Tuesday, December 22, 2009

Know when to quit...

I've just read a very interesting Wired article about the death of Duke Nuke Forever. A video game project that lasted an incredible 12 years when most games take 3 to 4 years to complete. The end results were that 3D Reals went bankrupt and the game was never released. This is a cautionary tale about keeping objectives real and not letting "the latest thing" drive your project. Other lessons that I would add are:
  1. Strategy - you have to have one (and stick to it)
  2. Know what success looks like.
  3. If your team can't talk to you, you are doing something wrong.
  4. You should know when to pull the plug on a project.
  5. See the evolution of your industry and adapt to it - but follow your strategy.
On a personal leadership level I have to ask: Where were Broussard's advisors? What about other stakeholders voices (other employees, mentors, partners)? Do you have anybody that can tell you that you are off track? Would you listen?

Monday, December 21, 2009

Communicating your strategy for best results

You have spent a year formulating your strategy. It is firmly and clearly stated in a Powerpoint. You are done, right? Not by a long shot. Let's ignore for a moment the effort required to implement, and let's focus on the communication effort. You need to clearly communicate to ALL stakeholders the new strategy and how it affects them. The companies that don't know how to do this send out an email (with the powerpoint and a nice introduction) and then forget about it.  Then they wonder why their efforts didn't pan out and nothing really changed.

Two things you have to remember:
  1. You and your management team know more than everybody else.
  2. The rest of your stakeholders can not read your mind to see what's in it - but they will try.

To maximize results tell your coworkers, subordinates, providers, partners and clients what they should expect from the new strategy and the benefits they will receive. You have to craft the message according to the audience (communications 101) and make sure the message is visible and repeated (that is why advertising works). If required, you should form a transformation and communications office to make sure that happens.

More on the how in a latter post...

Wednesday, December 16, 2009

Don’t let your organization leaderless unless you want to be jobless

For whatever reason you are distracted from your day to day duties (a merger, an acquisition, a family emergency) and you haven’t been in a position to attend to those duties. This is fine if it is a short hiatus (less than 3 weeks), but anything longer than that you need to make sure that somebody is tending shop. You have to groom your team to work without you for a while or designate one or more people to fill in your role. If you provide no leadership you are creating a vacuum where people are making decisions and launching projects because they sound good.


Let’s be clear, your team has to be able to function without you for short periods – and they should be able to provide their own direction (after all, their resumes do state that they are entrepreneurial, self-starters and self motivated). But the longer your absence, the more decisions start to pile up and change the direction; suddenly you have a new and emerging strategy that you are still accountable for.

Thursday, November 19, 2009

Why not a short term strategy?

If you, as management, are not clear on the strategy and do not communicate it; How can your employees deliver? I am surprised how many companies ask their employees to read management's mind, find the right intentions in there and execute to specifications. It makes no sense. Is like having a neurotic spouse with the power to fire you. You want to succeed in business? You have to be clear as to your objectives. If those are not clear, nothing will please you and your company will sink (unless you are really lucky).

It is OK to have temporary strategies. We have them for emergencies, why not for times when life is not clear (is it ever?). Why do we feel that is not OK to have shorter looking strategies? Square was in the brink of collapse with their games. They set out to build their last game (after that they were expecting to close). They put all their effort into the game but with a pessimistic feeling, they called it: Final Fantasy. They wanted to bow out with a last great hurray. Guess what? The game was a huge success. As well as FF2, 3, 4,... They are now one of the most powerful and well recognized game development companies in the world (it is now called Square-Enix) and they are working among other things in: Final Fantasy XIV.  What worked? Having a finite narrow strategy: Make their last game great!

In the middle of a M&A or bankruptcy debacle? Come up with a short term strategy and communicate it to all employees. They'll appreciate the honesty and the direction. They may very well build you a Final Fantasy.

Monday, October 26, 2009

Stopping the launch of weak products

A weak Product Management function can result in features that are not introduced in response to customer needs but in response to internal wish lists (that may be out of touch with the market), or in cost structures that are not being revised strategically to enhance profit margins (like outsourcing vs. internal development). To change a Product Management function takes making an assessment, mapping out where we are today, where we want to go be and what are the best practices in what we need.

After the initial assessment and once you understand where you are and where you want to be. Choosing the right framework will be one key to your success. There are several frameworks about what Product Management should be, for example: the PDMA model has one, author Steven Haines documents another, and author Marty Cagan shows us yet another one. All frameworks list a set of skills and functions that every organization should have. But just using any of these frameworks will not work for a company, as with everything in life, each situation is unique and your framework should be tailored to your needs. Best product management practices will come from a consultant (you are hiring one, right?), current literature and studies on the matter.

Another big factor is if your company wants to change its culture – for example, is the organization willing to let a Product Manager team define and control the product? Or are they convinced that it is a function of the Marketing department? Whatever the answer to the culture question, it will mean a lot of changes to marketing, product development, service desk, platform development, etc. If your company is not willing to change the culture, the best way is to look for a framework that will reinforce current weaknesses and strengthen what is being done today.

Thursday, October 15, 2009

Product Management & its strategic implications

Product management is a market-driven approach to develop and manage products or services:
  • Defines what the product should be – is accountable to users for feature sets, navigation, quality, and overall experience
  • Is a cross-functional discipline: involves strategy, product development and marketing
  • Is accountable for overall product direction, key decisions, including in some cases full P&L control or at least budget control
  • Ensures that the final product meets specifications
  • Evangelizes product to internal and external stakeholders
The strategic implications of a robust Product Management function are many: from increasing the value of the company, understanding the customer today and in the future, ensuring that all possible revenue is being captured, guiding future product investments and controlling the current cost structure of the products, to name a few. For any organization, it is imperative that these and other issues are being taking care of in the Product Management function.

Tuesday, September 22, 2009

Use your longer term employees to fuel and drive strategy success

With low confidence in the economic recovery, a lot of companies are filling their work needs using project based employment and short term hires. For your short term operational needs, these are great sources of relatively cheap labor (I will discuss this in another post). But for strategic initiatives, you need people thinking about the long term success, not just next quarter or the end of the project. The incentives for short term work by their definition are not aligned with long term objectives. Why would temporary employees care about the welfare of the company three years down the road if their involvement ends in one month?

For strategic initiatives you need longer term employees - people who will face the consequences of their actions and decisions. They also provide cohesiveness from one project to the next, and make decisions based on the long range business goals and not only on the short term project objectives. They represent and transmit the culture of your company. They provide the history and traditions that have made you a success in the past.

Tuesday, September 15, 2009

Don't fail at your career strategy by choosing the now job

I have been having a lot of discussions about career strategy with people looking for jobs, and I am seeing the desperation setting in, the prevaling strategy right now is: "get anything, NOW!" If you have reached the end of the rope (no more savings, no extra income from spouse/partner/family), then by all means it has become an issue of survival and the right strategy is: "whatever it takes". But for everybody else, it is a very bad move to take that attitude. If you read beyond what this Forbes article is saying it looks like at the end of the day this recession is a career killer.

The downside to the quitters line of thinking is that you are adjusting your expectations and your search accordingly: are you looking for jobs at your level or lower? have you in your mind already taken a pay cut? are you thinking value or price for your services?

The decision of what jobs to pursue and what to take is not only relevant to this job now but to your career. If you take a 50% pay cut, do you honestly believe you will get it back next year? I can assure you that you wont. If you go two levels down, do you think your next position will resume where you were pre-recession? No, you will have to fight your way back up again - think about it as lost years.

Regardless of the recession, your value and your level of preparedness are what determines your strategy. If you have a strong war chest (or emergency fund or other income sources), you have to ride the storm. The income you aren't receiving is your opportunity cost. It will hurt in the short term but it will pay in the long term.

Tuesday, September 8, 2009

Pushing boundaries to grow

You don't notice, but your comfort zone is always shrinking. It behaves like an slippery slope... First, you are uncomfortable giving speeches to large groups, so you refuse. Then you are uncomfortable to talk to medium sized groups so you make up excuses to not talk or rush to finish. After a few years of this, you can't give speeches to groups bigger than eight to ten people without having nightmares the day before. This slippery slope can be public speaking, new ventures, new ways of doing business, or adopting new technologies (are you using social media?).

In the business world, we should be always push to expand our comfort zone - as in commercials every year we should be bigger and better or a new and improved formula. To make this happen just follow these simple steps:
  1. Make a list of your strengths and your weaknesses
  2. Have your mentor, significant other or trusted adviser review and help with the list.
  3. Together, define what strengts and weaknesses you should work on
  4. Set goals and exercises that you should do
  5. After an appropriate time, review the results
  6. Rinse and repeat
It is very important to work on your strengths as well as your weaknesses. For example, if you are a good public speaker become a great speaker. We setup aggressive goals for our portfolios, why should we be any  different with ourselves.

BTW, I am following my own advice, I will be filming three business segments for a business program tomorrow - this is something new and exciting.

Monday, August 24, 2009

Expecting too much too soon

I had a client who asked me to implement new key performance indicators in a month (they had nothing at the time) - yes, zero to implementation in a month. The KPIs he was asking for were very deep and complex, they didn't have the necessary systems in place, and the alternative was to capture the basic data manually (not really an option in most cases). Because of my objections as to the impossibility of the request, he gave the project to somebody who didn't say no. Six months later, no indicators. They restarted the process 4 more times with the same results.

For all of their effort, they seemed unwilling to grasp how their choices of process and conditions were making it impossible to obtain meaningful information. Even if all went well, the first few data collections are plagued with errors, personnel aren't clear what you are asking of them or are afraid to give it to you. As for interpretation: You don't have a baseline to compare them to (is that 7 in indicador 3 good or bad?) and you don't have a tendency (is it improving or getting worse, is more better or worse?).

How do you know if your expectations are too much? Read their body language! If you see:
  1. Uncomfortable smiles
  2. Weight shifting
  3. Darting eyes - nobody looks at you in the eyes but look at each other worriedly
That usually means you are off base in your request. You have to realize that if nobody believes it can be done, then it probably wont get done. Trust your team advisers - otherwise, why have them? On a side note, if your team doesn't' give you straight or honest answers, you better rethink your communications and leadership skills.

The point here is that you have to be realistic on your expectations - if you ask for the impossible again and again you will lose credibility - the result is that nobody takes him seriously anymore and the work they do produce is more made up than a ride at Disney.

Wednesday, August 19, 2009

Good communication will make you a good leader - and help you keep you job

One of the worst defects of low leadership skills is poor communication. I’ve seen it a couple of times, nobody knows how the boss got the job as he seems unable to communicate his ideas coherently. Most of the time he seemed to be babbling - his speeches were full of trendy words and ideas but no substance; it took an enormous amount of effort on our behalf to understand what he wanted us to do. And obviously, sometimes we misunderstood and made mistakes. His shining point: he knew how to dress you down in front of everybody. Don’t be that boss.

You better understand (and quickly) how to deliver a message. Not only a better communicator will outshine you every time, but it will cause your organization to be erratic and mistrustful of your actions. It can help your subordinates set you up for failure and it will certainly make you a joke around the office.

I was reading a very good article on the MIT Management Review about how subordinates may be setting you up to fail. The article centers (among other things) in how perception plays a key role in how your actions, inactions and communications are received by your team. Although you cannot take responsibility of how people will understand your message, you better make sure your delivery is appropriate.

One of my mentors at Booz Allen gave me a maxim that I took to heart. Communications has two parts:

1) Message – what you are trying to say

2) Delivery – how you present your ideas

Delivery is how you may shape the perception of everyone who is receiving your message. Delivery could be short and sweet, floral and effervescent, somber and full of protocol. How you shape your delivery will not only help the audience receive the message, but get the right context for the message. Don’t tell the group that the company is restructuring while your face is smiling (I’ve seen this), or say you are focusing on indicators while doing nothing to get them (your actions are part of your delivery).

My recommendation is that you be the boss that means what he says and says what he means. Let your message and actions be coherent – in times of uncertainty make your message crystal clear.

Friday, August 14, 2009

Thinking about strategy: too many leaders

If you find that for your company, thinking about strategy requires a monumental effort it may be because you are including every possible variable in your analysis. Sometimes this approach to strategy comes about because there isn't a dominant leader in the company but several strong-willed executives. Without a charismatic leader - a company may flounder without direction. Just like two people can't drive a car, too many executives can't drive a company.

Instead of really working cooperatively, the dominant executives will try to control the situation by introducing variables in the analysis that will lead to their desired outcomes. The result will be an ineffective strategy:
  • Too broad: being the no 1 position in the whole wide world (what does this mean?)
  • Conflicting objectives: being the premium brand using the cheapest components.
  • Unattainable: going from pure software development to software integration without making real changes to the way things are done.
If you are not one of the strong-willed executives, there isn't an easy solution to your problem (but that is why you are reading this post). What you need is a third party that breaks the stalemate and takes over - sometimes it can be you! Sometimes you need to use somebody on the board or the CEO. You need somebody with enough authority/clout to break the stalemate and take over completely. If there isn't any single person who can do this, then you will have to play Big Brother or Survival and make alliances with enough power to take over. Make sure you control the alliance or you will have the same situation but with even more people involved.

If you are one of the strong-willed executives (BTW, thanks for reading the post) the solution is even more simple: get another job (find your own company to play with without sharing) or get the the other person another job. If you are evenly matched (the unmovable object meeting the unstoppable force kind of situation) why are you complicating your life? find another company and take over. Do avoid anything with the N1H1 virus or Facebook photos in the mix.

Monday, August 10, 2009

Survival: Understand your position in the job market

To get a job in this job market you have to understand your position: generalist vs. specialist. If you don't, you will be climbing the stairs using your nose. If you are a specialist and your specialty is in demand, then you will not have a problem. If you are a generalist, my friend, you have to do things different because you are in trouble.

There is a common complaint from job seekers lately: that the market has such deterministic needs that if you do not comply 100% with whatever checklist the recruiter has you are out. There is such abundance of general types (or at least people willing to do anything) that the barriers to entry for any position have risen. In the past, recruiters and HR departments were willing to talk to people that didn't quite fit or didn't meet all the criteria but were bringing something extra or worthwhile to the table. They don't do that anymore, mainly because of two things: one, a lot of screening is done by software so they won't even see your resume. two, they have hundreds of applicants to any position, so why do you think they will bother with people that have to be sold (because they don't match part of the criteria), they will just pick a candidate that has 100% of the requirements.

If you are a generalist, my advice to you is: stop wasting time applying for positions where the match is not 100%. Either get the 100% qualifications (invest in certifications when it makes sense ) or skip to the next position.

Your real option is networking. But not the networking of old when you went to a dinner and met X and they referred you. You have to do new networking: blogs, talks, Twitter, Facebook, et al + old networking. Call your dad and/or mom's friends; hell, now is the time to be calling on favors. If you are smart, you will pay them back latter with interest - once you have that network (and a job) then is the time to launch your career into the stratosphere.

Friday, August 7, 2009

New media: use with caution

In the middle of our busy lives we are all trying to keep up to date on what is happening with our contacts. Tweets and wall updates populate our days and we feel lost or isolated when we don't follow on each of our friends updates. Important conversations and networking opportunities are lost because we were not online at the right time. Let me help you with that!

First things first. Repeat after me: "I don't have to be online all the time". Now repeat: "I will learn to use the tools offered to keep on top of things". I know what you are thinking: If you only connect at the beginning or at the end of the day you will miss out on important information. That is true and there is something you will have to face. But on the other side, being connected 24/7 will distract you from your day to day activities and real life.

Two things to solve this: Balance and tools.

Balance is achieved when we use social media with a purpose: Don't Facebook just for the sake of it, have a purpose and a plan to use Facebook. Your purpose may be networking or making a sales contact. Your moves have to be deliberate: connect, get updates, update, disconnect. Don't spend endless hours looking at your friends pictures, or posting inane games or the results of what kind of transformer are you. Is like going to the bank during lunch: get there, do your business and leave.

All social sites provide tools to filter and control the information flow. Learn to use them. Filter content from your second cousin twice removed, allow content from that great contact in marketing. Use Tweetdeck and filter out comments about the latest Lindsay Lohan appearance.

Use social media the right way and it will be a treasure trove of contacts and good things. Use it wrong and it will fill your days with 4chan memes and "having lunch" tweets.

Tuesday, July 28, 2009

Identifying the right customers

I went to Naples during the weekend and I twittered about some of the things I did. An hour later a restaurant I didn't go to became a follower. I wonder what will they think of my next 1000 posts that will not make any reference to Naples or their businesses. Monitoring my tweets will be a waste of resources for them.

Social networking tools allow us to come closer to our customers, the new information and interactions should provide clues as to how better serve them and increase the revenue coming from them, but along with this increased revenue comes increased service and information mining costs (among others).

The challenge for us is to identify those customers that matter and it is useful to get closer to, for example: customers that represent the bulk of our user base, customers that lead in trends and know where the service should go, repeat customers. Also identify those customers that negatively matter, for example: serial complainer, serial returner or service abuser.

But there is a third category: the useless customer - this may be a one time customer and it is circumstantial that is using your service or product. This category of customer needs to be serviced to the highest standard (to avoid bad word of mouth and because it should be part of the service experience), but you have to be careful about the information gathering and relationship forming. Also, get a lot of misidentified customers like me and you get an skewed vision of your customer base.

When there is no benefit for you to have a relationship, you should not form it. Avoid wasting resources in customers that will not have an effect in your business, concentrate in those that matter.

Saturday, July 25, 2009

Thinking traps

I was reading an interesting blog post by Litemind about thinking traps. A lot of them have to do with our natural bias:
  • Thinking we are better than we are (overconfidence in our abilities, memory, intuition or gut)
  • Trying to confirm decisions we already made (shopping for confirmation, protecting our status quo or sunk costs)
  • Unquestioning our thoughts and assumptions
We can avoid some of the traps by talking to people who hold different points of view. This article reminded me why it is important to have diversity in our teams. Our teams can protect us from some of the traps. There is one trap that is not in the article and that is intrinsic to groups: the "group think" trap. This trap makes the team assume one position or opinion and none others are considered (from wikipedia: groupthink).

To avoid falling into "group think" we have to make sure that dissenting opinions are heard, that timid or softspoken team members get a change to talk, and that critical thinking is always on the table. As a team lead or member, we all share that responsibility. Remember that this trap can make a team behave like lemmings and jump off the cliff.

Monday, July 20, 2009

Going to the moon

Today we are celebrating the 40th anniversary of the US moon walk. This gives us a great opportunity to think about setting challenging goals for our companies, departments and endeavors. If we do not challenge ourselves, the status quo and everyone around us, we will find ourselves in the same spot year after year.

“We can challenge ourselves to do great things again by joining forces, cooperatively, with patience and perseverance, by setting our objectives high and helping other people to join us in the quest for expansion of our thinking, of our capabilities.” – Buzz Aldrin

Note: For those of you who don't know, Buzz Aldrin is the astronaut that piloted the lunar module of NASA’s Apollo 11 who took him and Neil Armstrong to the moon.

Saturday, July 18, 2009

Money Management in Times of Crisis

This is the shorthand from a lecture I gave last week for dealing with a personal financial crisis:

When we are facing an economic crisis, there are four issues that we must understand:
1) What the crisis is and entails
2) What are the assets we can use during the crisis
3) What changes we can make to reduce the impact or evade the crisis
4) How to avoid making the crisis worse by taking more debt

There are 8 steps required when dealing with a financial crisis. Three steps we need to take before the crisis, and five we will take during the crisis.

The three steps we take in preparation are:
1) Understand what is our net worth - we need to understand what our assets are and where our obligations stand
2) Understand our operating financial needs - Yes I am talking about a budget
3) Establish an emergency fund - 100% liquid asset

Once the crisis strikes, then we do the following 5 steps. Not really one at a time, but all together as much as possible. The steps are:
1) Keep calm - understand the emergency and develop a plan
2) Find alternative funds - either sell assets or develop an additional income stream
3) Renegotiate our debt - I am talking mortgage, car payments, personal loans and/or any other financial obligation
4) Reduce or eliminate operational and discretionary expending - reducing or eliminating cable, cell phone, internet, Starbucks addiction, etc.
5) Ask for help of friends and relatives - just not more debt. Ask grandparents for help with child care, friends for employee store discounts, etc. Avoid increasing the number of creditors.

The talk was a success.

Monday, June 15, 2009

Too many priorities

When setting priorities people are usually overoptimistic about what they can realistically accomplish. We see individuals trying to do everything at once: lose weight, exercise, eat healthier, be a better spouse, dedicate more time to the children, fix the house, reinvigorate their careers, build a better network. The reality is that you can’t do everything at once. If everything is a priority; then, nothing is a priority.

Companies don’t fare better than individuals. The illusion is that 100 employees should be able to handle 100 priorities. But companies have to understand that the average employee probably can’t handle more than 3 priorities at a time.

The impact on a business is that employees can’t find optimal solutions to problems that satisfy all priorities: should they be focusing on client experience or on cost management? Product innovation or bug eradication? This in turn can create paralysis in an organization while the decisions makers figure out which one is the most important priority.

Another side effect is that the company makes it impossible to do something that would please everybody. If they execute something thinking of customer experience, then somebody complains about cost management. Thus the actions of employees are based not on the priority but on who they do not want to anger.

The way around this problem is simple: first figure out what the top priorities are, then execute on them. Everything else doesn’t get a pass.

Tuesday, May 26, 2009

Instinct in business

What is good instinct? I would define it as being able to make the right decisions based on inadequate or incomplete information, continuously spot trends in the market and see opportunities ahead of everyone else. For me, this is the quality that separates the high achievers from everybody else.

I’ve met a guy who has a great instinct for business. He never does much analysis, he doesn’t have an MBA, and he doesn’t have MBAs working for him (he likes to keep his costs down). Yet he makes all the right business decisions and makes upward of 50K dollars a month. During his worst month this year he *only* made 25K. He starts and stops businesses with what we would normally classify as “insufficient information”, yet he makes a lot of money. He has a high risk tolerance but his net performance is above market average.

On the other hand, I have friends with MBAs that use a spreadsheet to make decisions, make all sorts of rational analysis and come up with good business decisions. In general, they make a good living, probably around 20K to 30K a month. They are medium to low risk takers with a net performance about market average. The lesson here is that analysis will only take you so far.

My advice?

If you have a good instincts and high risk tolerance, then rely on it. Use you instinct every chance that is useful. But keep track of your wins and your failures – this will hone your skill. Go all the way to the edge but make sure you do not fall.

If you don’t have a good instinct or are extremely risk averse. Then: do your homework, analyze everything, use mentors, use advisors, and get an MBA. Your reward will probably not be as high, but you will come out on top most every time.

If you have good instincts, high risk tolerance and an MBA you should be well on your way to be the next Bill Gates, Warren Buffet, or Carlos Slim. If you aren’t, ask yourself which one of your assumptions is wrong – maybe your instinct is not as good as you think, maybe you have passed on opportunities because of a lower than acknowledged risk tolerance. See what is stopping you and break it down.

In this economic climate where the old rules don’t apply as well anymore, it would be wise to follow your instinct. If yours is lacking, you will have to hone it (and fast), start taking chances, start making choices based on it, see when you can rely on it, and when you cannot. Your spread will increase. If you don’t, you may have a good return on your decisions, but there is no assurance that it will be enough to give you the life that you dream about.

Saturday, May 16, 2009

Dream teams

We all desire to have dream teams in our organizations. A dream team is one that is high achievement, high performance and where everybody gives their personal best. Dream teams are those that achieve excellent results consistently. Sometimes dream teams form as a result of a deadline, a company event or a special project. The camaraderie, support and understanding amongst the members create the environment necessary for high performance. The manager roles in this case are to get out of the way and keep the team focused. If you are lucky to have a dream team keep it going as long as possible.

There are some special circumstances that may prove fatal to your team:
  • 11th hour stress – The team may be great but unnecessarily taxing them will only frustrate the members. If the project has some unrealistic expectations, such as impossible requirements or too short datelines, the stress may get to the team. While some stress is unavoidable, try to set reasonable deadlines, or move the emergency period up front so as to flatten the final spike as much as possible. If the project becomes a death march, the first casualty may be your dream team. Think about project management and executive expectation management.
  • Company instability, like reorganizations – Even when the reorganization (use appropriate euphemism here) will not affect the team directly, it is sure to distract them. Try to contain office gossip as much as you can, and keep reaffirming them that their positions are safe (as much as it is true). If their positions are not safe, then give them as much information as possible and help them prepare. They will remember if you work them to the bone before firing them.
  • Uneven recognition or compensation – If you are giving out bonuses or awards, make sure the whole team is included – not just the leader or your protégé. Identify their individual contributions to let them know that you were watching. If resentment builds in your dream team, their days are numbered.
All teams have a life cycle and eventually all teams must dissolve. Know when to let go. If the team has grown beyond their assigned task, or the members are getting bored by the assignments, or they want to grow their careers in a different direction, you let them. Help them reach their objectives. A dream team may be short lived, but the repercussions to your career and theirs may be long lived. Who doesn’t remember that team where everything just clicked?

Monday, May 11, 2009

Price war

Recently I was helping a small business that is in the middle of a price war with a close competitor. The owner was afraid that they were losing money but didn’t know how much and in which jobs as they didn’t have a cost model for the business. The partners hadn’t talked about what to do if the business viability was seriously compromised.

The cost model was a relatively simple exercise as their business was not a complex one. The first thing they wanted to understand is what clients and which jobs were profitable. Once they were identified, it was a matter of focusing on expanding on the type of transactions and clients that were keeping the company going and making money. If you are a small company, your accountant and operations persons should be able to put together a cost model in a spreadsheet program. If you are a medium to large company you will probably need consultants and some costing software.

Of course, during a price war there may not be an option to focus on the profitable jobs or clients. Your competitor may be trying to increase their business at your expense precisely by targeting those jobs or clients. If you have a strong relationship with your clients you may be somewhat shielded from this scenario, but as other factors put pressure on your clients to reduce their own costs, you may be forced into a price war. Unfortunately, everything else being equal, a price war will be won by the company with the deepest pockets.

One way to try to avoid a price competition is to offer value added services. If before you only delivered your goods, maybe is time to make free installs. Or form some sort of customer rewards program – you don’t even have to do it yourself, there are companies that will run them for you. The caveat here is that the value added must be perceived by the client as sufficiently large as to offset your higher price. And even then, the short term gain (lower price) may be the only factor your client is focusing on.

Another thing to do is focus on new revenue streams. Can your product or service be applicable to other industries/clients? What about new uses for your product? Can your equipment be made to produce different products? If your focus is local, maybe you can expand regionally. The internet can help you reach customers from all over the world. Have you tried to reposition your product as a luxury item? Think Apple vs. everyone else. Luxury or premium brands can and do command a premium in price. What about niche markets? A new revenue stream may give you enough of an edge to survive until the worst is over.

Obviously you have to find ways to cut costs – it is imperative that you reexamine your operations and find ways to be more cost effective. Eliminate product lines that are not profitable today and may never be in the future. Much has been written about this so I won’t go into more detail here.

As important as figuring out ways to improve your cost structure and your business strategy, you also have to determine your exit strategy. Decide how much you are willing to lose before pulling the plug. If you can, set aside the money you are not willing to lose today. Have this talk with your business partners. Be realistic, not every business survives. So it is better to figure out your exit strategy now than when your money is depleted and there is no other choice but to fold.

Thursday, April 30, 2009

Is your BCP/DRP prepared for the swine flu?

Companies have to prepare for emergencies, and with the possible threat of a swine flu epidemic it is a good time to review your company Business Continuity and Disaster Recovery Plans. Threat to health and life aside (extremely important but not the focus of this entry) the impact to your business has to be assessed. In Mexico, for example, companies have had to close their doors some by order of the government, some by necessity because suppliers can’t deliver parts.

Review your BC/DR plans and identify if at least some of the most probable scenarios that you may experience are covered. The most generic examples are:
  1. A significant portion of your employees or key employees get sick – do you have appointed employee backups? Are they up to date?
  2. Families get sick or need assistance – what if schools get closed (like in Mexico)? Are you prepared to have your workforce working from home? What about emergency day care?
  3. Your customers get sick or are afraid of getting sick (like in the case of restaurants, movie theaters, etc) – restaurants in Mexico are closed because the government won’t allow them to provide service, Hotels in Cancun are experiencing thousands of cancellations, same with airlines. Are you prepared to weather that storm?
  4. Your building or installations get quarantined or need to be closed for sterilization after an outbreak - are you prepared to have your workforce working from home? What about backup installations?
  5. Your suppliers can’t deliver components or services – do you have backups in place? Last minute negotiations will cost you in time and money.
  6. Your employees can’t leave or can’t return to the country – some countries have already closed their borders to Mexican flights, while cruise ships sit outside of Mexico waiting to be redirected. How may your operations be affected by this?
Your plan needs to reflect the realities of a pandemic – maybe you are prepared and your plan contemplates everything that may affect you. But if you are not, it is a good time to review and decide what your next steps should be.

Wednesday, April 29, 2009

Pareto is wrong

If you want to thrive in business you have to forget about applying Pareto’s principle to your problem solving. I know at first it seems to make sense: “solve 20% of the problems that cause 80% of customer dissatisfaction” (or whatever you are trying to solve). The problem with that way of thinking is that:
  1. Nobody wants to be satisfied only 80% (or given an 80% working product)
  2. As soon as you solve that 20%, another Pareto raises its head – it never ends.

If we apply the idea that solving 80% of an issue is ok to provide for everyday situations, we would quickly realize that working like that is unacceptable (and leads to failure). For example, would you accept 80% of your laundry done? What about an 80% warm cup of coffee? Would you take an 80% cooked meal?

Let’s face it. In today’s business environment solving something 80% is not good enough. Servers have to have an uptime of 99.9995%, customers expect (and demand) 100% satisfaction, project budgets have to be accurate at least 95% of the time, six sigma expects 99.9997% efficiency in processes and products. You can see that 80% of something is way below expectations.

Why then, whenever there is a problem and a meeting is held somebody always brings Pareto into the discussion? Because there is no company that has infinite resources (well, maybe Microsoft), you always have to prioritize – it is just a matter of necessity. How then, can we escape the Pareto trap?

First, get rid of Pareto thinking! Then, follow these steps:
  1. Clearly define your problem(s)
  2. Identify all relevant measures or indicators to the problem – for example, percentage of customer satisfaction, number of defects per million opportunities (DPMO), or number of dropped calls. The fewer the better.
  3. Measure the initial state (use the indicators selected)
  4. Define your goal as the conditions necessary to consider the problem(s) solved and, if appropriate, your tolerance (nobody gets it right all the time) – be sure to use the measures or indicators selected in the second step.
  5. Identify all steps necessary to get there – make a plan (and hire a Project Manager)
  6. Take all of the steps, solve all of the problems until you get to your goal - don’t forget to measure progress along the way or you may not know you’ve arrived.

What happens if the steps necessary are not doable, the problem is unsolvable or your company can’t afford to make it happen? That means it is time to reconsider your strategy: either lower expectations, reposition the product or service, or exit the market.