How will the NBN impact the Digital Economy?
December 29th, 2009During 2009 I frequently heard people ask “What will be the impact of the NBN on the digital economy?” In 2007 when the ALP first launched their bold Broadband strategy they were focused on lowering the telecommunications costs for small business and reversing the decline in economic productivity.
Now as we enter 2010 it is becoming rather meaningless to continue to specify the ‘digital’ economy as being separate or distinctive from the economy as a whole. Whilst it was sensible to label Internet mail as email in the 70’s the time for labelling things digital or ‘e’ this or that has now past.
The economy is the labour, capital and land resources, and the economic agents that socially participate in the production, exchange, distribution, and consumption of goods and services and in 2010 all of that is driven by electronic and digital technology.
Or as the 1992 campaign slogan hung in Bill Clinton’s campaign headquarters “It’s the economy, stupid” must keep us all on message to direct our efforts to where it really counts – the economy.
Following the tumultuous adjustments in all economies after the collapse of Lehman Brothers in 2008 the GFC illustrated just how little we understand about how our economies really work. Writers such as Eric Beinhocker and Robert Shiller have questioned traditional assumptions and examined the extent human behaviour is taken into account in economic models. This has highlighted for me the importance of trust and its role in creating economic value. See my earlier post discussing the relationship between trust and GDP.
Therefore if the NBN is to provide a major fillip to the Australian economy, then those that govern NBN Co must understand how applications will drive substantial value creation in the real economy. In my contribution to the book Melbourne Global Smart City published by Fast Th!nking I was asked to describe how technology had contributed to what makes Melbourne special. In this essay I argued that Melbourne is a city of knowledge and ideas and that our openness in all our endeavours creates a special personality of place that makes Melbourne a wonderful place to live. Technology has magnified our capacity to create value by enabling us to create better ways of working, learning and living. The NBN has the potential to accelerate this innovation and make Australia an even better place to live.
It is not that difficult to imagine a truly connected world; houses, offices, people, automobiles, roads, rail, retail, distribution, manufacturing, resources and the environment. Analysing collected data to utilise past trends with real time events to optimise decisions. What is the optimal route to work at 7:30am Monday morning? What is the lowest cost or carbon footprint, shortest distance or least time? There has been a crash on the freeway with real-time traffic data which route should you now take? If vehicles communicate with other vehicles in close proximity safety can be improved. Connections between shoppers, retail outlets, distribution channels and factories will optimise choice, cost and profits. By monitoring soil moisture content, weather conditions and forecasts ensure agricultural production will be maximised and water usage reduced. With every person or connection providing information about a place, an event, an action or condition effort can be captured and shared. Augmented reality can provide an overlay of information about a place, the building in the place or the service operating out of the building. Information can come from anyone; government, owners, customers or tourists.
All this data provides the means to gain enormous insight into what engages, motivates and influences human behaviour. If such insight is the purview of a select few or used by the majority to dictate to the minorities then the foundations of our democratic society will be threatened. However the very power of ubiquitous connections and an open internet should provide the means to enhance our democracy and not be the seeds of its destruction.
The powers I speak of are the ability for individual to contribute and participate and for the individual to control who accesses and assesses their contributions and participations. In this way people must be able to protect their privacy, property and safety. An improved political economy will need to:
- Establish and enhance trust; trust in data, applications and people. If people have little trust in these things then the potential for any investment in a national broadband network to improve the way we work, learn and live will be severely limited.
- Establish and maintain a reliable means of exchange for value. Such a system must provide an economic, efficient, safe and secure way for making all payments both large and small. Just look at the iTunes App Store for the iPhone. With small payments like $1.99 for applications it changes buying behaviour and people buy millions of dollars of games and applications. Apple has just announced that revenue from their Apps Store is 28 times the revenue this Christmas compared to last Christmas. Australia should set the policy framework so that Banks (or others) can provide efficient payments for information, applications and services in a safe and equitable commercial setting.
- Establish an equitable globally system of taxation and funding for public services and the operation of nation states and international trade. This is going to be difficult as smart operators move their capital, resources and means of production to the lowest cost economies whilst servicing the highest cost economies where their margins are maximised. This complex, global, political system must be resolved in a fair and equitable manner.
- Enhance the systems that protect property especially intellectual property and copyright to ensure equity in order to encourage investment in property. When people have little confidence in the probability that they will be rewarded for their investment they do not invest. Without investment innovation stops and the economy collapses. When a $1,000,000 invested in physical property (house) can remain in the family for generations and a similar investment in creating and marketing music that relies on copyright will disappear 70 years after creator’s death. When so much of our economy is based on knowledge and intellectual property a much more consistent property system must emerge.
The future prospects for our planet threatened by climate change (man-made or otherwise) and the complexity of our globalised economy make any future projections foolhardy. Whether the seeds of our destruction have already been sown or if the combined genius of the world can overcome any obstacles to create a better place to work, learn and live we shall just have to wait and see.
Better ways of working learning and living
March 29th, 2009Innovation and adaption drives value
The application of new ideas and improvements to existing ideas is at the heart of the knowledge economy, increasing value in the overall economy. Innovation is its currency. Schools, universities, research establishments, public libraries and commercial entities are central to the creation, enhancement and exchange of knowledge. Traditional methods for publishing knowledge, such as newspapers, magazines and books, now compete with websites, blogs, tweets and wikis. These more radical ways of publishing within the knowledge economy enable new forms of knowledge to develop within our community but it means that traditional institutions of the knowledge economy have to change radically or they will no longer exist.
This is happening. Radical changes have resulted from the many incremental changes made to the internet since it was established in 1969. This gradual transformation provided a solid, ubiquitous platform for human communication and collaboration. It is useful to think about these changes in phases:
- Web 0.0 connects technologists –The Internet (1969)
- Web 1.0 connects information –World Wide Web (1991)
- Web 2.0 connects people – Social Networks (2002)
- Web 3.0 connects knowledge – Semantic Web (2006)
- Web 4.0 connects intelligence – Ubiquitous Web (>2010)
Quality ideas not tools
Paradoxically these emerging global forms of the web have reintroduced more traditional storytelling techniques for knowledge exchange. Before the telephone, stories were recounted, listened to or written down. The Bloomsbury Set, for instance, the friends and family of writers, painters, critics and economists including Virginia Woolf, EM Forster and John Maynard Keynes, who congregated in that inner London suburb, challenged the social ideas of the early 20th century, exchanging their thoughts by mail delivered twice a day. With the web, its product, like letters of old, is much more permanent than telephone conversations and will make wonderful source material for analysing the knowledge economy.
Small Businesses need to collaborate to drive innovation so they can grow even in tough times
April 30th, 2009Back in 1996 as Managing Director of Acumentum I was invited to lunch with the managing directors of Quantum Market Research, Campaign Palace, FHA, Geyer Design, Invetech, Cambridge Consulting and Mann Judd. What do these companies have in common we were all providing services that retailers wanted to buy; web design, market research, advertising, branding, interior architectural services, recruitment and accounting services.
Our companies all overlapped in skills and expertise but none of us were competitors. Over the next 10 years we met maybe more than 100 times. We enjoyed each other’s counsel, friendship and trust. In various combinations these companies shared tens of millions of dollars worth of business and we pushed and encouraged each other to become better businesses. We learned how to collaborate.
What is collaboration you ask? It is learning to be open, to be prepared to take risks with others to make all of the group more successful because as a group we can work together to achieve much more than we can on our own. The group collaborates to become more than just the sum of its constituents.
Acumentum would never have been selected to design ANZ Bank’s Intranet “Max” without FHA bringing us in to support their rebranding of the bank. Geyer Design, Quantum and FHA transformed Jeans West.
Survive now prosper later
Small to medium sized enterprises must collaborate to improve their productivity and maximise their wealth. The global financial crisis has reduced demand for services including information technology and communication services and to survive this crisis we all need to perform at our best. Anything less threatens our survival. Collaborating with similar likeminded companies will help you not only survive the GFC but will put you in an excellent position to accelerate your activities to enjoy the positive business cycle that will inevitably follow.
Whilst we might start out like the lone wolf we all soon learn to hunt in packs. Anthropologists inform us that when our forebears learnt to hunt in packs their daily intake of protein increased and they grew taller and stronger. In teams we learn better co-ordination, co-operation and collaboration which reduce risk and improve outcomes.
Our ancestors began their long journey toward our digital economy making and catching everything they needed to survive. Over more than 100,000 years the human race learned to specialise and organise into teams to maximise achievement. Examination of our complex economies particularly how we human behave clearly shows that team work, leadership and trust have significant impact on economic performance.
The importance of trust
Stories from our childhood glorify the wonderful inventions of the lone genius but in our working lives we have all recognised that today’s great inventions usually result from substantial collaboration, often from teams spread all around the world. It seems obvious that more complex problems are best addressed in teams. Using teams to solve complex problems takes more than good project management and co-ordination it takes real collaboration. Real collaboration demands time, resources and most importantly trust.
Massive collaboration dramatically increases the rate of innovation. When teams of experts work on a small piece of a very big problem and collaborate effectively, very big problems are solved in shorter and shorter timeframes.
Collaborating with others to create new ideas, to share and develop those ideas to create new value has been shown by economic researchers to be a superior strategy than individual invention. Researchers like McKinsey’s Beinhocker have shown that much greater economic value is being produced in economies that have high levels of trust because that is a much more productive environment for collaboration and sharing for mutual benefit.
Levels of Trust vs GDP per capita
Recently I finished reading Eric Beinhocker’s wonderful book The Origins of Wealth. This book helped explain why the collaboration strategies I had developed over 23 years of running my own business, worked. Beinhocker provides extensive evidence and theory on why organisations that can build on lessons learned and who create a culture of trust succeed where others fail. This graph clearly shows that economies that are built on high levels of trust generally have much greater GDP per capita than those economies with low levels of trust.
It is insightful to notice that economies with common characteristics often have similar positioning on this graph. The former communist countries have inherent lack of trust and poor economic performance. Notice that China is a major exception amongst the communist countries and may well benefit from their high levels of trust in building their economic performance over the coming years.
Solving the complex creates value
The small business environment covers the complex and chaotic to the complicated and simple. All small business operators know that if it is simple everyone can do it. Once a product or service is made simple, it becomes a commodity and then you must compete, either on quality of service or price, and it is usually price. Small ICT businesses have difficulty providing scale and competing on price. The best small businesses outperform others because they are flexible or nimble and more efficient or all three. They are able to make sense of the chaotic, master complexity and sort out the complicated.
In working through the complex I am often reminded of that wonderful quote from Oliver Wendell Homes that much admired American jurist, who said “I would not give a fig for simplicity this side of complexity but I would give my life for simplicity on the other side of complexity”. I believe very strongly that leaders in small business need to collaborate effectively with other small businesses to get to the other side of complexity and in doing so generate substantial value for their customers. By sharing this increase in value with their customers they build trust with their customers and customers value dealing with them. So small business should look for other small businesses working in complimentary areas, facing similar challenges where solutions to complex problems can create substantial value. Rapid innovation, delivering greater value to customers builds sustainable businesses that create more wealth for their shareholders, staff and customers.
Ever since Adam Smith described the influence of the invisible hand to describe the self regulating affect of markets and wrote in Wealth of Nations that increased specialisation in the division of labour increases wealth, businesses have focussed on what they do best. “Stick to the knitting” is a well warn catch cry. There is substantial published evidence that increased specialisation leads to increased wealth. Yet so many small businesses see the best way to grow their business is to do more things for their established customers. The opposite strategy of finding more customers wanting their “thing” is far more successful. But winning new customers on your own is hard; collaborating to share your customer base with trusted partners is far more successful.
Creating value from trusted relationships
Capitalising on the valuable trusted relationships is a sound growth strategy for most small businesses. Because these relationships are valuable don’t give them away easily. But when you are able to identify capable expert collaborative partners, when your ability to assess other suppliers in complimentary fields to your own you can provide your customers with valuable solutions to important problems they face, you are creating value for you, your customer and your collaborative partner. Because your customers trust you they do not have to do as much work evaluating a new product or service. But the bottom line is your customer trusts you. Don’t breach their trust because if you do you will destroy value.
How to collaborate
In choosing a collaborative partner seek out complementary skills and capabilities so that working together, sharing their ideas and developing new solutions additional value is created which you can choose to share with your combined customer bases.
Effective collaboration does need high levels of trust and cannot be achieved overnight. So make sure that the desired outcomes from any collaborative process justify the effort and resources required.
In these tough times small businesses may not have enough work to keep their valuable employees occupied. They may not be able to pay next month’s salary bill or valuable employees might be getting bored or frustrated at doing work that is below their skill level. If two or three small businesses with similar skilled employees share those employees they will be able to continue to provide staff with challenging work and share the costs to help them through the down turn.
The best strategies in the world are worthless until they are properly executed. So whatever the goal for your collaboration it must motivate action.
As you go about choosing who should be in your CollabIT group it is important to think carefully and do your due diligence on each other. Decide who’s in and who’s out. Then as you go about building trust and start collaborating to create new value take note of what works and share it with other groups.
In choosing who should be in your group it is important to be close enough in skills and expertise to be able to work together on valuable complex opportunities but you don’t want to be collaborating with your direct competitor. Experience shows that whilst there may be 5 or 6 companies in a collaborative group most projects are done with one or two collaborative partners at a time.
It is vital that you know what your core specialisation is. You need to ensure that you constantly improve this specialisation because over time if you stand still your collaborative partners may conclude you are no longer adding valuable specialised expertise to the group and they will move on.
Once a reasonable level of trust has been created very complex problems can be addressed. Because trust has already been established in the group lengthy legal agreements are not required before exploration for the new project can begin. Hence a good collaborative group adds value because they can begin more quickly than the traditional consortium.
Do you have a good story about collaboration? Would you like to share it with other small businesses? Visit CollabIT Victoria group on LinkedIN.
The Web is changing how we live and how we create wealth
July 29th, 2009Acumentum’s catch cry was “Creating Better Ways of Working, Learning and Living” and now 10 years later the world’s web designers and entrepreneurs have changed how we live. eBay has given us an online garage sale, Facebook a much better way to share photos and organise parties, and no one would search for a new job or buy a car or house without spending hours and hours researching these most important decisions using the Web.
In short the Web has changed the way we make decisions and because of this it has changed the way our economy works. The way we co-ordinate, co-operate and collaborate has been radically changed because we can rapidly and globally share ideas to engage others. By engaging others with our ideas whilst building trust we more efficiently conduct economic activity so we create more value. Hence we create more wealth.
It has taken more than 40 years for the Web to achieve this impact on all our lives. My first experience of a global network was IBM Profs network in 1978. It was only 7 years earlier that the very first email was sent by computer engineer Ray Tomlinson in 1971. Since first using Profs I have seen 4 major evolutions which could be described as:
Web 0.0 linking the technologists from say 1969
Web 1.0 linking information pages from 1991
Web 2.0 linking people in social networks from 2002
Web 3.0 linking knowledge from around now
What we need to learn from these major phases of evolution is that it is the new forms of organisation that are important and never the technology itself. Without electricity we could not have computers but to see computers as an extension of electricity is pretty meaningless.
So by studying how organisations have changed in the past we can gain insight into how modern web-based ways of co-ordinating, co-operating and collaborating will change how we structure commercial activity and organisations in the future.
As film technology exploded after Warner funded the development of cinematic sound with the Jazz Singer in 1927 we soon had Gone With The Wind (1939) and The Third Man (1947). But it wasn’t just the cinematic experience that changed; the organisations making films also soon went through a revolution too. The monolithic studios of the 1930’s have now been replaced by new flexible forms of talent organisation and we have seen new ways of structuring film production companies and sharing risk.
It is now our challenge to see what forms of organisation and structure work best in the twenty-first century. What forms of organisations will encourage ideas? How can we structure our teams to best manage creative tension to generate the most valuable ideas? Who is creating the value and how should they be rewarded?
Connecting knowledge with people
Those that quickly learn to collaborate will create the most value. What the explosion of online services shows is that the only way to stay in front is to run fast. Past achievements and horded assets will not account for much. Look at how quickly Google has eclipsed Microsoft. Our past will only be valuable if we can use it to connect with people to generate new and important ideas that others value. The lone genius looks like a dying breed. People who can co-ordinate, co-operate and collaborate best have a much higher likelihood of creating the winning ideas and hence the most value.
There is no place to hide today. The world is now a village and you will be known for what you are and what you deliver. Tools to manage reputation will emerge. These tools will aggregate what you do with others and how often you work with them rather publishing what someone else has said about you.
This enormous connected village means there are people out there that know what you need to know to achieve what you what to achieve. The most successful people in the future will be those who are best connected to those people.
Now are you prepared to back yourself solo against the world or do you think you would rather call a few friends, friends who could be anyone of the 2 billion people connected to the internet today? Some of these two billion people can help you generate better ideas and workout better ways of executing to create the most value in the shortest period of time.
Specialising – providing enhanced skills, knowledge and expertise
But will 2 billion connected brains just swamp all of us mere mortals? What strategies do we need to deploy to survive and prosper?
Most people today use specialists for most services they need to live. At home we have outsourced painting, plumbing, lawn-mowing, garden design, food preparation and house work. At the office most small businesses have outsourced IT support, printing, human resource management, and recruitment just to cover a few services from a very large list. The very best firms identify what it is that they are exceptional at and focus on that to drive their business; all else they outsource.
Ever since Adam Smith described the need for increased specialisation in the division of labour in his book Wealth of Nations, businesses have been learning to focus on what they do best. “Stick to the knitting” is not a new catch cry. Today there is considerable evidence that increased specialisation results in increased GDP per capita.
The problem with increased specialisation is that our customers want whole solutions and the ease of buying them at the one shop. For larger organisations dealing with a myriad of smaller companies brings with it increased risk and higher transaction costs.
The automotive industry solved these problems by creating tier one, two and three suppliers, aggregating parts through each level until cars are produced by the global manufacturers. In this way a smaller business can design the very best seat covers and provide those to the supplier who makes the seats who provides the seat to supplier who assembles the car interior solution who provides all that to the global manufacturer. The auto industry invented “just-in-time” processes to make this new way of organising work possible.
Now that people everywhere use the Web to communicate and socialise it is becoming possible to invent “just-in-time” processes for every industry and service sector by knitting together different type of organisations with very different characteristics. Small, agile and flexible organisations will combine with others, both small and large, in an effort to produce the best results. Just as the Internet was designed to continue operating despite losing parts of the network, new forms of organisation will also be able to continue to operate at high levels of performance as the cells that they are made from rapidly change.
It is widely acknowledged that businesses have had to innovate or they have died what is now emerging is that companies need to collaborate or they will die.
Business Planning: It’s a Lot More Than Strategy
August 24th, 2009The word ’strategic’ has become pretty meaningless through overuse. What is strategic and what is tactical? Is strategy just about direction and tactics just about the doing or operations? Company boards are said to be responsible for strategy and the management team responsible for operations. But boards seem to spend most of their time reviewing management decisions, operations and shadowing the management team. Therefore it must be easier to review actions than set direction and allocate resources. How can we best develop strategy and also excel at execution?
A start-up has a small bundle of cash and some highly energetic people who are passionate about an idea. Each and every day they make decisions about spending their limited cash and what they do with the 86,400 seconds each of them has each day to get things done. Every dollar and every second can be spent on many things but can only be spent once.
Strategic planning is about deciding how to achieve the best possible results with your available resources. Each choice sets up future possibilities and closes off others. So strategic planning is about making the best choices. For a company to make the best choices it must continually learn from experience. But it is in the doing that strategy and operations intersect. Good choices must be well executed to achieve outstanding results. Ultimately good business planning is about changing behaviour within the company so that the right things are done and they must be done right to achieve the best possible outcome.
Why is Planning Important?
I’ve often heard it said that planning is a waste of time because whatever you plan for your business it never turns out the way you plan it. My response to this is that planning is like training to run a race; it is fitness preparation for future business activities. Much like a thought experiment it exercises our brains and provides a review of our resources to run a variety of races without actually expending the energy and resources to run each race.
In being prepared to run one type of race we will be better placed to run another when the opportunity is presented to us. Our dilemmas are many as we might prepare for a marathon to only find out we have a short sprint to run but planning is important because a well prepared marathon runner can still beat a couch potato over 100 meters. Having prepared our company for plan A even if we are forced to make up plan Z on the run our preparations for plan A are more likely to prepare us for any eventually than doing no preparation at all.
So strategic planning is more about learning to be ready, fit and able to meet any opportunity than it is about preparing for a specific anticipated future opportunity. It is about honing the organisation’s skills, culture and resources to be agile and capable of performing in the emerging economic environment.
Business Planning as a Learning Process
To improve the outcomes achieved by any business it is essential to create a continuous learning culture, one that constantly strives for, not accepting anything less, than a high performance culture. Research into learning identifies that people learn best in a realistic or ‘authentic’ environment where they can learn by doing.
At Acumentum we achieved this by three integrated strategies. Firstly we established a 90 day induction process for every employee with a tailored, more detailed, induction for our Industry Based Learning interns. Secondly we created a formal coaching and mentoring system right across the company so that every member of the team had a mentor and a ‘management’, ‘design’ and ‘technical’ coach. This created a lattice of relationships to encourage everyone to share in everyone else’s success. The third and cornerstone strategy was to run an annual three day business planning and learning workshop (usually off site) to kick the year off, set major goals and provide hands on learning activities to ensure the company had the skills to implement the business plan.
A strong thread through all three of these strategic programmes was to establish and foster the core values and foundations of our culture. Values cannot be found in a book or learned at a conference or inspired by a guru. The values of a company are inherent in the people who make up the company. Understanding those values helps ensure that the people recruited, share those values and work together to help shape the culture as the company grows.
I have seen a team of people who were engaged and passionate about what they were doing and outstanding results flowed from this. I’ve also personally made the mistake of failing to exclude people, who whilst being impressive, did not share the same values and were not culturally in tune with the team. Looking back the damage done was heart-breaking.
The Role for Leadership and Management
Business books talks more about leadership than management. However my experience suggests success seems to demand both. In small business that means the leaders need to know how to lead as well as manage their company. Leadership takes many forms with few silver bullets. You can lead from the front or behind and with gusto or stealth. In all cases leaders need to be authentic, consistent and connected with their team. Whilst Groucho Marx may have said “To be successful you need to be sincere and once you can fake that you’ve got it made” it is only a matter of time before a team will be undermined by a lack of authenticity, inconsistency or spin.
Effective business planning begins with the leadership group clearly setting down what it is that they are really, truly, madly, deeply passionate about. They need to know and be able to communicate what will be achieved by this passion and why others should join them. Your plans need to empower and engage your followers. People become engaged when they see that they can make a difference. People need to believe in what they are doing. It is not surprising that credibility comes from ‘credo’ or ‘I believe’.
Developing a High Performance Culture
The path to be the best in the world at anything is long and arduous. In his insightful book ‘Outliers’ Malcolm Gladwell suggests that it takes 10,000 hours to become an expert in anything of substance. That the real secret of success is that to achieve these 10,000 hours of practice before others, requires early access to the right opportunities.
A business cannot afford to pay for 10,000 hours of learning for all staff so the business needs to set goals where skills and expertise already exist. Learning objectives should be a fundamental part of the business plan to ensure that all activities of the business build skills and create assets that enhance the future earnings of the company.
By accepting mundane and low value projects and opportunities the company is limiting its scope for future work. You are only as good as your last project. The value of and skill required for the next project must be a little better than the last. In this way you steadily move up the value chain.
A high performance culture also requires that we unlearn certain bad habits. The planning and development process should consciously identify unproductive behaviours and determinedly set about removing them. Be aware it is much harder to unlearn something than to learn it in the first place!
The Planning Process
The planning process should be well structured and easily understood. The role of the board, leadership team and operational groups should be clearly understood by everyone in the company. The company strategy should be set by the board, communicated and executed by the leadership group with the support of the whole company.
Acumentum explored a number of approaches and settled on the following widely accepted process:
A Practical Business Planning Process
Session One: The Audit – what is the current state of the business?
In setting out on any journey it is essential to know from where you are starting. A good plan must be built on the solid foundation of a realistic view of where the business is today and that is not where you wanted the business to be today; it must be exactly and accurately where the business is today.
Start with understanding your environment. Evidence based decisions require hard facts. Look for data more than opinions. What market(s) do you operate in? What type of organisations are typical customers? How many ideal customer organisations exist in your target market(s)? What value is created by your core business activities? On average how long have current customers been customers? What is the average spend, of all current customers, top 3 customers and bottom 3 customers? How many new customers has the company won over each of the past two years? What has been the average monthly invoicing of these new customers? How many customers has the company lost in each of the last years? What was the average monthly invoicing of these lost customers? Who are your competitors? How many competitors actively target the market(s)? What are the major competitive issues? How easy is it to attract staff? What organisations or institutions will provide you with ideal recruits? How mature is this industry sector? How fast has your company grown over the past 3 years (Revenue, Gross Margin, EBIT)?
Session Two: Assess – what does the evidence tell us?
Once you have gathered the facts they must be carefully assessed. Leave predicting the future to soothsayers and mystics. Examine the evidence you have gathered and create likely scenarios for your business. What evidence is there that this sector will continue to grow? What technological or economic forces that might impact this industry? What would we do if our customers no longer required our main product or service?
Acumentum received millions of dollars designing and building websites in the 90’s. Because there were so few examples to copy and university graduates had not been studying how to do this we employed designers who could create things from scratch, people who could write the rule book and we were able to charge a premium for their work. Our 2002 business plan failed to ask the question what we would do when our customers no longer needed this level of service or wanted to hire more specialised design services.
Session Three: The Plan – Goals, Objectives and the Action Plan
The planning part is rather straightforward; goals, objectives (Specific, Measureable, Achievable, Results oriented, Time framed) and a plan of actions that will achieve the goals. Where does the company want (need) to be in 3 years time? The goals must be realistic but not conservative. Three years is a realistic timeframe that requires action now; anything greater is too far over the horizon, anything shorter is problem solving. Goals must be set within the purpose of the organisation. What is the organisation’s purpose or meaning? Why does it exist? And whilst “profit” may seem the obvious purpose of any commercial organisation; profit is to an organisation as oxygen is to life, vital but not sufficient.
The plan must not only clearly identify what actions must be done but what resources are required to carry them out successfully. Looking back on the many plans produced at Acumentum not enough of the plan actually got done. This possibly was because we failed to accurately identify what resources (time, tools and materials) would be required to successfully execute the plan. What do we need done to get there from here? A further mistake we often made was not to carefully consider what alternatives do we have to get there? Rather than just look at one plan, what alternative plans are there; if we invest in x this year what will happen rather than investing in x or y next year or in year 3? What combination of options will give us the best results? And what level of certainty/risk is there in this plan of action? In the end, your plan is a choice of options with tradeoffs.
One of the founding staff members at Acumentum Roly Maxwell often said “what you can’t inspect don’t expect”. An alternative cliché says it slightly differently, “if you can’t measure it you can’t manage it”. The key lesson I’ve learned in business planning is that your action plan must ensure that your objectives are aligned with your goals and that all the planned actions are directed at achieving the objectives. If people engage with the plan and understand the alignment of goals, objectives and actions they will get things done. The team will then know what has to be done, why and when.
Session Four: Doing it!
For a plan to be well executed in any small business it must become an integral part of everyday business. Very few, if any, small businesses have the spare resources to allocate to implement a new plan. To change behaviours in the business and to ensure that those people allocated the responsibility for each task in the action plan understand the value of their tasks in the everyday operation of the business, the action plan must become a real project not something everyone does in their spare time.
Progress must be measured and the everyday management system that provides metrics for the operation of the business must incorporate the measuring of progress towards business plan goals.
Ongoing Verification and Review
Everyday management must verify that what has been agreed to be done is being done and that what was anticipated to be achieved is being achieved. One of the big challenges for every business owner is to be able to stop working in the business and start working on the business. A structured review process for the business plan is one of the best ways to assist in this transition. Quarterly reviews of financial, marketing and human resources strategies helps elevate the thinking processes to questioning the direction and allocation of resources.
Conclusion
Effective business planning creates fit agile companies that can respond and exploit the best opportunities that come their way. The continuous learning approach sets real challenges for us to be better today than yesterday but we know that we are not as good today as we will be tomorrow. As we learn we grow and become more capable but always ensuring that the company is fit and capable of taking on the challenges it faces. Always stretching but never straining!
If you would like to view a 15 slide 28 minute audio presentation lick here.
Mass Collaboration is Driving Specialisation
September 23rd, 2009The things we are best at we enjoy doing
The converse is also true the things we don’t do so well we rarely enjoy doing.
Most small businesses are built around the passion and specific expertise of the founder. But there are many things that must be done if a small business is to grow and prosper. Cold calls must be made to find prospects. Proposal written before contracts are signed. The work must be done well to meet the needs of the customers. Invoices must be prepared and sent before the cash can be collected for all the good work done. The accounts must be kept to financially manage the business.
Be honest with yourself. Think about your own business and I am confident that you will, like most small business owners, recognise that you only do a few of these things better than most. To run your business you think you have to do it all but do you? Should you?
Back in about 2004 Acumentum had been employing an enthusiastic and knowledgeable techo to look after our network to make sure that all our expensive designers and programmers didn’t waste time configuring and maintaining their PCs and software. He earned about $50K a year. Having mastered our 30 PC network he accepted an offer of a more exciting job working on a larger and more complex network. We wished Martin well. We advertised and appointed a replacement but a week later the new techo resigned (because he got a better position he was going for). Right at that frustrating moment one of the owners of The Grid made a cold call to our office and not surprisingly he was very well received as he had a wonderful solution to our problem! I think we even gave him an espresso coffee and a sticky bun.
The Grid are specialists at setting up and maintaining PC networks. Rather than costing me $50,000 salary plus payroll tax, Workcover, sick leave… I needn’t go on. They put a proposal for $22,000 per year covering every working day of the year! No payroll tax or Workcover but critically no calls in the morning saying I’m sick can’t come in today.
Earlier this year I began coaching David Markus the founder and Managing Director of Combo. Combo (www.combo.com.au) is a firm that provides outsourced technical support for computer and telephone networks. They have worked extremely hard at refining their specialty. Learning how to do things more effectively, more reliably, at a higher quality and ultimately at a much lower cost than their customers could possibly do themselves.
By setting up the network to refined standards, configuring software so that it meets requirements and providing online access for experts to assess and fix problems Combo have improved the productivity of their customers whilst substantially reducing their costs. They can do this because they learn better techniques and better solutions every day. New standards emerge and costs are reduced. Everyone is a winner.
Increased specialisation is driving innovation which is creating real value and ultimately wealth
This is not a new idea. Adam Smith wrote in 1776, six years after Captain Cook sailed into Botany Bay, that “the greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have been the effects of the division of labour.” That is productivity gains are achieved by breaking the work into its specialised parts.
Over the 235 years since Adam Smith identified the importance of specialisation, economic success has clearly demonstrated the value in freeing up workers to focus on what they do best, creating efficiencies through learning better ways of accomplishing the chosen specialised tasks, improving the process by breaking the tasks into simpler tasks and providing opportunities for the specialists to innovate and invent better ways of achieving the outcome.
In this time industry has also learnt the cost of mind numbing repetition and worker disconnection that reduces productivity and over relatively recent times work practices have focussed on motivation and responsibility to drive quality and productivity.
All this has produced highly innovative outsourced businesses that provide products and services to save time, improve quality or lower costs. Phil Ruthven, Australia’s best known futurologist, has been forecasting the outsourcing of cooking, cleaning and education from our homes for more than 20 years. Think about the last time you went to a good butcher. Not only do they dice the beef but they will also add the marinade and provide you with the ready ingredients so that all you need to do is cook.
As the NBN is rolled out and every business and every home gets 100mb (which will soon become a gigabit) Internet access to their desktops it will be possible to divide up the tasks even further and new and even more innovative businesses will emerge.
Small business owners are self reliant, action oriented, results focussed people
Will the characteristics of successful small business owners hinder owners in taking advantage of the emerging outsourcing businesses that can improve the quality and lower the costs of many of the tasks they do internally today?
In 1937 Ronald H Coarse published a paper titled “The nature of the Firm” in which he argued “A firm will tend to expand until the costs of organising an extra transaction within the firm becomes equal to the costs of carrying out the same transaction on the open market. As long as it is cheaper to perform a transaction inside your firm keep it there. But if it cheaper to go to the marketplace do not try to do it internally.”
In 2009 the enormous range of potential suppliers (usually over the Internet) of ever increasing range of tasks makes the cost of carrying out most things externally cheaper than continuing to do them in-house.
Smart businesses today use their business planning process to thoroughly review every task they perform in their business. Each team within the business should be encouraged to compare what they do every day and decide if someone else can do it better and or cheaper. They should be using this process to constantly focus on what they do best.
But even with those things that people do best they need to be using the Internet to help them do it even better. “Someone outside your organisation today knows how to answer your specific question, solve your specific problem, or take advantage of your current opportunity better than you do. You need to find them, and find a way to work with them collaboratively and productively with them.” (Wikinomics: How Mass Collaboration Changes Everything)
Addressing Business Frustrations can add Value to Your Business
October 30th, 2009A Q&A flashed up on my LinkedIN home page recently asking “What is Your Biggest Business Frustration?”Reading through the many responses I was reminded of what I was taught at IBM, focus on those things that are within your ability and facility to fix and a much later lesson that being held responsible to fix things for which you have no authority will send you insane.
Using my 23 years of experience owning and operating several small businesses I created the following approaches to help any business owner address the frustrations from the LinkedIN Q&A:
1. Turn your frustration with customers failing to value your ideas, time and assets by building real partnerships with your customer or supplier to increase the value of your services by improving productivity and quality and then share the dividend with them.
2. Work with industry associations to develop partnerships with governments for when they are both providing services (licence, regulate, delivery) to industry or being customers for products and services from industry.
3. Engage employees in the purpose, execution and value creation in your business and share the increased value with them.
4. Engage directors, shareholders, potential investors and experienced entrepreneurs in establishing an accurate appreciation of the value of your business and the future rewards from it so that the risks and rewards from their investment are more accurately able to be identified.
5. Develop strategies that achieve the largest returns on the assets (people, expertise, IP, capital, facilities, suppliers and customers) of your business based on providing products and services at a quality and price that your customers are prepared to pay.
6. Recognise that whilst owners often are employees of a business, employees are mostly not owners in the real sense of share ownership of the business. Confusing this frustrates the owner and irritates the employees.
Customers
It’s obvious but worth stating, to survive and prosper all businesses must recover all their expenses plus make a reasonable profit. Some of the profit is rightfully returned to the shareholders and usually most of it invested in improving the business. Therefore it is in the interests of long term customers that their suppliers make a reasonable profit so that the sunk costs of the supplier’s understanding a customer’s business can deliver future value.
When a customer fails to respect the value and ownership of ideas (Governments are the worst offenders) by taking proposals from industry and shopping the best around to get the cheapest company to build it, the customer is increasing the costs for better businesses whose ideas are taken, must be recovered their costs from their other customers.
A variant of this is when a customer demands that suppliers present their design solution, without payment, as part of the selection process. Inevitably, despite claims to the contrary, the ideas provided by the losing companies and not paid for by customers are consciously or unconsciously utilised in implementing the solution. I was outraged recently by the mindless media attacking the Victorian Government when they provided a payment to the losing bidder in the Desalination Plant tender process for recognition that their participation, ideas and comparative value had come at a real cost to the losing bidder and benefit to the project, government and taxpayer.
Government
Governments are lampooned and we all continue to laugh at Yes Minister but despite this, our society would not and could not operate without government. There is too much paperwork for business so governments must be forced to improve how information is gathered and they must ensure that only information that is useful and used should be collected.
Public servants and the public service culture is focused on process whilst industry would prefer a more outcomes focus that supports them in driving value in our economy, yet at the first sign of unfairness or the appearance of unfairness, lobbyists and the media cry foul and demand the Ministers scalp.
In working with government, industry must ensure that outputs are efficient but that value is measured by the outcomes achieved. Too often when it suits us we take our fees and are happy to hide behind the delivery of a specified item knowing that whilst we have delivered to specification the customer will not achieve their desired outcome.
So when we decry public servants for looking busy and executing processes that produce little in terms of value and complaining about their lack of risk taking and constant care to avoid making any mistakes we should recognise we can’t have it both ways.
The solution is for industry to work closely with government, each doing what they are best at, but the tax payer will continue to lose if we privatise the profits and socialise the losses.
Employees
In the Tipping Point Malcolm Gladwell has written about the vital role played by special people who can ignite a social epidemic. He highlights the critical role Paul Revere played in the mass mobilisation of citizens of New England against the British after the Boston Tea party at the start of the American Revolution. In my local community of Woodend two young mothers; Kellie Duff and Jane Walduck similarly ignited a social epidemic to build a children’s park. Kellie and Jane mobilised 100’s of people to work tirelessly to not only raise $600,000 but provide more than $400,000 of in-kind services to build a wonderful place for our children to learn and play.
Every successful company needs people who not just know how to do things but know how to engage people and they know what it takes to achieve the goals for their company. Business owners can bleat about employees who fail to work at work and employees can rail against bosses who fail to give them the support and authority to get things done. Value is created when goals are set, resources allocated, measures agreed and rewards for outcomes delivered to motivate the team for the next round. The success lies in a team that has complete clarity and unity of purpose, a breadth of exceptional, driven talent that naturally coordinates, overcomes whatever obstacle that is presented and actually emerges stronger for it at the end. Plus of course, leadership that is unwavering, inspiring and supportive.
Whether it is a debate about CEO remuneration or pay for performance for all employees it is essential to match the actual achievement with the reward paid. The complexity comes when outcomes are difficult to measure. At one level sales are easy and a commission rate set but poor sales people know that they can survive for months or even a year or two on a good base with a car and expense allowance. Business Owners learn that top sales people are free (their total costs are met by the additional business they bring to the company) and poor sales people cost you a bomb!
There are dangers in focussing too much on the short term and failing to recognise what builds future value. Valuable employees need time to think to develop their skills and expertise. In today’s 24X7 world, people “jet ski” across a broad ocean of online information delivered to us all by the Internet but make sure that your team does a bit of scuba diving to plumb the depths of real expertise and knowledge.
In the 80’s the Hawke Labor Government introduced the Training Guarantee Act to force businesses to invest in the training and development of their workforce. It did not solve the problem and what looked like a good idea was soon abandoned.
Whatever the process, remuneration must be fairly be aligned to reward the creation of value. Over the 23 years I operated my own business I was often told after I fired someone that everyone in the team resented that they had carried a non performer for too long! People know that when they see a colleague slacking off and working on non value adding activities that it is their efforts and the value that they are creating that is paying that person’s salary. I had a favourite saying that I don’t pay your salary you have to earn it.
Good people don’t blame others when thing don’t work out. They examine what has happened and ask themselves, why did that person not understand my position or point of view? They ask, what did I miss? How could I have presented it better? Good employees know that when a customer rejects a brilliant idea or design then they need to learn why. They never dismiss the customer as stupid or an idiot.
Having written about frustrations with Customers, Government and Employees I’ll take a look at frustration with Investors, Returns and Business Ownership.
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