2 Insights for Building a Stronger Business

Building a stronger business through network effects & collaboration 

Network effects are becoming increasingly important for businesses; especially those involved in technology, as by understanding them you can not only build better products but also a better business.

A network effect occurs when a product or service becomes more valuable to its users as more people use it. For example, when people first started using telephones they had little value as there were very few other people who you could call. As the number of people who had telephones increased, then so did the number of people with whom you could communicate – this making telephones more valuable to those who had them.  More recent examples of this include communication and social media applications such as Skype, Facebook, Linked-In etcetera.

Telephones, of course, don’t perform better as you add more of them to a network. But people and institutions do. And that’s where the concept of network effects gets more interesting – when you apply it to how people might perform better.

Example: World of Warcraft

The online role-playing game World of Warcraft (WoW) provides an intriguing example. Performance in the game is measured by experience points, which are awarded to players as they successfully address progressively more difficult challenges. It takes roughly 150 hours of accumulated game play to earn the first 2 million experience points but players on average are able to earn another 8 million experience points in the next 150 hours of accumulated game play. Even though within the game, experience points become more difficult to acquire as you advance, World of Warcraft players are improving their performance four times faster as they continue to play the game.

How? Most improve their performance by leveraging a broad set of discussion forums, wikis, databases, and instructional videos that exist outside the game. Here the players share experiences, tell stories, celebrate (and analyze) prodigious in-game achievements, and explore innovative approaches to addressing the challenges at hand. This “knowledge economy” is impressively wide and deep.

The more players participate and interact with WoW’s knowledge economy, the more valuable its resources become, and the faster players increase their rate of performance improvement. Said more generally, the more participants – and interactions between those participants – you add to a carefully designed and nurtured environment, the more the rate of performance improvement goes up. This is the “collaboration curve.”

Collaboration Curve

Collaboration curves hold the potential to mobilize larger and more diverse groups of participants to innovate and create new value – they could be users of your offerings, or people from different groups who can contribute (for example employees, suppliers, customers, competitors, regulators etcetera). In so doing this can help you improve your level of performance. This is already seen in the development of open source software, product development through crowd-sourcing, new product launches through crowd-funding etcetera.

So look at how you can create and leverage network effects for your product offerings, and in doing so create collaborative effects by connecting and leveraging different people, groups and stakeholders around your offerings. In doing this you generate greater levels of experience, better networks, greater engagement, and develop more knowledge – all of which can be used to create value and realize the profit.

To view or download a PDF version of this blog click here

Share your thoughts and ideas here, or email me at andrew.cooke@business-gps.com.au

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Click here to find out more about Andrew Cooke and Growth & Profit Solutions.

4 Questions for Debriefing and Learning

Four key questions by which to learn from your experiences!

We often get so involved in doing the work, that we rarely make the time to review how we are doing in a structured and creative manner that allows us to extend our curiosity into what has happened, and to learn why. In short, we rarely take the time to debrief and when we do so, we generally do it poorly.

Debriefings can help you accelerate projects, innovate new approaches to problems, and hit difficult objectives. More than a casual conversation about what did and didn’t work, a debriefing digs into why things happened.

“Two things are infinite; the universe and human stupidity; and I’m not sure about the universe” – ALBERT EINSTEIN

A debrief should review four key questions:

1.What were we trying to accomplish? Start by restating the objectives you were trying to achieve.

2.Where did we hit (or miss) our objectives? Review your results, and ensure the group is aligned and has a shared understanding of what has happened.

3. What caused our results? This should go deeper than obvious, first-level answers. You need to go beyond the symptoms and get to the underlying causes of your results. A good way to do this is to use the Five Whys Tool.  Here you take the first-level result, and ask “Why did we achieve this result?” This exposes a second-level item. Ask the same question again. You normally do not need to ask this question more than five times.

Example:

Results:  Sales down by 25% compared to the same time last year.

Why? #1 – Because the market is more competitive.

Why is the market more competitive?

Why? #2 – Customer demand for our products is down

Why has customer demand reduced?

Why? #3 – The market price has come down and we are charging a high price.

Why are we unable to sell our quality products for a higher price?

Why? #4 – Because the sales force lacks the skills to sell the value of our product.

Why is the Salesforce unable to sell on value?

Why? #5 – Because we don’t hire the right people with these skills, or develop these skills in our existing sale team.

Solution: to address the fall in sales we need to train, equip and incentivize our sales people to sell on value, not on price.

1. What should we start, stop, or continue doing? Given the root causes uncovered, what should we do next, now that we know what we know?

Debriefing provides you and your team with a structured learning process that allows you to continuously evolve plans while they’re being executed in the light of your experience and results.  This helps you to learn quickly in rapidly changing situations and to address mistakes or changes quickly and effectively.

Remember, no plan goes to plan – never. We need to learn to adapt, and we need to adapt to survive, and we need to survive if we are to thrive.  Debriefing is an ongoing process that needs to be built in as a core part of your work, not something that is ancillary to it.

To view or download a PDF version of this blog click here

Share your thoughts and ideas here, or email me at andrew.cooke@business-gps.com.au

If you found this article of use or interest please don’t hesitate to share it with others.

Click here to find out more about Andrew Cooke and Growth & Profit Solutions.

5 Tips in Changing Your Mindset About Profit

 

Future Profit

A recently published book, Understanding Michael Porter: The essential guide to competition and strategy (Magretta, 2012), compiles and applies the work of management guru, Michael Porter.   Full of useful insights, here are five pearls of wisdom that can, if applied, create a more robust, more profitable and sustainable business.

Tip 1: “Strategy explains how an organization, faced with competition, will achieve superior performance. The definition is deceptively simple”

Performance is not about your competition, it is about achieving superior performance, every day, regardless of what is happening with your competitors or markets.

Tip 2: “Competitive advantage is not about beating rivals; it’s about creating unique value for customers. If you have a competitive advantage, it will show up on your P & L”

To create unique value is not about you beating your competitors, it is about you delivering (through superior performance) the unique value by focusing on your customers’ needs.

Tip 3: “Strategic competition means choosing a path different from that of others”

If you accept that the competitive goal is superior performance, then it makes sense to achieve that performance using methods different to the competitors. You have to be able to differentiate yourself not only in the customer’s eyes, but in how you achieve that differentiation – in how you deliver value to the customer.

Tip 4: “The value proposition is the element of strategy that looks outward at customers, at the demand side of the business. The value chain focuses internally on operations. Strategy is fundamentally integrative, bringing the demand and supply sides together”

Strategy is about achieving a position.  Here it is to achieve superior performance whilst delivering superior value to the customer.  You need to be able to focus on how you will drive that superior performance, and what this means in terms of superior customer value.  In this you need to continuously improve the efficiency of your internal operations.

Tip 5: “There is no honor in size or growth if those are profitless. Competition is about profit, not market share”

This tip serves as a reminder that we need to be the most profitable, not the biggest in top-line revenue or head-count.

Consider these five tips in context of your own organization. What should you do to meet the requirements of all five? Is your current strategy going to work for you in the coming next few years?

What has worked or not worked for you? Share your knowledge, share the wealth!

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4 Ways to Manage for Long-Term Results (& Its Not About Profit!)

Managing for profit can be detrimental to your business in the longer-term.  Discover the 4 guidelines to help your business thrive, not just survive.

We are in uncomfortable times.  Europe is facing a myriad of difficulties, China’s growth is looking to slow-down (albeit continuing), competition is more intense and customers are more demanding and better-informed. Yet amongst these difficulties there are companies who are not just surviving but thriving.

How are they managing to do this and what can we learn and apply from them?  Here are four guidelines for thriving, not surviving.

1. Manage for Value, Not For Profit.

You can’t manage profit – profit is an outcome of your revenues and costs.  You can manage your revenues and your costs, but you cannot directly manage your profit..

Successful companies look at managing value – they ascertain whether what they do creates and provides value both to them and their customers, or not.  You need to create value for both parties in order to be able to capture value for yourself.  Too many companies look at their relationship with their customers as a zero-sum game or as a win-lose opportunity i.e. we are dealing with a pie of a set size, so if I want a larger slice of the pie then the other has to have less and vice-versa.  This is a weak mind-set which immediately puts you in conflict with your customer.

Rather, look at your customer relationships as a win-win opportunity – the opportunity to create and grow value with each other.  This mindset allows the size of the pie to be increased, allowing you to capture more value, even if the split remains the same.  This enables you to collaborate with your customers and create long-term opportunities and relationships, rather than short-term gains at the cost of your customer relationships.

As such value is a driver of profit – the greater the value, the greater the opportunity to drive profitable outcomes.

2. Manage for the Long-Term

Too many businesses are driven by short-term considerations and take actions which, although they may provide relief in the short-term, destroy value in the long-term.  For example, investment in R&D may be cut now to save money and improve short-term profit – but it destroys value in the mid-to long-term as those assets which can create future value in the years to come are weakened, undermined or even destroyed.

3. Manage the Development of Your People

Every company claims that “people are our most important asset,” but few mean it. Frequently business’ investment in leadership development is cut during hard times – at exactly the time when it is needed most to enable and empower high-potential managers to lead the business to success and through these hard times.

In a recent survey of leadership globally, it was found that many of those countries with strong supplies of leaders today are facing a shortfall in the future – this includes countries such as the UK, Australia and Canada.  As such, business leadership is an important issue not only now but in the future (for further information see the blog “The Ticking Talent Timebomb”).

4. Manage your Focus – Be Customer-Centric 

Business needs to understand their customers in terms of what they need, what the business can offer, and how this translates into value for both parties.  As such you need to be able to properly address and craft your offerings to meet their needs.

Furthermore, you need to know not only what business you are in – but what business you are not in.  I have seen many companies grow and expand their offerings beyond what is their core business in response to meet their customers’ demands.  However, this has come at a cost.  As a result, management focus and attention is dispersed, scarce resources are allocated ineffectively and inefficiently, the business lacks the necessary skills to operate in these new areas, costs increase and margins reduce, and the business grows in an unstructured and  ad hoc manner which is difficult or impossible to consolidate.  All of which increases the level and range of risks to which the business is exposed, often beyond the gain that they might realise from this unstructured growth.

Summary

Don’t focus on profit – focus on value and you will achieve profit.  However, this requires discipline, courage and the willingness to invest in the long-term and in developing your people to ensure that you deliver what the customer needs and values.

What are you doing to grow your ability to create, share and realise value?  What has been stopping you and how have you overcome these barriers?

Share your thoughts and comments here.

Share the knowledge, share the wealth!

 

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Click here to find out more about Andrew Cooke and Growth & Profit Solutions.

3 Factors for Building Resilience

How to assess and develop your organization’s resilience.

Resilience

*by Andrew Cooke, Growth & Profit Solutions

Resilience – a word more often abused than used correctly.  Resilience often is used to describe strength.   Although strength is implied in resilience, it is actually not a trait (a distinguishing quality) – rather it is a capability, something that can be used.

There are two definitions for resilience that can be used here:

  • “the capability of a strained body to recover its size and shape after deformation caused especially by compressive stress”
  • “an ability to recover from or adjust easily to misfortune or change”

The Three Factors of Resilience

Resilience relies on three factors:

  1. Flexibility – how flexible is your business in terms of how it works, how it is structured and how it is organized in producing the same outcome result?
  2. Adaptability – how can you apply what you do and how you do it to produce different outcomes or results.
  3. Learning – how good is your business, at an  individual and corporate level, in learning the lessons from having to adapt or be flexible so that you can avoid repeating them (hard , painful lessons) or you can leverage them in the future (where you have had success) and understanding why you were successful or not.3 Factors for Resiliency - Overview

Flexibility Factors

  • Elasticity – can you easily expand or contract the business in whole or part
  • Alternatives – are there many ways in which you can achieve the same result, or are you locked in to one or only a few ways?
  • Interchangeable – how easy can different building blocks (people, assets, processes) be used in a different sequence and/or configuration to produce the same result or outcome?

Adaptability Factors

  • Reusability – can your core people, processes and assets be used to produce different outcomes and results with little or no difficulty?  For example, a consulting firm can reuse many of its existing people, processes and assets in delivering a new service.  However, the Boeing factory production line can only produce Boeing airplanes – it cannot produce other products without significant changes in people, assets and processes.
  • Speed – how quickly can you move from producing one set of products and outcomes, to produce new products and outcomes?
  • Capacity for Change – how prepared and able are your people to make the necessary changes? 

Learning Factors

  • Measuring – how good are you at being able to quantify or qualify the changes that have occurred, their implications and the associated outcomes?  Are you able to identify where the greatest impact, positive or negative, has been realized?
  • Applying  – can you clearly ascertain as to where the lessons learnt can be applied?  Do you understand what caused the problem and how it was solved, or where and how the opportunity was capitalized on?
  • Anticipating – how good are you at being able to replicate or avoid the lessons learnt?  For example, if you are an engineering consultancy who tried to enter a new market unsuccessfully then can you identify why?  Was it the lack of a local partner?  Cultural differences? Inability to deliver?

These 3 factors apply equally to the individual as to the business.  For real success you need resilience both personally and corporately – if you lack the resilience you may not survive the change, even if the business does.

Resilience is not about just meeting the current challenge, or having met the challenge just past, but it is about putting yourself in a better position for the future – not just going back to your original shape or form before the challenge occurred.  To be resilient you need to be flexible, adaptable and to learn from your experiences.

Two out of Three Ain’t Bad – But It’s Not Enough

So what does it mean if you only have two out of three, let’s see below.

  1. Flexibility & Adaptability – you can meet the challenge in the short- or even mid-term, but your inability to learn from your experience and apply will mean that you will be overtaken by the competition and quickly become irrelevant
  2. Adaptability & Learning – you can diversify into other areas, but you are not at the forefront of your market being weak at delivering in alternative ways.  You are at risk of being out-maneuvered by competitors and being a market follower rather than a leader.
  3. Learning & Flexibility – you are efficient at operating in your particular niche, but you are a one-trick pony, and you are at the whim of industry pressures.  You are more reactive than proactive, and your ability to become diverse, grow and spread the risk is weak.

For each of the 3 factors, and for each of the 3 components for each factor, how do you rate yourself?  Score yourself out of 10 for each component (1= Very Low, 10=Very High), and rate how strong or weak you are in each factor and relatively.

Resilience Worksheet

Which are your strongest and weakest areas?  How can you leverage your strengths to offset your weaker areas and reduce the associated risks and implications?  Are you really as resilient as you thought?

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The Real Costs of Poor Management & Leadership

The Cost of Management & Leadership Shortfalls

by  Andrew Cooke, Growth & Profit Solutions

The costs and risks associated with having weak managers and leaders are often overlooked.  What does it mean to you?  How can you overcome it?  And what are the benefits of doing so?

A recent report from the UK’s Department for Business, Innovation & Skills Leadership and Management Network Group (LMNG), showed the UK’s economy has been negatively impacted by a lack of training and support for new managers.  Across 18 management practices by country the UK ranked 6th, whilst Australia ranked 9th – behind France and just ahead of Mexico.  This strongly suggests that the findings for the UK are equally applicable to the Australia and that there is a stronger sense of urgency.

John Hayes MP, UK Minister of State for Further Education, Skills, and Lifelong Learning, suggests that effective leadership is what makes the difference for successful, innovative companies. “Strong leadership and management is a key factor in fostering innovation, unlocking the potential of the workforce and ensuring organisations have the right strategies to drive productivity and growth.”

However, in the UK the research shows that effective management is the exception rather than the rule.

Too many of our organisations, both private and public, are failing to achieve their full potential: managerial shortcomings and a lack of strategic thinking are holding them back. Overcoming these weaknesses and improving our leadership and management capability is fundamental to creating a culture where more organisations have the ambition, confidence, resilience and skills to respond to the current economic challenges and compete successfully both nationally and globally.”

By providing more comprehensive management training and development for budding leaders, companies can gain the edge over competitor firms.

Key Findings of the UK Research:

  • Ineffective management is estimated to be costing UK businesses over £19billion per year in lost working hours.
  • 43% of UK managers rate their own line manager as ineffective – and only one in five are qualified.
  • Nearly three quarters of organisations in England reported a deficit of management and leadership skills in 2012, contributing to the productivity gap with countries like the US, Germany and Japan.
  • Incompetence or bad management of company directors causes 56 % of corporate failures

Quite simply, improving leadership and management capability is an issue that no organisation wishing to achieve long-term success can afford to ignore. There is no question that good leadership and management can have a truly significant impact on organisational performance, both in the immediate and longer term.

  • Best-practice management development can result in a 23% increase in organisational performance.
  • Effective management can significantly improve levels of employee engagement.
  • A single point improvement in management practices (rated on a five-point scale) is associated with the same increase in output as a 25% increase in the labour force or a 65% increase in invested capital.

Business’ long-term success is dependent on developing these management and leadership skills, these  are crucial to ensuring high performance working and business success. This is especially true as more new managers and leaders will be needed over the next decade as the number of experienced baby-boomer managers and leaders who are retiring increases.

Why are businesses underperforming when it comes to developing their talent pipeline in management and leadership?  There are a number of reasons including relatively low levels of training, shortages of key skills, the failure to apply skills strategically, and employer concern about the relevance of training provision, have also been identified as potential reasons. Other factors include difficulties in recruiting graduates with the right skills, particularly for small and medium sized companies; a perception that leadership and management skills are something you “pick up” on the job; and lack of clarity about the specific leadership and management skills and behaviours managers need to display.

Improving our leadership and management capability makes sound business sense. Helping managers at all levels to develop the right skills and behaviours will ensure organisations have the ability to adapt, innovate and evolve, and seize the growth opportunities that lie ahead.

So what are you going to do?

Click here to find out more about Andrew Cooke and Growth & Profit Solutions.

How Middle-Management is at Risk

Why middle-management is essential for business survival and the risks you run of if you lose or alienate them.

The Challenges of Middle ManagementMiddle management.  Often described as the ‘backbone’ of the company, they provide the continuity across the business and the key people for getting things done; communicating and resolving problems up, down and across the line; translating strategy into action; leading key operational areas; have considerable expertise and experience within the business; providing linkages between senior executives and front-line staff; and are implementing and responding to change.

As such, middle management is crucial to the on-going success and survival of the business.  Senior executives are starting to appreciate their role and the impact of their work, but at a time when it becoming harder to develop and retain middle management.

Middle Management Stress & Turnover

In a recent poll by Lane4 in the UK (July 2012) more than 90% of workers believed that the vast majority of workplace stress was falling on middle management, and two in five (39%) of middle management reported that they were under severe stress.  As such, many mid-level managers are dissatisfied and would like to leave their current organization.   In harder times it is those middle managers who are your best and who perform well who find it easiest to find new roles and new opportunities.

This has several impacts on your business: firstly, the business will lose its top middle management talent, this will put an increase burden on those who are left behind; secondly, the exodus of mid-level talent seriously compromises the business’ future  leadership pipeline and its ability to have the right people in the right place to enable the business to grow and develop in the future; and finally those mid-level managers remaining will be the low-performers, who are more likely to be disengaged and who have “quit and stayed”.  All of this means that business’ ability to survive and thrive – especially in challenging times – is seriously compromised.

The Impact of Mid-Management Turnover

One of the current major growth challenges facing CEOs is the lack of key talent to enable them to grow the business.  This is exacerbated with the turnover of good mid-level manager as it compromises the business’ ability to execute the CEO’s strategy and drive results and outcomes.

Furthermore, the costs of middle management turnover are also high.  A common rule of thumb is to assess the cost of a middle manager to the bottom-line at one-and-a-half to two times their annual salary.  Assuming an average salary of $125,000 then this could mean $250,000 off your bottom line.  Alternatively, look at it in terms of the extra revenue you need to achieve just to stand still – assuming your net profit is 10%, then that is a further $2.5m of revenue required!

Practically, I think this heuristic is conservative.  Once you take into account the corporate knowledge, experience, expertise and insights that have been developed over a number of years you are looking at the loss of a very valuable contributor.  Furthermore, to recruit someone who is an equivalent is both difficult and expensive to do.

Causes of Mid-Management Stress

Middle management is under increasing stress for a number of reasons.  They are the people who have to lay off staff when the company downsizes (or more cynically “right-sizes”), in an environment of poor morale, having to do more with less, with little or no increase in salary or benefits whilst being responsible for more, a reduced opportunity for career progression, dealing with people who like them are worried and scared, and frequently being seen as an “unwanted layer” and at a high risk of being laid off themselves (often having had to lay off others first).

So what do we do?

Dealing with the Problem

In challenging times we need to maintain our middle management.  In economies which are struggling the senior executives need to work with and engage with their middle management even more closely.  It is at the mid-levels that the most important projects are, and reducing their resourcing is nigh on suicidal.  If the level of responsibility for middle management is extended, and their capacity and resources is limited or reduced, then you need to invest in their developing the necessary capabilities.  If this is not done then senior management will be faced with a “frozen” middle management compounded by cycles of low morale and low engagement.

Companies need to be resilient – leaders need to provide clear direction, they need engage the middle management and rebuild trust, and in doing so enable them to engage with their reports and teams in turn.  If you cut out the middle, then you are just left with the head and tail of the business – unable to do the necessary work effectively, and a corpse all but in name.

It may seem counter-intuitive but now is the time to invest in your middle management – this will pay off in terms of loyalty, results and longer-term growth.  Treat your key people as an investment, not a cost to be cut but people to be valued, developed and through whom you can achieve leverage and significant returns.

So what are you going to do?

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