Paul Wallbank – Brilliant Communications

Category: business advice

  • Depreciating the future

    Depreciating the future

    When I wrote my first book back in 1998, one of the things my editor and I did was look at the cost of buying and maintaining technology.

    Regardless of how we chopped the costs up, it came up consistently that the purchase cost of a personal computer was around a third of the Total Cost of Ownership (TCO).

    The TCO concept is something forgotten by people – be it a minister announcing a billion dollar purchase of jet fighters, a CEO boasting how he’s opened a hundred new outlets this year, or a family buying an investment property.

    It was bought sharply into focus for me when one of my kids claimed he couldn’t use his government provided school laptop because the IT guy didn’t have the repair software to fix a problem.

    Despite millions being spent on providing these computers, little has been allocated to maintaining them.

    This is typical of the public education sector, early in the adventure of building a computer support business I learned that services to schools and universities were fraught with difficulties as many would infrequently receive a fixed amount for capital expenditure but nothing for ongoing maintenance. You see this in the conditions of buildings on many campuses.

    Forgetting operating and support costs is something we all fall for.

    Strangely motor vehicles are the only area we consistently factor in maintenance and running costs, probably because we get the fuel price shoved in our face every time we take the car for a drive.

    While computers are becoming disposable items just like fridges and TVs were maintenance isn’t so much an issue given most last five to ten years before needing expensive repairs, its still true for many capital items.

    There’s another aspect to forgetting costs – depreciation.

    Depreciation allows us to factor in the declining value of our business assets yet I keep meeting people who treat depreciation as income or even an asset in itself. This is particularly true among real estate investors who prefer to buy newly built apartments for the higher depreciation deductions they can claim against tax.

    Bizarre stuff and true bubble thinking where people think operating losses will be offset in the medium term by capital gains.

    One of the aspects of 1980s thinking is that business costs like training and maintenance can be palmed off elsewhere or infinitely deferred. That isn’t the case.

    In society and business, we’re seeing the effects of pretending these costs don’t exist. Somewhere in there lies opportunity.

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  • When taxpayers hearts sink

    When taxpayers hearts sink

    Nothing is sadder than a government or business that believes it will gain huge savings through outsourcing.

    Part of the 1980s management mindset is that outsiders can do a job better and cheaper than existing staff. Almost always this is proved to be expensively wrong.

    The announcement the New South Wales Government will outsource Sydney Ferries is a good example of this. Media reports claim the “government is hoping to save hundreds of millions of dollars over the next decade.”

    Good luck with that. As the people of Melbourne found when the Victorian government outsourced operations of suburban trains and trams the levels of service remained poor, subsidies increased and new level of bureaucracy developed to manage the disconnect between a private operator running a service accountable to the public.

    Advocates of outsourcing always overlook the cost, time and skills involved in supervising contractors.

    This is something the banks found in the early days of offshoring services as the claimed massive labour cost savings by moving operations to the developing world were offset by higher supervision costs.

    Governments have a bigger problem with outsourcing as the public service generally lacks the contractual and project management skills to effectively specify and supervise major service outsourcing contracts.

    A good example of this is the Royal North Shore Cleaning contract where the hospital has seen a fall in hygiene levelsas the contractor attempt to meet their KPIs under an agreement that has been designed primarily to save the area health service money.

    Focusing on cost savings when outsourcing is almost always a recipe for failure. In both business and government its rare that a function or operating unit is so badly managed that savings offset the increased management expenses.

    This isn’t to say outsourcing isn’t always appropriate. Sometimes those savings are achievable – albeit not as often as proponents claim – and outsourcing can deliver skills that the parent organisation lacks.

    Which is another concern about the Sydney Ferries outsourcing. The Sydney Morning Herald article referred to above says the following about the CEO of the winning consortium.

    Mr Faurby, who has more than 20 years maritime experience, has never run a passenger service before. But he said he understood what it would take to improve Sydney’s ferries.

    ”It doesn’t really matter very much if it is a towage, tug company, or a container shipping company, or for that matter a ferry company … what matters is that you have the competencies to run it in an efficient, safe and effective manner.”

    Um no. That’s 1980s management school thinking where every business – from airlines to software – can be reduced to selling soap.

    Not having experience in running a passenger service with all the customer service issues that come when you’re dealing with the public is a concern. One hopes, prays even, that Mr Faurby and his employers have the wisdom to support the CEO with managers who do have a customer service ethos.

    Then there’s the black hole of Australian public transport – ticketing.

    While it’s impossible to quantify just how poor Australian governments have proved themselves to be with ticketing systems; Sydney’s convoluted, complex, siloed and passenger unfriendly public transport system adds another layer of complexity that the new management of Sydney Ferries is going to have to deal with.

    There’s no doubt though that Sydney Ferries need reform; its management was incompetent and, beyond the usual cheerful deckhands, the staff were surly with little concept of customer service.

    Done well, outsourcing Sydney Ferries could be for the better; but the emphasis on cost savings and what appears to be naive management expectations should make taxpayers’ hearts sink.

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  • Customer service gods

    Customer service gods

    “Treat your customer service people like gods,” says online business advisor Todd Alexander.

    One of the conceits of the 1980s business model was that customer service, like training and capital investment, is an expense that should be driven down at all costs.

    In corporations, government departments and politics those who dealt directly with the customers, taxpayers or voters were seen to be the low level, low status employees who could be outsourced at the first possible opportunity.

    That was great when markets were growing and there was an abundance of low hanging fruit to be plucked from the marketplace.

    Now that customers are cash strapped and margins are falling, keeping customers happy becomes more important.

    A statistic often quoted is that acquiring a new customer costs five times more than keeping an existing one, that difference may be exaggerated but it’s not far from the truth.

    Those departing customers can do great damage to the business as well.

    In the 1980s customers had little recourse apart from taking their business elsewhere. Often they didn’t have that choice in sectors where duopolies reign.

    Now customers can vent their frustrations to the world on the web or through social media and there’s no hiding from the loss of reputation.

    What’s more, many of the businesses that relied upon picking the low hanging fruit of a growing economy, high immigration or increasing consumer debt to find more customers through the last thirty years now find the rules of changed.

    Customer service now matters.

    Any management that considers customer service to be low status is a dinosaur and will soon be following them.

    It’s a good time to be disrupting comfortable business models.

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  • The Free Myth

    The Free Myth

    One of the biggest dangers to businesses is the belief that something is “free”.

    As we all know, there is no such thing as a free lunch. When another business gives you something for free it’s safe to say there is a cost somewhere.

    One of the speakers at the City of Sydney’s Let’s Talk Business social media event stated this when talking about social media saying “I can’t believe all businesses aren’t on Facebook – it’s free.”

    Social media isn’t free. We all know the value services like Facebook are mining are the tastes, habits and opinions of their users.

    For businesses, engaging heavily in Facebook or any other social media service hands over far more information about their customers to a third party than they themselves would be able to collect.

    All of that information handed over to a service like Google or Facebook can come back to bite the business, particularly if a well cashed up competitor decides to advertise at the demographic the business caters to.

    The core fallacy though is that these service are “free”. They aren’t.

    Every single service comes with a time cost. Every social media expert advises the same thing, businesses have to post to their preferred service of choice at least three times a week and those posts should be strategically thought out.

    That advice is right, but it costs time.

    For a business owner, freelancer or entrepreneur time is their scarcest asset. You can always rebuild your bank account but you can never recover time.

    Big businesses face the same problem, but they overcome this with money by hiring people for their time. In smaller businesses, this time comes out of the proprietor’s twenty-four crowded hours each day.

    The computer and internet industries are good at giving away stuff for free, in doing so they burn investors’ money and the time of their users. The social media business model hopes to pay a return to investors by trading the data users contribute in their time.

    While businesses can benefit from using social media services, they have to be careful they aren’t wasting too much of their valuable time while giving away their customers to a third party.

    Often when somebody looks back on their life they say “I wish I had more time.” They’ve learned too late that asset has been wasted.

    Wasting that unreplaceable asset on building someone else’s database would be a tragedy.

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  • Sport’s big problem

    Sport’s big problem

    One of the great successes of the Twentieth Century was professional sport.

    As television – first free to air TV then subscription pay networks – developed through the 1960s to 90s, the owners and executives found professional sport delivered viewers and advertisers.

    Having a sports portfolio was essential for a successful TV network, the leagues knew this and rights fees ratcheted up with every new contract.

    The process reached its peak in the 1990s as Rupert Murdoch built his pay TV empires in North America, Europe and Australia.

    During the 1980s and 90s we saw News Corporation buy up rights across the world, even founding new competitions like Premier League Soccer in the UK, Super Rugby League in Australia and the UK along with the multinational Super Rugby that allowed Rugby Union to become an openly professional sport.

    Any organisation that finds itself sitting on a cash mountain sees its costs accelerate and the sports organisations are no different. The cost of fielding of professional sports teams has soared with huge player salaries supported by armies of assistant coaches, middle managers and specialist assistants.

    Broadcasting rights were supplemented by corporate hospitality and sponsorship arrangements, all of which increased exponentially over the last thirty years.

    The big problem for professional sport sector is all of these revenue streams are affected by the deleveraging economy. Even more concerning for them is the precarious financial position of many of the media companies who bidded rights up during the 1990s.

    News Corporation’s mission of dominating TV markets by buying up sport rights is largely accomplished and the empire is fading along with its founder.

    When Rupert Murdoch goes, so too will the world’s biggest driver of sports broadcasting rights. There doesn’t seem to many other broadcasters with the ability to pay the extravagant bills of professional sports teams.

    There’s no doubt broadcast rights for sports will remain lucrative, albeit no longer growing, so clubs and competitions with business plans based on big increases of rights payments are going to struggle.

    As a consequence, sports organisations are going to become more aggressive in finding revenue streams and we can expect to see them bullying photographers, monstering people uploading clips to YouTube and ejecting those with the temerity to bring their own sandwiches into the few cheap seats remaining.

    The problem for sports is their value lies in their engagement with mass culture. If they isolate themselves from the people and society then they’ll find themselves becoming irrelevant.

    Like many of the media companies that are now struggling.

    Despite the pleas of sports administrators and their tame journalist friends, this doesn’t mean junior sport or the codes themselves will die. Grass roots sport will survive without a layer of obscenely paid professional players and managers suffocating the games.

    As business rules are re-written in the 21st Century, all industries are going to have to adapt. Professional sport is no different.

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