Change Management, Leadership, Organizations, Team Building

What’s Right?

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Anytime you have a business or office environment, people will congregate to talk. It’s part of the social aspect of working in the office. These are euphemistically known as “water cooler” conversations (although I really suspect that it has been decades since there was actually a real live water cooler in an office). People will talk about many things, but if they are in the office at least some part of the conversation will usually be about the company that employs them. I have worked in several different companies and this is a fairly consistent topic for discussion, at least in my experience.



What I have also found is that these conversations normally migrate to, and revolve around the issues, challenges and problems that the business is facing. Company stock prices, competitors’ products and capabilities, pending or potential staff reductions, executive bi-play and office politics are all favorite topics for discussion. I think we have all been there, and probably even participated.




In short, most of these conversations are at best group reinforcement sessions for all that can be perceived as wrong (rightly or wrongly) about the business, and at worst become a functionally demoralizing aspect of the work day environment. Sometimes it appears that these meetings can become an opportunity for company bashing where the objective is to see who can relate the worst example of bad corporate behavior or malfeasance. It has been seen it in the boom times of the past and it seems to have taken on an even greater propensity in the difficult times of today.



This “what’s wrong” discussion concept got me to thinking, which is always a dangerous proposition for me. Why do we always tend to focus on the negative? Doing so has to have a negative effect on both ourselves and those we share the negativity with at the office. Surely something has been going right, and probably has been going right for some time, to enable the companies and business units we work for to survive and grow for the periods of time that they have been around. I decided some time ago that I would put this idea to the test at one of these negative conversations that I was party to. I asked:




“Okay, I have heard your view on what is wrong with the company, but can you tell me what’s right with the company?




People looked at me as if I had just come from another planet.




Instead of playing along with the rehashing of all the latest down side issues and topics that seem to be present in every organization, I had challenged people to at least try and define what was good about the place we all worked.




I was immediately challenged in return to see if I could actually start the list of what’s right. I think this was done as a delay tactic so that everybody else’s brain could do a cold restart in this new direction for the conversation. I started off with the most basic good thing about working for the company that I could come up with:




“My paycheck cleared and was deposited in my account at the bank.”




I assumed that everyone else’s paycheck had achieved the same status. This is a tough item to argue about. We all got paid. Something had in fact gone right enough that we got, and continue to get paid. I also assumed that everybody would like to continue to get paid. The focus now should be what else we need to do right going forward to assure that we continue to get paid. It was an interesting change to the standard conversation at that point. It also seemed to work. Several other right topics ensued. There were some good things out there if people just thought about them.




I am not a Pollyanna in that we must only look on the brighter side of things. If we do not acknowledge what is wrong we will never focus on it, and there will be no improvement. What I am saying that we do have a tendency to not just focus on, but to dwell on what is wrong almost to the point of discouragement. This means that occasionally we need to take a step back and look at what has been done right.



I don’t think it needs to be done all the time. A certain amount of venting with friends and peers is good to provide a healthy work environment. There have also been instances in these negative conversations that have germinated some of the teams’ better ideas and plans on how to improve the business as a result of hearing from others what they think is wrong with the business. However, I really do think that on occasion it is a good idea for the group to have the water cooler conversation taken in a different direction and talk about what’s right with the business.

Management, Metrics, Reports

The Color of Information

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What did we do before we had color printers? I can remember when color printers first started to make their appearances in the office. They were big. They were expensive. They were only supposed to be used for specific documents. They were aggressively guarded by the administrative assistants that had responsibility for them and they couldn’t be used without special permission. That is obviously no longer the case. Color printer sizes and prices have come down to the point where the old black and white only printers are now a thing of the past. Color is so ubiquitous on both our screens and our printing that we appear to have become fully dependent on color to convey our information. While I do utilize color in my documents and presentations, I can’t help but feel that many managers may have now become so dependent on the color code of information that they may no longer feel the requirement to understand the actual underlying values of the information.



It seems that what was once provided to management as data is now provided as colors. Instead of quantifying a performance issue, we are now providing a “traffic light” condition sound bite. It is now condition “red” for issues and adverse situations, condition “yellow” for potential problems, and situations where there are no imminent threats – condition “green”. I understand the need to distill down information to make it more manageable, but I don’t think you can properly run a business based on the colors of a traffic light. I am concerned that we are now into the same thirteen second sound bite mentality for managing our businesses as we are in when we watch the 5:00 news on television.




This “just give me the high points” three-color approach to management has a tendency to indicate to the team that the desire of management is not to get too deeply engaged in the issues of the business. It appears that management is becoming interested only in the performance of the business, not in how the business is running. If the team feels that management doesn’t want to be too deeply engaged in the business, it will not be long before that sentiment is reflected throughout the team as well.




Some of my first experiences in management were working for an executive who was extremely knowledgeable about the businesses that he had responsibility for. As such, he demanded that his management team know at least as much, if not more about the business than he did, if they were to be value add to both the business and management chain. As such these businesses were relatively well run and profitable. An in depth understanding of the issues, data, finances and how the business worked was required in order to maintain the high level of performance of the business.




With a “three-color” approach to management, leaders are communicating that they in fact do not want to know as much about the business as the management team and all that they are really interested in is “stop”, “go” and “caution” status of the business. Where in the past it was required that the management team have a greater in depth knowledge of the business than the knowledgeable leadership team to provide value add to the business, the three-color management approach now calls into question the value add of an unknowledgeable leadership to the business.



It is a long leap from the proliferation of color printers and presentations to indicting business leadership for seemingly removing themselves from the detail associated with the running a business and its management process. I have stated in the past that metrics, be it tabulated data or color codes, only point you in the direction of the issues and more importantly point you in the direction of the potential solutions. Three-color metrics would seem to only point you at the issue without the value add of any direction toward a potential solution. As an example, with all the other inputs that are required to drive a car, a successful trip anywhere would be doubtful if traffic lights were your only source of information.

I guess I am still of the old school that good business leadership requires a leader that is well versed and knowledgeable about the business they are leading. A good leader needs to understand not only the performance of the business, but how the business works. To extend the traffic light – automobile analogy a little further, a leader may not need to know how the car works in order to drive it, but a leader will definitely need to know how it works if they are ever going to be called on to fix it.

Finance, Responsibility, Risk

Surprises

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As we enter the fourth quarter and approach the end of a year, greater attention will be focused on the business performance financials. We see this type of focus at the end of every quarter to a certain extent, but at the end of the year it peaks. Sales commissions and staff performance bonuses are paid based on annual numbers. Personnel ratings and reviews are conducted based on annual numbers. Business forecasts are to be completed in preparation for the next year during this time period as well. Predictability of business performance is now at a premium. It is also the time when businesses most try to avoid surprises.


 


Surprises are those unexpected events that materially affect both the performance and the measurement of the performance of the business. Surprises can be viewed as both positively impacting and negatively impacting to the company. However when surprises are viewed against the three basic limitations that all businesses must deal with, Resources, Money and Time, we see that at the end of the year, time is in very short supply when it comes to dealing with surprises. That means that incremental money and / or resources will be expended on surprises, both good and bad ones.


 


Good surprises usually come in the form of unexpected sales and revenue opportunities. A large un-forecasted order can come in. A product shipment scheduled for next year can be pulled forward into this year. Good surprises are normally associated with opportunities to increase the top line and via the financial flow through, increase the bottom line as well. However, even good surprises normally come with an additional cost. A large unexpected order will stress both the supply chain and production capabilities for delivery. Overtime and expedite costs may be required to meet the year end time frames. In short, because there is now limited time, it will take incremental resources and money to deal with even good surprises. No business leader wants to deal with problems, but if they are going to have problems, these are the types of problems that every business leader wants to deal with.


 


Bad surprises on the other hand are normally associated with issues that unexpectedly reduce sales or revenue, or alternatively increase business costs or expenses, and again via financial flows reduce the bottom line business performance. Expected orders being cancelled or not materializing would be the primary example of a top line bad surprise. A reduction in sales will turn into a reduction in revenue, and all other things being equal, a reduction in predicted earnings.


 


Top line bad surprises normally come about as a result of an overly optimistic sales team, or a sales team that is under engaged with the customer. Either way, it was not clearly known that the customer was not going to be buying, when everyone was predicting that they were. When the business is counting on the sale, the sales team needs to be fully engaged with the customer, as well as possibly a little conservative in their forecasting. It is far better to present the good surprise of an unexpected sale and the problems it presents than the bad surprise of the loss of a sale that was counted on to make the yearend forecast.


 


 Other types of bad surprises can affect both the top and bottom lines. Component shortages can cause unexpected production limitations precluding shipment and revenue recognition, changes to government regulations can add unexpected costs to products and unexpected legal or labor provisions can eat directly into margins to name just a few, are just a few examples of bad surprises.


 


The point here is that these surprises are issues that can and should have been readily identified as potential risks to the business. If they are risks, then the need a risk mitigation strategy if they occur. If they are not identified, then the business team needs to understand why they were missed and take corrective actions, as well as examine the business for any other unidentified potential risks. If they were identified and mitigation was neglected, then the business team must address this management failure appropriately as well in order to avoid future similar situations. Again in either event, it is the business leaders’ responsibility to identify and either avoid or mitigate these types of bad surprises.


 


Predictability of business performance is a key to the business’ success. As the end of the business year approaches it takes on a heightened importance. Good surprises can help bolster the numbers coming into the close of the year, but even good surprises usually come with the requirement of increased resources and financial costs since there is usually limited time to deal with them. Bad surprises on the other hand can cause problems with the business’ financial performance that there is not sufficient time for the business to recover from before the year ends. Bad surprises are normally the result of human error where either sales’ over optimism or management’s lack of attention to fundamental business practice has contributed to the business failure. In either instance the “surprise” needed to be identified well in advance of the event occurring so that the business could more accurately predict how it was going to perform.

Organizations, Roles, Value

Ruthless Simplification

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There seems to be a significant amount being written these days regarding simplification. It’s difficult to go through the news and not see some article regarding how people see and feel the need to simplify their lives and what they are doing to simplify their lives. The same seems to be true with businesses. Businesses are always trying to simplify the way they perform their work. There are usually all sorts of programs, processes and initiatives focused trying to simplify the business. When you net them all out, they can usually be summed up in a simple statement: In order to simplify, you need to ruthlessly stop doing work that provides no value to your customers.



On the surface this sounds easy, but in practice business inertia makes this activity a little more difficult to accomplish. In these times when any discussion turns to the topic of no longer doing specific work or tasks, that activity is translated into preparation for staff reductions. The stakeholders in the current process will almost always generate some resistance to changes of these types. While reductions can be a potential outcome it should not be the focus. Over time businesses accrete tasks associated with the way they work. As the business needs change, new tasks and objectives are added to meet them. Businesses usually have very good processes and methods for adding new work, but rather poor processes and methods for discontinuing tasks that have either outlived their usefulness or no longer provide direct value to its customers.




Most simplification processes start out as methods of re-categorizing existing tasks and then grouping like work together in an effort to glean some efficiency from having similar tasks performed by similar groups. This simplification approach doesn’t reduce the amount or type of work being done. It assumes that all work currently being done in the business is critical to the business. I think that is the major fallacy of this simplification approach.



Almost every business will have functions and tasks that remain from previous products, processes and programs. The incremental value to the business of this work will be suspect at best, but unless active measures are taken to remove it, it will continue to absorb business staff and resources. The objective of all simplification projects should be to identify and remove work, and more specifically work of questionable incremental value to the business, from the business. With this objective in mind business simplification should not try to enable a business to do more with less, but rather simplification should target having the business do less, but being able to do the remaining work much better.




Now the question that arises is: which work should the business look to simplify? At the risk of sounding a little trite, there are basically three functions that a business must perform. A business must create products and services for customers, sell products and services and deliver products and services to customers in order to be successful. If the tasks in question do not directly contribute to one of these functions it is a candidate for further review. That doesn’t mean that all tasks outside of these functions should be eliminated. There are some functions, Finance, Human Resources, etc., that do not fall into these categories, but are a business requirement. It is also very probable that there are tasks within these specific functions, meetings, reporting, reviewing, etc., that do not directly contribute specific value to the function that may need to be simplified if not eliminated.




A further guiding principle should be: does the specific task provide value directly to the customer? If a task cannot be identified as directly providing a value to a customer, it is adding a cost to the product or service that is providing value to a customer. If the product or service can be provided to the customer without the incremental costs associated with the identified task, then the task is a very good candidate for simplification.



The idea here is to identify work that must be done in order to provide value to the customer. Customers will pay for goods and services with which they associate value. If there are tasks that are creating costs, absorbing resources and providing minimal value to the customer, they are the potential targets for simplification. Businesses have a tendency over time to create tasks and structures that are designed to provide perceived value internally to the business, not externally to the customer.




Examples of these types of non-value added tasks can be: business reviews that occur regularly where information / presentations / discussions are provided, but where no action items are given; or business requests for information and data, where resources are expended fulfilling the requests, but no business information or actions are provided in return. There is a long list of resource absorbing, non-value adding tasks, which on the surface appear useful business, but when viewed from a business requirement and customer value point of view can and probably should be simplified.



Resources are too precious to allow them to be wasted on tasks that are not directly providing value to the customers, and through the customers, value back to the business. They need to be ruthlessly protected. There is always more valuable work that needs to be done then there are resources to perform it. This is where the ruthless simplification of the tasks that do not provide customer value can strip away the drag on the business, as well as free up the resource to provide the incremental value adding work that needs to be done.

Humor, Metrics, Objectives, Project Management

Business Oxymorons

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Every time I get a memo, directive or request from management, or anyone else for that matter, that causes me to shake my head, I put it in a file where I can review it and smile at a later date. I have to do that because sometimes it is almost impossible to believe in, let alone laugh at many of the documents and directives when they are actually issued. It seems that it is only on reasonable reflection that the humor associated with the document can be appreciated. Over the years I have amassed a fairly large file of what I like to refer to as management “Business Oxymorons”. Here are some of my favorites.



Process Simplification:


Process simplification has long been a target for cost cutting and efficiency increasing projects and teams. Regardless of how the business is structured, or what processes there may be in place, this is an area that can and will receive incremental focus. My favorite approach here was when I received a 36 chart presentation deck detailing the process we would all be using going forward for corporate process simplification. That is correct. It took 36 charts to detail out how we were going to simplify things. Needless to say, I had a suggestion for the first process to focus on for future simplification.




Announcing / Assigning a New Team to Track Cost Reduction:


Like process simplification, cost reduction is also always a favorite topic for management attention. Indeed cost reduction should be an ongoing focus for every business. The point here is the activity of cost reduction should be the focus. The idea is to reduce costs. The tracking of cost reduction doesn’t actually reduce any costs. It could be argued that one of the best ways to start reducing costs would be to get rid of all the teams whose only responsibility is to track cost reductions, since they are actually an unproductive incremental cost to the business. I always thought that the people who were implementing cost reductions were also capable of tracking cost reductions too.




Unprofitable “Strategic” Business:


I wrote an entire post dedicated to this concept a few weeks ago. Sales teams want to sell things. That is what they are supposed to do. Customers usually want the lowest price possible for the goods and services that they are going to purchase. Sales teams try to get their customers the lowest price possible, sometimes by describing the business opportunity as “Strategic”. Getting requests to discount product and service prices to the point of unprofitability because it is strategic to the company to get this business has always been an interesting exercise in logic for me. How can bringing in any incremental unprofitable business be of benefit to a company, let alone strategic to it?




Multi-Tasking Equals Productivity:


We are all continually asked to do more. That is the nature of business. How we go about it is the key to our effectiveness. I know many people who pride themselves on their ability to be on conference calls, do their email and converse on their computer’s instant messaging system at the same time. I also notice that these people are usually so busy that they never get anything actually accomplished or completed. Productivity is the measure of things that are completed, not the measurement of the number of things being done concurrently. It is similar to the idea about the difference between work and progress. Work can be a great deal of splashing around in a pool. Progress is actually swimming somewhere.




Measurement is the Solution:


It seems that whenever there issues in a business, the first thing management requests are a brand new set of metrics and reports regarding the already identified issues. Metrics and measurements are key tools and sources of data for any manager and business. They help us keep score. They help identify where issues may lie and where performance may need to be improved. Measurements very seldom tell us how to improve performance, only that against some sort of scale that performance needs to be improved. More measurements or more detailed measurements may not help this situation. It is the decisions that are made and the actions that are taken in the business as a result of the measurement information that are the solution. Business measurements are a ways to a means, not a means unto themselves. The 80 / 20 rule truly does apply to measurements and data, and the idea of trying to measure your way out of a performance issue rarely works.




Global Projects:


The world is a very big place and the way business is conducted varies significantly from place to place in it. Global tools, programs and platforms, while always a desirable goal are almost always problematic when it comes to implementation, but that has never seemed to stop the drive towards them. Part of this issue seems to be in that global projects focus on trying to remove the differences between business regions instead of leveraging the similarities that the regions have. By the time you modify the tool, platform or project to take into account every regional business difference, you usually have a uniform solution that is so large, complex, expensive and unmanageable that it is worse than the separate and discrete capabilities it replaced. My father would have called this phenomenon the starting of a vast project with something along the lines of a half vast idea.



These are just a few of the business oxymorons that I have in my file. I am sure there are others that I will bring out in the future. I believe it is the irony associated with the approach as it applies to what was obviously the desired solution that causes me to share them here. It appears that at least in some circumstances it is true what has been said about good intentions. It also doesn’t hurt to find the humor in it.

Consistancy, Decision Making, Leadership

Being Liked

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I think it is pretty safe to say that we all want to be “liked”. There are few people in business that set out to be disliked. They may end up being disliked, but I don’t think they started out with that as an objective. However, there do seem to be many business leaders who it appears do set out to try to be liked by everyone. While it is a good leadership characteristic to be able to try and get along with everyone, I don’t think a leader has to try to be liked by everyone.



Business leaders are vested with the responsibility of setting the direction for the business. This includes the strategic longer term direction as well as the shorter term tactics and steps required to achieve the longer term goal. This means that leaders have to make choices. Making choices means that some people will agree with your choices and some people will not. Healthy disagreement within an organization is a desirable trait. It makes you continually check your choices and directions against differing views to make sure that you are not missing any overlooked piece of information. It fills gaps and strengthens the overall plan.




Still, making decisions, especially difficult or contentious decisions will mean that some people will “like” the decision, and some will not. Each individual’s position as it pertains to the decision will in turn be associated with the leader who made the decision. However if the decision is clearly made and the reasons and criteria that were applied are well communicated everyone can respect the decision. That can be a key point. While some people may not like the decision, and by extension the leader that made it, if they are provided with some insight into the factors that have lead to that decision they can respect it.




Providing insight and understanding into leadership decisions does not mean having to explain why one direction was taken instead of another. That would mean that everybody in the organization would have to be supplied the same aspects and information as the leader for each decision. That would be far too cumbersome and slow. Economic theory states that businesses exist to provide earnings to their owners (either stockholders or other types of equity holders). They do this by providing value to their customers, and from that generated value creating profit and earnings.




When leaders make decisions that are in support of these basic business precepts, it is hard to argue with them. As leaders they will have to make difficult decisions in association with these directions. It will fall to them to decide which projects go forward and which ones do not when limited resources dictate that the business cannot sustain multiple investments. Some will like the decisions, and those whose projects have been discontinued may not. It will be the responsibility of the leader to decide if market conditions dictate a reduction in staffing, when it will happen and who will be affected. The list goes on.




Leadership and management mean making decisions. There have been documented instances where management could not decide on the strategic direction for the business. They decided to set two strategies in progress and see which one did better, then choose it. In theory this would indicate that at best they were wasting half of their scarce resources. In reality with only half a full commitment to each initiative, neither worked out well. The leaders wanted to be liked by all but ended up not being respected by anyone.




There have been instances where leaders have tried to avoid being disliked or having to do the politically unpleasant. This can be manifested in the “peanut butter” type staff reductions that occur where all business units within the overall organization, performing and underperforming alike, are reduced in response to overall profitability pressures. Instead of being guided by business profitability and customer value, and focusing on those specific business units that are relatively unprofitable, other non-performance based criteria clouded a critical decision. Invariably this leads to management eroding the support of their respective teams, and again an overall loss of respect for the leaders.



A business leader does not need to be liked by everyone. A good leader will be respected for the quality and timeliness of their decisions. If a leader fails to make a decision, or the right decision based on the acknowledged business drivers and available information, it will not result in the leader being liked by more people or disliked by fewer people. Invariably it will lead to a reduction in the team’s performance as it becomes more recognized that performance may not be the primary decision criteria. It seems that managing a responsibility or a business from the aspect of trying to minimize the number of people who dislike you, invariably results in a less healthy business, and nobody likes that.

Accountability, Responsibility, Self Analysis

Being Difficult

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This may come as a surprise to many of you but I have occasionally been referred to as “difficult”. Fortunately, I don’t think my wife reads my articles so I don’t have to worry about her corroborating such a description. I did however go out on www.websters.com and look up “difficult” and found (at least) 3 definitions for difficult that it seems people want to apply to me: hard to deal with or get on with, hard to please or satisfy, and hard to persuade or induce. It seems that different people may have different views and standards as to how business needs to be conducted. I guess that you can paraphrase the old adage by saying “difficulty is in the eye of the beholder”.

Conducting business is the process of dealing with, and getting on with people. You can’t be successful, or accomplish your tasks and goals unless you can deal with and get on with people. The question seems to arise in exactly how you are supposed to deal with people. We should look to try and deal with most everyone in business the same way. That includes those that we report to as well as those that report to us. We need to try to take those items that we have responsibility for and do the right things for those responsibilities.




That may not mean that we can take the easy, quick or popular steps for everyone involved. Having a consensus is a good thing, but the responsibility for leadership cannot lie with a group. It may also mean that we have to tell people things that they may not have wanted to hear, both those that we report to as well as those that report to us. We are knowledge workers, and if our knowledge indicates that an unpopular direction or a contrary position is needed, then we need to give voice to it.




I don’t think that it is hard to be pleased or satisfied. We must take our word and commitment in business to be our bond and a display of our character. We must expect that others who deal with us to do the same. When a goal or make a commitment gets set we have to try to do all that can be done to achieve it. If the goal is achieved make sure that the team shares in the acknowledgement, and if it is not we leaders should take responsibility for it as it was our commitment and goal. We can give explanations, but we can’t give excuses.




I look at the effort and approach that people use in meeting their objectives and commitments. I have found that hard work invariably will lead to achievement. I like to be around and work with people who take that approach to their work. I think that if we can say that if we are satisfied with the effort the team has expended, we can be reasonably satisfied with the performance, even if the objective was not fully accomplished. If the expedient approach was taken and the goal not met then there can be further cause for concern.




I don’t think I am exceptionally hard to persuade or induce either. I can be persuaded, just make sure to bring the data and the metrics. If it cannot be expressed in numbers, it is probably just opinion. Opinions are not necessarily persuasive. Financial data is the international language of business. Show someone what they can make, save or improve financially and numerically, and just about anyone can be persuaded. Show them how the business can be improved so that they can adopt your position. Leaders don’t have the market cornered on good ideas, but we should know how to distinguish a good idea from most of the others that come around by using the available data.




Asking questions does not make someone difficult. Asking difficult questions does not make someone difficult either. We have to move and adapt to the conditions quickly, but more importantly we have to do the right thing. It may have been a long meeting or conference call, and the end solution may be in sight but that doesn’t mean that there will not be other aspects of the solution that will still need to be addressed. I have heard it said in these types of meetings that “silence is assent”.




I also suspect that most of the people, who have said this in meetings I have been in, were actually looking for silence not questions.




We are working and living in difficult times. The demands on our time, our teams, and our businesses continue to get tougher not easier. Businesses and business leaders are continually being challenged to do more, usually with less. The pressure to provide the quick and expedient solution also continues to grow. Sometimes the expedient solution is the right solution, but how will you know unless you press the issue, ask the difficult questions, demand to see the data, get the objectives set and hold those responsible to perform, in order to make sure that the right thing does in fact get done. If these are the characteristics of a “difficult” person then in these difficult times I would think that we all need to be “difficult” people.

Incentives, Long Term, Performance, Strategy

Strategic Business

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“Strategic” business is an interesting concept. It is normally used by sales teams to denote business that is believed to be so important as to be opportunities that are categorized as “Must Win” business regardless of the costs. This can be due to the size of the business, the desire to obtain market position or to keep a competitor from obtaining market position, or any number of other good, well meaning reasons. In my experience the one characteristic that all “Strategic” business has in common is that it is unprofitable.



Strategic business is invariably the sales code phrase for “We want a lower price.” There may be competitive reasons for the desired lower price. There may be higher costs associated with the opportunity that customer doesn’t wish to absorb or pay for. There may in fact be increased competition. There may be expectations by the customer for greater savings. The list can go on and on. The point here is that none of these reasons are strategic. They are tactics, either by the sales team or the customer, to get a lower price.




The strategic business approach can also be seen when a large multi-product supplier is dealing with a large multi-product using customer. The idea posited here will be if a lower price is obtained for one product it will be to the benefit of all the other products that are being sold to the same customer.




Wait a minute, how does that go again?




I am of the opinion that all business is important and that all business should be profitable. It would seem in this scenario that some business is less important that other business. In this case it would appear that it is the Profitable business that is less important. After all, it’s not strategic. How do you decide which business is going to sacrifice its profitability for the sake of the other businesses? How do you prove the linkage between the unprofitable strategic business, and the profitable non-strategic business? Does the supplying company recognize that one (or more) of its businesses has been positioned and priced as a strategic business and measure its performance accordingly?




Strategic plans are those business plans where the growth and profitability for the business are mapped out over a longer horizon (usually 3 to 5 years). They provide directions and goals. They focus on the growth of both revenue and profitability of the business as well as the evolution of older products to newer ones. Strategic business, if there truly is such a thing, should also be focused on the long term growth of both the business revenues and profitability. It would seem that strategic business would only be associated with new products, new revenue sources and the new profitability associated with them.




Under these types of definitions for strategic business, it is very hard to justify any type of unprofitable business as strategic, particularly for existing products or services. I have said before that customers associate value with that which they pay for. If you provide goods and services to them at reduced prices then they will assume going forward that those goods and services have a reduced value. If strategic business is based on longer term future growth, do you really want to grow what has now been priced to the customer as an unprofitable business?




If there is value to your customer in the goods or services that you are providing them, then you should be entitled to a profit margin. It is the profit margin that enables you to pay your costs as well as look for new goods and services to supply your customers in the future. This is the basic tenet of business. Customers will continue to apply pressure for lower prices. Competition may also generate downward pressures on prices. As a provider of the goods or services you will continue to try and find new ways to reduce costs and to become more efficient. Downward price pressure and the ability to remove costs and increase efficiencies of the business will eventually hit the point of diminishing returns.




I have talked in the past about the need to prune products and services from the business portfolio when they have reached an end of useful life scenario. Part of that end of life decision is based on the time when either your customer will no longer pay you an appropriate price where you can generate a reasonable margin, or your costs are such that you can no longer reduce them to the point where you can generate a competitive price at a reasonable margin. As I said earlier, if there is value the customer will pay for it. If there is not enough value to the customer for them to pay for it, then the supplier should no longer provide it.




If you have an existing product, service or business where you are having problems generating the prices and margins that are needed for viability going forward, there may be a push to look at the “strategic” importance of the product, service or business for the “greater good” of the company. These types of discussions ring hollow. There is nothing strategic about unprofitable business for existing products and services. Each product, service and business needs to be able to stand on its own and justify its future viability based on its own revenues and profitability. Unprofitable “strategic” business is still unprofitable business.


One way to make sure that strategic business is in reality profitable business is to align the revenue objectives of the sales team with the profitability objectives of the business. Some business opportunities are more valuable (more profitable) than other business opportunities. If the sales team is rewarded for more profitable business, and is not rewarded for less profitable business, the focus will be placed on profitability and the more profitable business. Strategic business will either need to be profitable, or it will no longer be so strategic.

Decision Making, Focus, Responsibilities, Self Analysis

Necessity

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We have all heard it said that necessity is the mother of invention. It is also said that imitation is the sincerest form of flattery. That is probably enough on the trite homilies for now. I want to look here at the latest events in the news on the macro-level and relate them to our businesses on a more individual level. It seems that one company created (invented) some industry leading applications for their product, and another company apparently copied these applications for their competing products. In the ensuing legal battle the inventors of the capabilities won a judgment against the imitators. All of the articles and documentation that I have read regarding this legal decision seems to be capable of being summed up in a single line:



The decision was good for the inventor, bad for the imitator, worse for the consumer.




The idea here is that the inventor won so they are happy (and richer due to the awards associated with the judgment), the imitator is unhappy due to the penalties they must pay (and the fact that their products may not be able to utilize the desirable applications going forward), and the consumer’s will be worse off in the market because they will have fewer choices for products with these desirable applications, and they may be faced with higher product prices.




I don’t think this is bad. I think this is commerce. I also think that the company that was imitating its competitor is now faced with the necessity of changing and creating its own new innovations and products if they wish to continue forward in their chosen markets. This isn’t bad, this is good. The process will obviously be painful and could probably have been avoided with timely business decisions when they were necessary.



In the macro-level consumers will also benefit from the reduction in imitation and the increase in new products and innovation in that by necessity if the imitating company wants to stay in the market, they will have to invent and create new applications and new ways to bring them to market. Will they be better? Hopefully, but they will certainly be different because they have to be. They can no longer comfortably continue to do things the way they have been doing them.




We are seeing here on the very high level is how an entire company is being forced out of its comfort zone, where it imitates what another company has been doing. We can telescope this type of event down to just about any level of almost any organization. What I am getting at here is that creative companies focus on and want to protect their creativity up and down their management levels, not just at the corporate level. Profitable companies focus on and protect their profitability. These ideas seem to permeate the corporate fabrics of these types of companies. You can’t copy that. You have to decide to do it yourself.




Now there are several directions that we can go here. Is there a uniformity of goals in these focused and successful organizations? I think the answer is obviously yes. Is there an alignment of incentives associated with attaining these goals? I would say that as well. Is there a necessity of performance? Yes there is. I Think this is where we, like the previously mentioned imitating company can all learn. There is a focus on and culture for doing what is necessary, when it is necessary to maintain the corporate focus and achieve the corporate goals. These decisions and actions may not be pleasant or welcome at the time, but they are recognized as a necessity of the business.




On our own business levels, we are constantly faced with competition that as a response to our capabilities must change the way they conduct their business. This is the reality of the business environment. There usually is not a legal decree involved that makes them do this. This is being done out of necessity. No one wants to be second best. (This may not be entirely true. Those that are actually third best or lower strive to be second best, but this is normally only as a step toward being the best.) If nothing changes, there will be no way to improve.




We rarely get presented with the stark necessity of change the way that the imitating company did. We always find that it is easier to imitate what we have been doing in the past than it is to change and do something else. Our creativity or profitability rarely comes to an abrupt halt. It usually declines in such a way that can be easily explained or rationalized for some period of time. Even then it can be bandaged or milked for a while longer. Eventually however, necessity will arrive and with it the requirement to act.




What we have seen here in a generalized form is that those companies that have recognized what is necessary to their ongoing success (be it innovation, profitability, service, etc.), and pursue it with an ongoing focus are usually the most successful. Their approach is not to imitate others, or to imitate their own past success, but to recognize what is necessary today and to make the appropriate business decisions and to take the appropriate actions. Those companies that do not recognize what is necessary on an ongoing basis and continue to try and live off their own past (or other company’s) successes are eventually confronted with the very abrupt, somewhat expensive and usually painful realization of the new necessities that they are facing.



It seems to me that this is an excellent case for continuing to make the daily difficult decisions on what is best for your business while the decisions are still yours to make. Don’t allow a “wrong decision” or worse, a “no decision / no action” to be made because it is easier or perceived to be more palatable at the time.  Avoiding the current necessity or delaying it will not make it any easier or less unpleasant either now or in the future. As we saw in the news, waiting to go your own way can result in facing a much more public, painful and expensive set of new business criteria than you might have ever considered.

Analysis, Planning, Self Analysis

Anticipation

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Projecting is not what they do in the movie theater. Well, it actually is, but that is not the type of projecting I want to talk about here. What I want to discuss here is the idea of projecting yourself into the position of someone else. By putting yourself in the position of your business associate, customer or boss you can try and gain some insights into what factors are important to them, how they might respond to you, and what you can do to be prepared for those eventualities. By anticipating what the people you are doing business will want or how they will react, you can be prepared for future business actions.



It is also a key to the art of thinking ahead.




The business environment has been relatively unstable for some time now. This has driven a focus on seemingly shorter and shorter term deliverables and objectives. As the focus has become shorter the number of controllable forces that can affect the desired outcomes associated with the business has gotten smaller, and in most instances has become more internally oriented to the business. In short we have a tendency to think and act more and more on our immediate needs, drivers and goals, and less on those needs of the customers, the others we deal with and the future.




We cannot afford to be only present day demand / response driven in how we conduct business. We need to remember that each activity is a link in the business chain. It was driven by the previous business activities, but more importantly it will drive other different future business activities. When we focus on only what we want, and are concerned with only what we need and how we will react, we are looking at only one half of the business equation.




Our business activities do not occur in isolation. We are working with customers and responding to the requests and requirements of other business groups. We have to project ourselves into the other half of the business activity. By taking this next step and anticipating how those we are conducting our business with will react, we can adjust our current activity to generate the future response that we desire.




I admit that this is a pretty basic concept, but it seems to be one that we are paying less attention to as we look at today’s meeting calendar, or try to worry about this month’s or this quarter’s numbers. When the headquarters staff teams are looking for forecasts, the first inclination is to get them some numbers (whatever numbers are handy at the time) and get them off your to-do list so that you can get back to actually conducting business. The problems that occur next month or next quarter because of the hasty forecast or early customer sales recognition are to be worried about next month or next quarter. Hence we seem to be always explaining the present and not planning on the future.




When you start looking at why people are interacting or conducting business with you in the manner that they are, it should change the way you interact and respond to them. Instead of just providing a number in a forecast, add a trend and an explanation of the trend. I think that’s what I would like to see when people provide me a forecast, so wouldn’t others want the same type of information? By providing that extra anticipated piece of information you have already provided the answer to the next question.




Sun Tzu in “The Art of War” always noted that the good battles to fight were the ones you had already won, before you fought them. He also stated that by anticipating and preparing for the future conditions, the best battles were the ones that were won without ever having to fight them at all.




The same should be the case for business. By taking a minute and trying to understand why the business request or the customer interaction is in its current form, projecting yourself into the requestors or customers position and anticipating what the next or future interaction will be, you can start managing the future and not just the present. “Good” issues are those that you have ready solutions to. The best issues are those that you never had to deal with because you were able to anticipate them and avoid them all together.