Akin to Murphy’s Law, the Law of Unintended Consequences is a warning against the belief that you can control the world around you. As well as the direct consequences, any action will also have other consequences which were unintended and which may be counter to the original intent.
Archive for the 'Management' Category
If you are preparing for the downturn by cutting costs, consider the advice of Mike Elgan. In his article on “Three Ways SMBs can Survive the Economic Meltdown“, Mike highlights three alternatives to layoffs that can help reduce the overhead costs of running a business:
- Send people home. Companies often consider transport and associated costs as included in employee pay. Consider cutting a portion of this pay and let employees work from home.
- Use all the on-line tools to travel virtually and collaborate without actually leaving home.
- At the extreme, consider closing your office and becoming a Bedouin organization.
I like these ideas but I have to ask, why wait for a downturn?
It wasn’t long ago that the strength of the Canadian dollar compared to the USD was a source of major concern for Canadian manufacturers. With the recent turmoil in the markets, the Canadian dollar is weakening again as traders speculate that the recession will reduce demand for the commodities, oil in particular, that are the backbone of the Canadian economy.
I’m sure many in the manufacturing sector are torn between the impacts of the recession and the benefits they will get from the weakening dollar. To survive the plunge in the US dollar from the heights of 2002 when it was trading at over $1.50 CAD to the lows in November 2007 when it hit nearly $0.90 CAD, manufacturers that sold into the US economy had to become very efficient. It was essential to manage Canadian dollar costs to ensure profitability. If goods were sold in US dollars, there was a double impact of falling revenue in Canadian dollars. Many were forced to raise the prices of the goods they sold into the US. A strengthening of the US dollar will reverse these impacts and the now efficient firms will benefit.
For most of 2008, the dollar has been trading near par but it has risen nearly 10% to $1.10 in the last three months. [Update: As of the 10th October, the USD/CAD rate had increased to over $1.18] That has to be a relief to manufacturers that sell into the US. It represents free revenue in foreign exchange as well as the opportunity now to reduce US prices in the face of a recession.
The question is whether the recession will have more of an impact than the dollar. My own guess is that the coming year will be a bad one and that the Canadian economy will again start to look good compared to the US which will reverse the trend in the dollar. So enjoy the bump while it lasts but don’t depend on it. More belt tightening will be required in the future.
In an interesting post on the future of Cloud Computing, Jake Smith says that one of several antecedents of wide-spread cloud computing is the impact of “Buffett’s Law”. Basically, the law states that Warren Buffett, the billionaire investor is driving change in the business world through the principles of value investing in ways that promote conservative innovation as opposed to radical or flamboyant visionary creation. “The value of an enterprise is a direct correlation of it’s ability to deliver consistent return on invested capital, regardless of market conditions.” What does this mean?
Return on Invested Capital (ROIC) is a measure of the ability of a company to generate EBIT or earnings before interest and taxes compared to the amount of investment in long term debt or equity. To maximize the ROIC, the company must do two things: first, maximize its operating profit which translates to maximizing sales, minimizing the cost of good sold, minimizing the overhead involved and working with a low tax rate; second, the company must minimize the debt and investment required which translates into minimizing the working capital requirements and the non-current assets.
The first part is about efficiency of operations. The second part is about business models. Efficiency of operations is the realm of lean manufacturing - a philosophy of organizational efficiency that can be applied to just about any process. Business models relate to how you make money and the decisions about what you do and what you outsource. Take the decision to outsource PCB assembly rather than purchase the equipment and build the components in house. If the cost of goods remains the same, out-sourcing is preferred since it lowers the non-current assets which will result in a better ROIC. To make the purchase of the PCB assembly line attractive, the cost of goods would have to drop significantly compared to what could be produced through outsourcing in order to generate the same ROIC.
How does this apply to cloud computing? Cloud computing is essentially an outsourced IT model comparable to the outsourcing of PCB assembly. The cloud offers lower infrastructure for similar performance which means that, even if the cloud is just as expensive as tradition IT, it will be a preferred simply because it lowers the ROIC - hence the impact of Buffett’s Law.
For more on the trends in cloud computing read Jake’s article here or my own take on the changes in IT here.
MJM Consulting - Helping companies grow.
Pick your niche and stick to it. Focus focus focus. Stand for something. Don’t waiver. Stay on message. Stay on target. Damn the torpedoes. And while you’re at it, go down with the ship.
Following the tech crash in 2001, Sun Microsystems did not change its strategy. It continued to invest heavily in R&D at a rate nearly twice as large as its competitors. It did not adapt its product lines to meet the customer demands for cheap off-the shelf products. They stuck to their strategy but they lost their competitive advantage.
Now consider the Republican move to shore up the financial system. (Shore-up is a much better description than bailout, don’t you think?) This is a clear departure from their message. It is a socialist move that is not consistent with Republican values. Does that make it wrong or is it more likely that these extraordinary times do not fit nicely with the policies of any political party. New thinking is required because sticking to the message in times like these does not make sense.
Being dogmatic about your strategy in the face of external changes that affect your business is wrong. Predict, plan, adapt is better advice. There are things that happen to businesses that require you to change. Being stuborn and dogmatic about it won’t help you. In these cases, pragmatism always wins.
Thanks to Seth Godin for getting me on the soap box.
Can a single board of directors, informed by a single CEO effectively manage a corporation and avoid ethical risks? According to Dr. Shann Trunbull, a Principal and the International Center for Self Governance in Australia, the answer is no. Firstly, with only one board and with only one source of information, the board is both overloaded with information and poorly informed - despite the best efforts of the CEO - leading to a situation where decision making is fraught with risk. In addition, the single line of oversight can lead to conflicts of interest that are incredibly hard to resolve without a separation of operations and oversight.
Dr. Turnbull suggests changes to the governance structures that will enforce this separation by creating multiple boards and ensuring multiple sources of information feeding into the boards as well as the CEO. The different boards would have various roles aimed at the decomposition of decision making labour, the reduction in information overload, increased quality of decisions, and a reduction in conflicts.
The governance model is not that different from the model being used by several open source communities.
His full paper can be downloaded here. All his papers can be found here.
What does sustainable competitive advantage mean to you? Is it a competitive advantage that has a half-life longer than Uranium or do you use sustainable in the sense of a renewable resource?
I much prefer the later analog. Despite IP protection, despite trade secrets, there is nothing so fleeting as a competitive advantage. Sustaining the competitive advantage takes real work.
Innovation is the key, and not just product innovation. Last year, I attended a presentation from Larry Keeley from the Doblin Group as part of the Wisdom Exchange. His message was simple: Innovation is a discipline - which means there is a process involved. People commonly think of innovation in the narrow context of products. However, there are at least nine other areas commonly used to innovate a business in addition to product innovation. Product innovation alone has a 4% success rate. Better innovation tackles change in at least six of the following ten areas:
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Finance
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Business Model - how the company makes money
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Networking - enterprise structure, value chain and partnerships
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Process
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Enabling Processes - Assembled capabilities you typically buy from others
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Core Processes - proprietary processes that add value
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Offerings
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Product performance - basic features, performance and functionality
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Product systems - extended systems that surround the offering
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Services - how you help the customers
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Delivery
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Channel - how you connect your offering to the customer
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Brand - how you express your offerings ideas and benefits to the customers
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Customer Experience
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As a small case study, consider Nescafé reacting to competitive entrants such as Starbucks. Here is a blog on the subject by Thomas Otter entitled Simplicity, elegance and the Java bean. In his post, Thomas describes his adoption of the Nespresso Cube - a coffee maker with a cartridge system that is very easy to use. The product highlights a brilliant piece of innovation in the face of competitive pressure.
Nescafé`s problem: as the dominant coffee company is the world, they missed the boat on speciality coffee shops which changed the way people view coffee and created a stigma around Nescafé`s dehydrated products as inferior.
The Challenge: Regain competitive advantage by getting people to drink coffee in their homes again.
The Solution: Convert an office coffee product originally invented in 1975 into a household device (Product Systems and Core Processes). Partner with a leading design firm and create an elegant and simple device that provides espresso quality coffee with little fuss and much faster than a regular espresso machine (Product Performance and Customer Experience). Change the distribution model from grocery store sales of a commodity product to a web-based subscription service with home delivery (Channel). Use advertising and an excellent web site to build a brand (Brand). Build a community around the machines and coffee (Networking).
The Result: 25% annual growth since its launch in 1988.
The key here was not the product - that existed since 1975. It was the change in the channel. This was innovative brillance.
One of the coolest things I’ve seen on the Internet in the last few years is the Code Swarm software developed by Michael Ogawa at UC Davis. Code Swarm is an open source software project aimed at visualizing the contributions (commits) of a team of developers. It is fascinating to watch, especially for a large project such as Eclipse.
Now imagine being able to do the same thing for the contributions of the employees at your company. E-mails, file edits, phone calls all displayed as everyone is working together to create value. What would your company look like and how big would your star shine?
Last night we watched the documentary “Oil Apocalypse Now?” which talks about the limited extent of the world’s oil supplies. It paints a bleak picture that the world’s reserves are much smaller than expected, that the costs of new technology to increase the amount of oil from the reserves will have increasingly smaller returns, that the oil sands, while vast, are an expensive environmental disaster, and that the worlds demand for oil is increasing. The end result is that oil will cease to be available in anything like the quantity or price required to fuel our economy (pun intended) and that this will happen sooner (ten to twenty years) rather than later (fifty to one hundred years).
I like disaster predictions such as this. There is nothing quite like it to spur creativity: firstly by creating a definite problem with profound impacts and secondly by presenting almost no immediately apparent solutions. Its a blank slate.
Certainly there has been much talk about alternative energy in stead of oil. Cars are going hybrid and then electric/hydrogen. We will adapt the car. Even transport rucks could be made electric, but my guess would be that trains make more sense for long distance transportation. I have never heard anyone talk about the plane or boats though. (Small planes - yes. See this Boeing new release video.) What happens to world air travel? What happens to shipping?
Imagine a world where commuting does not involve a car, where manufacturing and food production is local and travel is the vacation. How would your business change?
I’ve been attending a number of meetings of various organizations. Several have been held at The Code Factory in downtown Ottawa, a collaborative workspace that serves startups and SMEs by providing work areas, meeting rooms and office infrastructure. Its a great idea and, in my mind, the way of the future with the growth of mobile computing and nomadic workers. The office will become a place to meet, share ideas and socialize. While being a nomad is liberating, motivation comes more from being part of a team and that does require relationship building face time.
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