If we can’t control it we invent ways to control it.

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Why is it that we think we have to control, automate and measure everything?

That is not to say that I have suddenly become an anarchist and turned my back on understanding your numbers in your business or even seeking ways to become more efficient through automation. 

What I am saying is that we have become far to much focused on the controlling, automating and measuring everything that we are forgetting what is important. 

For those of you in professional firms you are probably well aware of my constant cries to kill the timesheet. But the number one objection to this – how will we know what our team members are doing ? (often the word team is replaced by the word staff) In other words they are saying they will have lost control if they don’t have the mechanism of controlling them.  The reality is of course is that the timesheet is giving an illusion of control. 

Then off course with the rise of big data there is an amazing ability to measure everything. But with big data we must be careful to not lose sight of measuring of what really matters. More data does not necessarily mean more insight. 

Along with these is the quest for automation. This is where the battle for efficiency seems to overwhelm the battle for effectiveness. There is much written and spoken about how to be more efficient.  But the first question should be what is the most effective solution before consideration is given to how to increase efficiency.

Business is about relationships.  Relationships with our customers, relationships with our team members. People are not assets but rather people. We must start with thinking about relationships and effective solutions before we start looking at how to control, automate or measure something. 

We don’t build great businesses on being the most efficient solution- great businesses are built on great relationships providing the most effective solution. 

Let Price drive cost – not the other way around

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Let Price drive Cost.

Recently a friend of mine (an innovative accountant who does not do timesheets) was asked how does he cost a job?  This is just the wrong question. But why does it persist?

In today’s knowledge economy where intellectual capital dominates there is not a direct correlation between inputs and outputs, costs and value. This is most definitely the case for professionals and other knowledge businesses. 

As Ron Baker in his seminal work has outlined Cost Led Pricing is based on the following logic :-

Service >> Cost >> Price >> Value >> Customers

whereas true Value Pricing is based on the following correct logic :-

Customers >> Value >> Price >> Cost >> Services

Costs do not determine the price, let alone the value. The price determines the costs that can be profitably invested in to deliver a product or service desirable to the customer at an acceptable profit for the seller. It is planned costs not past costs, that are critical since all pricing decisions deal with future. Cost is not the starting point for price; it is the final step. 

This target costing was first talked about Henry Ford who said that “no-one knows what a cost ought to be”. Another car manufacturer has taken this even further Toyota – they do not even maintain a standard cost accounting system Both of these companies are manufacturers not knowledge industries. 

A quote I came across by Henry Ford in his biography in 1992 (credit Ron Baker) goes a long way on this topic:-

“the more usual way is take the costs and then determine the price; and although that method may be scientific in the narrow sense, it is not scientific in the broad sense, it is not scientific in the broad sense, because what earthy use is it to know the cost if it tells you that you cannot manufacture at a price at which the article can be sold”.

So nearly a 100 years ago a manufacturer understood you must understand value first. This focus particularly amongst those businesses who persist with the crazy timesheets focus on the internal activities but value happens outside the business in the mind of the customer. You can continue with your focus on these inputs to an extraordinary degree of precision but miss the point.  We must start with value.

The firm of the future focus on value and ask the question ” What is the value to the customer and thus what price can we charge?”  Armed with the answer to this question then look at how that can be delivered. I would prefer to be a better pricer rather than being able to accurately count costs.  With respect to costs it is better to approximately correct rather than precisely wrong.  The question – “how do you cost a job” is precisely wrong when wanting to know what to charge. 

(Implementing Value Pricing by Ron Baker can be found here – Amazon)

Who said you can’t reposition a commodity!!

Recently ABC News did a piece on Farmers who have found new ways to improve their profit margins. They are creating brands to set their products apart from the generic commodities.

The feature of the story was that of Damien Rigali a lettuce grower. He had invested heavily in creating healthier vegetables with more nutrients through a variety of tools around soil management, reducing pesticides and other farm techniques. But whilst he had a better product it was still being lumped in with other produce that had not been farmed in the same way. 

The solution – he created a brand and packaging. He sends his product now called Baby Leafs in a red box which has become hugely successful. 

In the article there is a great quote by Damien – “If I had headed down the same path that most people head down, I would’ve found myself going backwards in the next five years’ time”. 

He knew he to find an add distinct value. People are interested in more things than price when they are buying and the producers mentioned in the article found a way to add value. They found ways to unlock the real value of what they are doing. 

The key lesson though from Damien’s statement is that he knew if he continued to compete on price he would be going backwards.  The price competition can only be won if you are the most cost efficient producer which usually takes huge scale. 

Even a dairy with such a commodity as milk was able to unlock the value through looking at the product in terms of packaging, the process, flavour, nutritional value etc. 

So this ABC article focused on traditional farming commodities and their quest to really unlock the value within their product the lessons can be applied right across business.

Whether you are in the agriculture sector, manufacturing or the the knowledge industries competing on price is just crazy. The real key is to unlock the real value and position and package this in the mind of your customers. 

What is exasperating when I see businesses (particularly professional services firm, financial services businesses & consulting business) who have differentiated offerings making decisions that are converting their products or services into commodities.

The sources of real profits lies in unlocking the value of what you do and communicating that to your customers. 

What it means when time is changing

Recently I realised how time has changed.  Now what I mean is our concept of time.  

So I ask you a question – if you make an enquiry via email or even have a meeting with someone about a product or service how quick do you want people to respond?

With the rise of the internet I strongly believe that we are not just wanting but expecting much faster responses than ever before. If we have been doing some research on the web about a product or service and then either send an email or maybe even ring the company we are expecting a fast (and I mean fast) response. 

We live in the world of real time. 

Whether it is the accountant with their clients using cloud accounting software – their clients believe since they can now see the information in real time then so can the accountant.

Whether it is a personal service or product like for an example a trade – we want people to get back to us from our enquiry in under 2 hours not the next day.

People (usually those like me over the age of 40) are often saying the world is getting faster.  I don’t believe it. I just think because we have become accustomed to information being instantly available at our fingertips then a business should be able to respond quickly as well. 

Customers value speed. Customers are believing businesses are providing better value if they are responding in real time.

How is this affecting your business?

Are you putting in place the systems and processes to be able to respond instantly (if not instantly but certainly very quickly)?

Are you moving to operate in real time.  

If you don’t your competition will. 

Observe, Observe, Observe

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Do we really know what is going on in our customers lives?

Steve Jobs is famous for stating that he ignored focus groups and market surveys.  When he returned to Apple he cancelled a lot of the market research activities focused on focus groups.  Henry Ford is known for the quote (which probably he did not make) – if I had asked my customers they would have asked for a faster horse. 

But Steve Jobs and Henry Ford were incredibly focused on what was happening in their customers lives. 

They key is to closely observe what is happening not what they are saying. It is about revealed preferences versus stated preferences. Often time we really don’t what we want.  But we do know the problems that we have in our businesses or lives.  

How does your process, product or service solve these problems?

How do you keep up to date with what is happening in the lives of customers?

Domino’s pizza australia review their menu based on the cooking shows on the TV’s in the previous season. Now if you asked the customers they would not know they would like a Pizza based on some of the tastes being revealed in the cooking shows. But the cooking shows affect what we are cooking and consuming at home.  Thus the Pizzas change to reflect that taste. 

So you need to asking observational questions, collecting evidence and then understanding and connecting with the value. 

Observe, Observe, Observe

Competitive Advantage – where is it to be found?

Competitive Advantage

Everybody in business is seeking a competitive advantage. That elusive “thing” which allows the business to stand apart from the competition.  But where is competitive advantage to be found?

Michael Porter (Harvard Professor) said over 30 years ago that there are only two sources of competitive advantage – cost leadership and differentiation. 

To any reader of my posts would know I talk incessantly about value.  Unfortunately I believe too many businesses don’t do enough to understand what is really valuable to their prospective customers and then communicate the value of what they do.  But enough of that for the moment because my strong belief is that through understanding what is valuable and then connecting with that value is the easiest source of competitive advantage for small business. 

To achieve a competitive advantage through cost leadership is nearly impossible for a small or medium business. Many small businesses unfortunately sit in between cost leadership and differentiation. That means they have no  real sustainable competitive advantage. Why then do so many small businesses try to compete on price? It just does not make any sense.

But wait differentiation is not just about a great product. The next thing I see businesses saying is that their great product is a competitive advantage. Product innovation is important but it is only a source of competitive advantage for a short while. The market will copy or introduce a similar product in time and then the cycle starts again.

Jack Welch (former CEO of GE) is quoted as saying that there is only two sources of competitive advantage – the ability to learn more about your customers faster than your competition and the ability to turn that learning into action faster than your competition.

So what problems are you solving for your customers?  How are you doing it different and better than anyone else? How are you constantly keeping up to date with what is happening in your customers world?

Who are you performing for – cast or audience?

Recently I came across the statement about who are you performing for :- the cast or the audience?  The context of the statement was in reference to the theatre. However it started me thinking about the application to business. 

Most of the readers of this have businesses where a significant (if not all) part of their products and services are based around knowledge, ideas or expertise. (As an aside though even the most product orientated business should be looking how to take their internal know-how and make it a process which will be a much more valuable offering.)

Sometimes in ideas or expertise businesses we can be caught in the trap of performing for the cast or in other words doing things for the approval of our peers rather than focusing on providing value for the audience (i.e those who are paying for the value provided). Creating elegant and attractive offerings etc with an eye on the opinion of the peer group does not mean the ideas will connect with the audience. The focus must be first on the audience and only second (and there must be a huge gap) on the cast.

Approval from our peer group, from fellow travellers in business is important and something that we all want. 

But approval from  the audience is what pays the bills and gives us real freedom. 

Who are you performing for?

 

Are you speaking in the same tone of voice?

red_bull_logo

 

Whilst I personally don’t drink the energy drink Red Bull I love the business of Red Bull.  Apple gets much said and written about it for its huge success (and so much of it is well deserved). However there is so much about Red Bull from a business perspective that is an incredible story.

I know some people have a problem with the energy drink sector. However lets just put that issue aside for the minute.

One of the things that I admire is the consistency of their message. Since founding the business the message has been the same. They have constantly attached themselves to the extreme sports and the sports which have significant risk and excitement attached to them. And then off course there is Felix’s jump from space.

The founder Dietrich Mateschitz in a interview stated that they have always been “speaking in the same tone of voice.”  Everything about the company from the advertising, to the sports, to the ambassadors of the brand, to the shape of the can is consistent. The message is always the same.

The value of this consistency is massive. There is no doubt in the minds of the customers exactly what Red Bull stands for.

Can this be said about your business?

I don’t just mean the marketing message, I mean every aspect of the business. From the marketing message, to what your customers experience when purchasing from you , to the internal operations of the business.

Is it clear what your business stands for?

#21 David Bateson – Creating authority through content

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David Bateson from News Business join me to talk about the topic of building your authority in a chosen market.  Much is said about content marketing but in this conversation David brings it down to some key actionable points on how to really make this a reality.  David is originally from Oxford UK who ended up in Brisbane Australia helping businesses to build their authority. Also David is an Italian Car lover which is an interesting story.

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#20 John Chisholm – Creating Firms of the Future.

004c8b5John Chisholm joined me to discuss his experiences of helping firms create firms of the future. John is a fellow of the Verasage Institute and also a third generation lawyer who prior to his current consulting firm has help senior executive positions in leading Australian legal and accounting firms for more than 17 years.

In this discussion we discuss what a firm of the future, why value pricing is a must, and other opportunities particularly for the professions.  However we have a great chat about John’s dad who just had a birthday and the values and life of a lawyer from many years ago.  [Read more...]