up and over-night camp out every eighteen to twenty-four months in order to be the first to get the next generation of the Apple iPhone.

It appears that customers who are being asked for either capital or operational expenditures associated with technology oriented products, are driving their partners and their vendors to ever more rigorous and aggressive value propositions and rates of return. This is the genesis of the short horizon business case.

The simplest definition of value is how much money is made or saved over what period of time. The more you make, or the more you save over a given period, the better the value. In the past it was acceptable for a business case to extend out over a long enough time period as to show an acceptable return. If the initial business case for the sale didn’t make sense for one period of time, it was easy just to lengthen out the time frame until it did.

What appears to be happening is that as the rate of technological based product change has continued at the speed of Moore’s Law, the period that a customer is willing to measure value has shrunk. Business cases still need to show the customer value, they now must do it in far less time. The tried and true form of extending the business case period to make the value and pay back equations work is now gone. Customers will no longer accept it, and are driving for shorter and shorter review periods.

I think there are several factors in addition to technical obsolescence that are helping to drive a short horizon on the business case:

As each new generation of technology arrives it almost exponentially drives down the (residual) value of previous generations. I think it is no secret that one generation old technology is viewed as old and disadvantaged, and that two-generation old technology is probably approaching the zero value state. We have all seen this in our consumer based technology purchases as well. Products get old so quickly that we have developed a disposable attitude toward them. With Personal computers now going for a few hundred dollars, what is the value of a two-generation old computer? What was once repaired and retained is now simply expected to be replaced.

How would consumers (and manufacturers) react if the same logic was applied to say, automobiles and two to three model year old car was considered almost valueless?

We also see (comparatively) decreasing operational returns as each new technology generation is introduced. This means that as each new product gets smaller and more efficient the value of generating operational savings associated with the previous generation of product also tends to get devalued.

The idea of saving something with what you have is not as attractive as the possibility of saving more with something new. I guess this is what they call “Marketing”.

I think one of the final evolution’s of the short horizon business case is the “Cloud”. I am sure everyone has heard of this thing. It’s in all the magazines.

One of the many ways that manufacturers and vendors have adapted to the evolving business case rules is to try and remove both the obsolescence associated with technology and to more closely align the delivered solution with the customer’s need. The idea being that if a customer only needs a four-unit solution but the technology only comes in six or eight unit increments, there is a delivered solution miss-match.

By delivering a function from the cloud as opposed to a product based solution, the vendor has effectively removed technology obsolescence from the customer’s decision process, as well as matched the required amount of solution with the required amount of need.

The net result is a much shorter period needed to achieve the required business case. Customer purchases can be made in smaller increments, which in turn only require smaller pay-backs. Future product purchases and existing product obsolescence are removed from the customer’s decision criteria as the customer is now only purchasing the product’s function, not the product itself. The obsolescence issue, and all the other costs associated with operation of the product are now retained by the vendor (and should be built into their business case).

The continued drive for more value has driven customers and business cases to the short horizon. Capital for technology can no longer be viewed as a long-term investment. It must be judged and justified by how quickly it can pay back on its cost and the relative business value it generates. It is this drive for better business returns that continues to reduce the time scale associated with the business case.

This trend would appear to potentially be a seed cause for future changes to the way business is conducted. On one hand it will continue to make the sale of capital based technology products more difficult. By demanding shorter pay-back and business case periods, customers are in essence expecting lower prices for products, and higher value delivered. That is a demanding and difficult environment for any supplier.

It should also continue to drive product virtualization and the Cloud as ways for suppliers to retain costs and risks, and hence remove them from the customer’s business case. This will continue to be an interesting market, but not all technologies and products may be potential candidates for the cloud.

It could also be argued that a potentially unexpected result of the drive to align business cases with product life cycles could be the reversal of Moore’s Law. It has long been expected that there is some sort of limit to the capacity doubling process. It has been going on for over fifty years. There are recent articles in no less than the MIT Technology Review, Ars Technica, and The Economist (to name just a few) that are now stating that Moore’s Law have in fact run its course.

And this may also be of benefit to business. If customers want to align their capital business case length with the product’s life cycle, and the current eighteen to twenty-four month life cycle of the product makes this increasingly difficult, then one of the solutions may be to lengthen the product life cycle to more than twenty-four months. If there truly is a link between business case length and product life cycle, then this could be a possible solution.

This will be an interesting cause and effect discussion. Is the potential slowing of Moore’s Law going to cause the reversing of the short horizon trend associated with customer’s business cases, or is the demand for short horizon business cases going to accelerate the slowing of Moore’s Law due to business necessities? Either way, customers are requiring businesses to change the way they put together the business case for capital technology sales, and that is having a significant effect on how business can successfully get done.

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.