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Saturday, 24 June 2017

Lowest Price? Not From Us – We Sell Excellence!

He sat at the front of the class of Managing Directors that I was taking at a Business School, arms folded and a belligerent look on his face as he said: “We won’t stay in business if we don’t quote the lowest prices in the industry”.

There were two fallacies there.  Firstly some research uncovered the fact that his prices were about mid-way in comparison to the rest of the industry, and secondly, in the end he increased his prices and didn’t go out of business.

It all came to mind as I listened recently to a radio programme when a Managing Director of a German engineering company was being interviewed.  As is usual with radio interviewers, he was asked how difficult it must be to remain “competitive” in a world market.

The response was illuminating and demonstrated a totally different attitude and possibly even culture.  Slightly surprised by the suggestion, the MD said: “We are extremely competitive because we manufacture to very high quality.  

Our customers know that they can buy cheaper in the Far East but they prefer quality and reliability so they come to us.  Because of this we can charge higher prices and we are very busy”.

Slightly shocked, the interviewer went banging on about “being competitive” without realising or even accepting that being competitive does not necessarily imply low prices.  In fact, research has shown that when considering a purchase, price can come about fourth or even fifth on the list of purchasing priorities.

The fact is that lowering prices by, say, 10% can mean that you need to sell nearly 50% more just to stay the same and there is no value in that exercise.  On the other hand, Vistage speaker, Malcolm Smith, demonstrates that only a 5% increase in prices and a 5% decrease in costs can double the bottom line.

The problem is a deep seated one and is cultural.  Very few items are truly price sensitive although conventional thinking says that we must reduce our offer to obtain the business.  In fact we often think, as did my student, that this is the only way to generate business.

In my consultancy days I had a client who manufactured testing machines for concrete and was also responsible for the maintenance and calibration of them machines.

He was losing money on all these peripheral activities and I suggested that he should double the fees for the service.

When he recovered from the shock and after some discussion he said that he would try it out.  In the end the only customer to contact him asked if he would postpone the fee increase for a couple of months so that they could include it in the next budget.

Take a leaf out of the German MD’s book.  Purchasers demand great service, quality and reliability right across the board from a supplier and we need to be brave and charge a price that reflects that fact.  That way leads to success.

If you would like a digital copy of the price/margin matrix just make contact and I will send it on to you.

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Sunday, 18 June 2017

Are Your Systems Fit For Purpose? Are YOU Fit For Purpose?

I am fortunate to have some regular readers and followers of Ivan’s Blog and even some who are kind enough to comment (mostly kindly) for which I am truly grateful.  We all know how feedback can be welcome and valuable.

This week I heard from a dear friend who told me that, on a regular basis, he carefully checks his security settings, firewall, anti-virus software and all the associated settings to make sure that his device is “fit for purpose”.  In view of the growth in cyber crime that is an eminently pragmatic approach.

I am not sure how seriously we take this potential problem.  Certainly I back up on a regular basis and make sure that all the necessary software is up to date but is this all that I need to do?  Probably not and because of the prompt I intend to take action to make sure that the Mac is well up to date.

That having been said my friend went on to say that he also takes time out to review himself and to make sure that he is also, fit for purpose.

That really caused me to think.  As my maturity advances inexorably it becomes even more important to keep all the bits and pieces in working order as effectively as possible especially in mental terms. Writing this blog is  a good exercise in that respect.

However the idea of a personal “fit for purpose” should apply far more widely for all of us and certainly for me.  For example, do I really know my values and more to the point do I live them at all times?  Sadly the answer has to be no.  I think that I know my values but perhaps more in the breach rather than in the observation.

It is so easy to slip without thought.  The “chimp” in us escapes when, for example, I don’t give the respect to someone who deserves it.

My late father taught me the importance of good manners, to say “please” and “thank you” and that, I am glad to say, is now automatic. Simple courtesies like not interrupting someone are easy to achieve and they are just as easy to forget.  

Note to self: must try harder.

We are living these days in times of sadness and turmoil whether it is political or terrorist inspired and with a dreadful regression into blame culture. However that does not preclude our living a life that respects other people’s views and even foibles without judgement.  I don’t want people to judge me so why should I feel free to judge others?

My friend says “I am also reminded that each day I need to carry out a quick scan on myself : to make sure that I am fully aware of what is happening around me and what I seek to achieve.  Am I ‘fit for purpose’ and am I on the right road?

That is a very wise comment and it has made me think about my own behaviour and attitude.  We constantly go on about people in business with bad attitudes but when do we take stock of our own attitude and behaviour?

Maybe it’s time for a little introspection.
Great leadership leads by example.  A poor example can be just as easily passed on and copied as a good one so I aim to make sure from now on that I know my values, write them down and then constantly check that I am living them.

Thank you, Harold, for the wake-up call.

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Sunday, 11 June 2017

What Happens When Reality Hits Your Plans? You Need To Be Ready!

Over the years I have heard and read ad nauseam that it is essential to plan, to know where your business is going. It is the bedrock on which the successful growing business rests.

The cleverest leader I have ever encountered was the late Jim Slater, possibly the first and certainly initially the most successful of what became known as the “asset strippers” of the 1970s.

When he was asked why he was so successful in comparison with the competition he said simply “because we plan, we know where we are going”.

At the same time I heard a little quote from another source that said: “People want to know two things, how am I doing and where are WE going?” with the implication that only with constant planning can this be communicated satisfactorily.

It strengthens the concept that all great businesses plan their future assiduously, know where they are going and communicate their plans to everyone in the business.

Some do (plan) and some don’t (communicate) but overall planning for the future is generally accepted as best practice.

And there it would have stayed in the ideal to-do list of the leader until one day I happened to have as speaker to my Vistage CEO Peer group, Herb Meyer, who had been a noted journalists in the USA and subsequently served as vice-chairman of the CIA’s National Intelligence Council in the Reagan White House.

Clearly a voice to be reckoned with and his presentation was both fascinating and very far sighted.  However at one fell swoop he almost demolished all my cherished  certainties about the validity of planning with one little, apparently cynical, aphorism:

“No plan can survive its collision with reality”

When I had recovered from the shock (which was pretty quickly if truth be told) I asked if he really meant it.

He said that, of course, he did and pointed out that plans are laid on relatively shifting sands simply because we don’t know what is going to happen in the future.

Joke: If you want to make G-d laugh, show him your strategic plans.

Vistage economics guru, the great Roger Martin-Fagg, always says that if you are making predictions, you will be either wrong or lucky, and that says it all.

Or does it?  In fact good planning relies on  the ability to set objectives that are SMART (Specific, Measurable, Achievable, Realistic and Time-based) with the caveat that they also need to stretch people out of their comfort zone.

If the objectives are set in this way, the question to ask then is NOT how can we do this but rather What will be need to do in order to achieve the objectives and in specific terms.

The Japanese ishikawa technique for brainstorming the issue is a good way to define the route forward.  Imagine a cartoon fishbone with a spine, ribs and a head.  The objective is the head and the ribs are the various departments that have input to the plan.  We then use stick-it notes and brainstorm all the factors that will be needed to achieve the plan and place them on the appropriate rib.

From there a reasonable plan can be developed but what happens when reality kicks in?  There will always be the unknown lurking in the undergrowth to trip us up and it will usually be from a source that we can do nothing to influence, generally described as PESTLE (political, economic, sociological, technological, legal and environmental).

So what should we do?  Certainly it is far better to plan rather than not while accepting that reality may well change everything.  It doesn’t necessarily mean that our objectives need to change; it could be that the way forward needs to be reassessed to counter the outside influences.  

Whatever is the outcome, we will be better enabled to keep going, keep growing and keep our corporate eyes on an exciting future.

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Sunday, 4 June 2017

How Do You Come To a Decision? Are You Rational or Emotional?

I have been listening to a remarkable book called The Undoing Project by Michael Lewis, the author of, among others, The Big Short.  The Undoing Project traces the cooperation between two brilliant and extraordinary Israeli psychologists, Dr Daniel Kahneman and the late Dr Amos Tversky.

They worked together on the psychology of judgement and decision making as well as well as what they called, behavioural economics, for which Kahneman was awarded the 2002 Nobel Prize for Economics, three years after the death of Amos Tversky.

It was their work on decision making that I found fascinating.  The two academics were both brilliant and quite different in their approach.  Tversky’s work was very much angled towards the mathematical basis of psychology while Kahneman was more interested in exploring the reasons that people make decisions.

One area that they developed during the 1970s was the theory that many decisions are made based on regret, that is, if I do this then if I am wrong then how much will I regret what I did?

Take the simple example of the Post Office queue.  You are in long line and you notice that there is only one person in the line alongside.  You decide to move there only to find that the person being served has a big problem and it is taking all the time in the world to solve it.

Meanwhile, the line you have just left has moved quickly and you have missed your slot by transferring.

At this stage regret kicks in.  Why was I so stupid as to move?  If I hadn’t moved I would have been served and out by now.  Why I am so impatient etc?

In my consulting days I used the decision tree model that involved defining the problem and then identifying all the possible options needed to solve it.

Taking each option in turn it was possible to assess the financial effect as well as the potential disruption and then compare each one in order to come to a rational decision.

I am neither an economist nor a psychologist although I find both subjects fascinating and compelling.  The downside is that each can use classic questioning models to unearth possible outcomes and then accept that there will be an acceptable margin of error in the final results.

However, this margin of error is seldom mentioned and most results are published as the final outcome when in fact they can alter significantly.  Just take a look at about every poll that has been taken in about every election, here and in the USA, that have been wildly out of kilter with the actual results.

The bald facts are that tests with a group of selected people, however scientifically designed, are merely opinions at that stage of asking.  They can and do vary in the real world.

It is usually an irrelevant, emotional response that overlays the rational and that cannot be measured in any scientific way.  However, if it is, as Dr Steve Dr Peters would affirm, the chimp brain speaking then we have to accept that the chimp is five times as powerful as the rational.

If that is the case then we need to take the “results” of laboratory testing of humans with more than a grain of salt, perhaps more of a good handful.

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