Tag: managerialism

Stranded markets

Businesses with old, declining markets are going to slowly fade away

“Stranded assets” are an accounting term for property that’s worth more on the books than it is in the marketplace.

Often the valuation problem has come about because of market, legislative or physical changes – what was a valuable and useful asset becomes isolated from the rest of a business.

Customers are biggest asset we have in our business – so what happens if our customer base becomes a “stranded asset”?

This situation isn’t far-fetched in a time when technology changes a marketplace – a blacksmith providing services to stagecoach companies would have been in this situation a hundred years ago.

In response to Are Businesses Fleeing the Online Space?, Xero’s Australian CEO Chris Ridd made some points about the problems MYOB have in the accounting software marketplace.

We see that going online to the cloud is finally allowing many small businesses the opportunity to avoid the “walk into Harvey Norman and fork out hundreds of up-front dollars on on-premise software” experience and instead go straight to the simplicity and cost efficacy of the cloud.

This is evidenced in our numbers and the fact that 40% of new customers signing up to Xero are coming from no software. (I mentioned last week at the NBN Forum that it was 30%, but we doubled checked and were staggered to find it was actually a lot higher). So we are creating a new market and cloud is therefore increasing the addressable market for accounting software. The cloud changes the economics of doing IT and makes automation of the business accessible and attractive to  a whole new category of SMEs.

Chris’ point is interesting – the new generation of businesses aren’t going to the computer superstore and buying box software. Which is a problem for those who sell box software such as MYOB and Harvey Norman.

What’s more, customers have moved away from those same superstores along with things like phone directories and classified ads, which is the problem companies like Sensis and Fairfax have to deal with.

A decade or so ago, MYOB, Sensis and Fairfax were dominant in their markets with a loyal band of customers. Today the remaining customers – many of whom have not changed their business plans for decades – are”stranded markets” made up of holdouts who won’t move to new technologies.

Those holdouts aren’t particularly profitable and they are slowly leaving their industries through retirement or, increasingly for these slow adopters, going broke.

Being dominant in a market that’s declining in both profits and sales is not the place to be for any business.

It’s difficult for the managers of these enterprises to move as their existing products are their core business, which is the classic innovators dilemma, but the alternative is to end up like Kodak or Sony.

One thing missed in the eulogies for Steve Jobs is how he overcame the innovator’s dilemma problem within Apple. When it became apparent the old Mac OS was a barrier to innovation, he killed it along with the floppy disk and Apple Device Bus.

Apple’s customers hated it as most of them had a substantial investment in the hardware which Jobs had made obsolete overnight. But almost all of them came back and became greater fans.

News Corporation are trying a different tack to Steve Jobs in splitting the operation into an “old” business and a “new’ business. That way the old business can find a way to make money or quietly fade away without affecting the newer, more dynamic entertainment and electronic arms of the organisation.

The challenge for MYOB – along with Harvey Norman, Fairfax and Sensis – is to move their customers to the new technologies, those who won’t go are the past and those stranded customers will isolate the business from the mainstream.

Outsourcing the service economy

The forces that shrank our manufacturing economy are now affecting the service industries.

Through the 1970s and 80s we accepted manufacturing industries moving jobs offshore because those jobs were done by working class, blue collar workers and the future lay in white collar, middle class service industries.

As a consequence of moving manufacturing offshore, the US, British and Australian economies became more service based. The thought in the 1980s was that while goods could be made in Taiwan, the ‘knowledge industries’ couldn’t be.

Then the Internet came along.

A panel on The Future of Outsourcing convened by the Indian Institute of Technologies Association of Australia last night discussed some of these issues.

Now the service industries are being offshored, at first it was the low skilled service jobs like call centres but it didn’t take long for higher value work – such as paralegal, medical transcription and of course IT services – to follow.

The belief that white collar jobs couldn’t be taken over by cheaper foreign labour has been proved wrong.

It isn’t just those working in the call centres or IT departments of telcos and big banks that are being affected, those small businesses in support industries like secretarial services or design are finding their clients are moving offshore too.

What’s interesting with all of this is how long the executive classes can resist being outsourced. Indian and Chinese managers work for harder for less than their US, British or Australian colleagues and in many cases are better educated.

One can only wonder how long the partners of major consulting business can hold the line as well, these guys – the vast majority are men – have done very nicely charging first world rates while increasingly paying developing world rates.

Already Indian outsourcing companies, including at least two sitting on that Sydney panel, have set up their own consulting arms that cut out the expensive middle men. Without the overheads flashy offices and big packages for entitled partners, they’ll have a pretty competitive offering.

While we can cry for the high paid management consultants and executives who are increasingly threatened by these changes, the Anglo-Saxon economies have a real problem as service industries move offshore.

In Australia, the Bureau of Statistic’s 100 Years of Change in Australian Industry tracks how the nation’s industries have changed – in the 1950s Australian manufacturing peaked just shy of 30% of the workforce, by 2000 it had shrunk to 11% while service industries were doubled from around 25% to 50% of the economy.

While it’s unlikely we’d see the service sector workforce shrink by 2/3rd over the next fifty years, there’s a good chance incomes will fall in these industries unless we start to invest in education and skills which allow Australia to stake a place in the global economy.

One of the key takeaways from the Future of Outsourcing event was that this change is happening regardless of what we think is a fair wage for our work. It’s something our government and business leaders need to start considering.

Ranking managers

Microsoft’s problems are deeper than just a misused HR tool

Vanity Fair’s analysis of Microsoft’s lost decade focuses on an unlikely culprit – the management tool of stack ranking.

Stack ranking, or “forced distribution”, is the practice of listing staff members in order of effectiveness or placing them on a bell curve where those in the middle are satisfactory and those at the right hand of the graph are exceptional.

Those on the left of the curve or the bottom of the list are deemed to be underperformers and risk losing their bonuses or even their jobs should the company be shedding staff.

Like all business tools, stack ranking can be useful. One manager of a North American multinational who encountered this when working with an Indian outsourcer described how it was used.

“A senior manager told me how he applied it in his group. Of 300 people, everybody was given a ranking and were told that ranking and given a chance to put their case if they thought it was unfair.
Then the bottom 5% were culled. Tough but fair.”
So at the Indian outsourcer it was applied to large groups and the bottom tier were given the opportunity to put their case. There was some transparency and at least some fairness in the process.
Used poorly though, it can backfire, “using it for groups of ten is stupid and lazy” said that manager who later saw it introduced at his own corporation with catastrophic results.

The real problem at companies misusing tools like stank ranking is too much management.

Like the old saw of “too many cooks spoil the broth”, too many managers create mischief. To justify and protect their positions they build little empires and make work for themselves.

Give empire building middle managers a tool like “stack ranking ” and you have a problem where office politics and patronage become more important than technical skill or performance which is exactly what the Vanity Fair article describes at Microsoft.

Ranking employees in a mindless way is symptom of a bigger problem in an organisation. In Microsoft’s case, the problem is too many managers.

The solution to that problem is simple.

Australia – the Noah’s Ark of business

Cosy duopolies leave the Australian business community exposed to a changing world.

During a week of big business news, the buyout of another boutique brewery by a big corporation was barely noticed, but Lion Nathan’s takeover of the Little Creatures brewery illustrates the duopoly problem that is crippling Australian business.

A few days after that deal was announced, rumours that Business Spectator – which the above link takes you to – would be taken over by News Limited started circulating. These turned out to be true.

In both cases, existing duopoly players bought out small competitors, a process that’s been going on since Australia decided industry duopolies were necessary to protect the nation’s managerial classes, and these takeovers kill genuine innovation and stymie new thinking.

For those duopolies the definition of success is grabbing a few percent of market share off each other while using their market powers to screw down supplier costs.

A good of example of this is the retail duopoly, the farmers and producers get screwed while the supermarket chains engage in price wars driven by truly awful advertising campaigns.

Un-imaginative, un-original and plain un-inspiring. Any smart young kid wanting to get ahead in the retail industries knows they have to look overseas for job opportunities or inspiration.

Therein lies the real problem with Australia’s duopoly business culture – it triggers a brain drain as comfortable managements block any innovative new thinking as being too hard or just unnecessary.

In the media duopoly, telecoms analyst Paul Budde illustrated the problem in his account on trying to convince Fairfax of where the media industry was heading in a connected economy.

Fairfax’s management didn’t get it and didn’t care – today they still don’t get but they care deeply as their business model crumbles.

It’s not just future managers that are looking overseas for opportunity, the customers are well.

The duopoly model that evolved in Australia over the last thirty years depended upon the tyranny of distance to act as an effective trade wall. The Internet has demolished that wall for most industries.

Almost every Australian duopoly is living on borrowed time. If, like the proprietors of Business Spectator or Little Creatures, your business plan relies on selling out to a local duopolist then you’d better move quick.

Transparent falsehoods

Openness is more than a buzzword and organisations have to do more than shutting down bloggers.

Transparency, openness, innovation and entrepreneurialism are all popular buzzwords, but do organisations really value these attributes?

At a cloud computing conference this week I sat in on an innovation presentation. Almost everyone in the room was wearing a dark suit.

Despite their dress, most of those folk desperately wanted to be ‘innovative’ and almost all of them worked in organisations that would really benefit with a dash of genuine creative thinking.

I thought of that conference when reading of the attempted shutting down of a primary school student’s food blog by her local education authority.

The saga of the Never Seconds food blog illustrated the classic responses of managers when faced with something they can’t control – shut it down on whatever grounds you can find.

In the case of Never Seconds it was because the food service staff feared they would lose their jobs. Bless the council for caring so much about their staff.

As always in these situations, it was an opportunity missed to promote the school district and improve the services they provide.

Never Seconds is also a great place where other school students shared their school lunches. It is a great idea to promote healthy eating for kids.

Thankfully the Argyll and Bute Council relented on their ban and the Never Seconds blog is back for lunch.

Educators around the world talk about promoting children’s curiosity and creativity yet when a child expresses them in a way that threatens staff or bureaucrat power, they are quickly slapped down.

The same happens in the workplace, most organisations will treat truly innovative and original thinkers like the naughty children they probably were.

For too many organisations – businesses, political parties and even schools – words like innovation, creativity, openness and transparency are just empty buzzwords.

Beating Buzzword Bingo

Some see buzzwords as an irritating curse of modern business, but they can indicate opportunity

One of the curses of modern business is the buzzword, a perfectly good word that is ruined by constant use.

The IT industry is particularly prone to buzzwords as people try to distil complex concepts into easy to understand terms – cloud computing is a good example of this.

More malign in the tech sector, and many other industries, are clueless managers and salespeople who try to baffle superiors, clients and staff with buzzwords to cover their total ignorance of what their business actually does.

For the canny supplier or contractor, the buzzword addled customer is a great sales opportunity as the customer’s managers are always grateful to buy a product tagged with some complex sounding terms that they can impress other with.

The security software vendors are very good at this as are management consultants who’ve literally written books stuffed full buzzwords guaranteeing them millions of billable hours.

One of the current favourite buzzwords is IPv6, the Internet standard replacing the current protocol that has run out of numbers. Saying you’re IPv6 compliant even when your business is more affected by cabbage prices in Shanghai is good to impress a few people who should know better.

Probably the greatest buzzword of the last decade was innovation. Every company, every new product and even government departments had to be “innovative” or lose credibility on the information superhighway.

Eventually though terms fall out of favour and innovation is one of those whose time has passed – those still dropping it into conversations today are usually 1990s MBA graduates who’ve dozed through the last five years of their professional development courses.

Watching out for those outdated buzzwords is useful not just as a sucker indicator for smart salespeople but also for job hunters.

For instance, when a company or recruiter constantly uses the word “innovation” in their job descriptions, you can be sure the organisation is one the least innovative on the planet, except possibly in the way management have structured their KPIs and option packages.

Generally the use of buzzwords in job descriptions or “mission statements” (another 1990s MBA fad) is inversely proportional to how applicable those terms are in the organisation.

For instance an organisation that claims it wants employees who are “self-motivated, curious and are selfless enough to seek what’s best for the company first,” is almost certainly run by control freaks practicing CYA management who mercilessly punish anyone under them foolish enough to take the initiative or ask questions.

Overall, buzzwords are a force for good as they let savvy employees identify those workplaces and managers that are best avoided. For those of us running businesses, it could mean opportunity or danger depending on what we’re selling to these organisations.

The greatest thing with buzzwords though is they are constantly evolving, meaning I get the opportunity to rewrite this column again in two years time by just changing a few words.

Innovation is already passé and “cloud” is peaking. What are next buzzwords we should watch for and enjoy?

Inflating titles, inflated apirations

How job title inflation can affect an organisation

This story first appeared in Smart Company on 19 April 2012.

“She listed her job on LinkedIn as my ghostwriter,” reflected the journalist about his publishing business’ Gen-Y staff member.

The journalist’s lament reflects an unexpected corporate risk in social media; that of employees giving themselves grandiose and sometimes damaging job profiles.

Over the last 20 years, title inflation has been rife in the business world as corporations and government agencies doled out grandiose titles to soothe the egos of fragile management egos.

So it isn’t surprising that many of us succumb to the temptation to give ourselves a grand title online.

In the journo’s case a young graduate working as an editor in his publishing business listed herself as his ghostwriter, risking a huge dent to his credibility among other the lizards at the pub or the Quill Awards.

That business journalist is not alone, in the connected economy what would have been a quaint title on a business card or nameplate is now being advertised to the world.

Making matters worse, we now have tools like LinkedIn and other social media sites to check out a business’ background and who are the key contacts in an organisation.

So what your staff call themselves is now important. It can confuse customers, cause internal staff problems (“how come he’s an Executive Group General Manager?”), damage business reputations and quite often put an unexpected workload on a relatively junior employee.

In your social media policy – which is now essential in any business that employs staff – you need to clarify what titles your people can bestow upon themselves.

As well as making this clear to new staff, a regular web search on your business that includes all of the popular social media sites should be a regular task.

Just as economic inflation can hurt your business, so too can uncontrolled title inflation. Watch it isn’t affecting your operations.

Culture beats strategy

What does the executive car park tell us about a business’ management culture?

Writer and business consultant Joseph Michelli says”Culture beats strategy, in fact it eats it for breakfast and lunch”.

This was one of the key points in a recent webinar about online retailer Zappos and its customer service culture.

Joseph’s right, the culture of an organisation is the ultimate key to its success, if managers and staff work “according to the book” and declaring “it’s not my job” then you end up with a siloed organisation where management are more interesting in protecting and growing their empires over helping customers.

With Zappos it’s interesting how it appears easy the integration into Amazon’s ownership has gone and this is probably because both have service centric cultures.

Both companies seem to have avoided employing Bozos as Guy Kawasaki famously put it a few years ago.

Your parking lot’s “biorhythm” looks like this:

  • 8:00 am – 10:00 am–Japanese cars exceed German cars
  • 10:00 am – 5:00 pm–German cars exceed Japanese cars
  • 5:00 pm – 10:00 pm–Japanese cars exceed German cars

Guy’s German car observation is spot on. When I was running a service business, one measure I used for a potentially troublesome client was how many expensive German cars were in the executive parking spaces, it was usually a good indicator that an organisation’s leaders are more interested in management perks than maintaining their technology.

Another useful measure was where those cars are parked, a good indicator of management’s sense of entitlement is when executive parking spots are conveniently next to the building entrance or lift lobby while customers expected to find a spot anywhere within ten blocks.

It all comes down to culture and when management are more concerned about parking spots and staff about free lunches, you know you’re dealing with an organisation where the customer – or the shareholder – isn’t the priority.

David Jones’ wasted decade

Poor decisions by unaccountable management are killing industry icons

In 2001 Australian retailer David Jones shut down their website.

Back then, the future was clear; profits were in financial services and certainly not in online sales or investing in improved stores and service.

Today the company released their strategic review that looks forward to financial years 2013 and beyond. You can downloaded it from David Jones’ investor website.

On Page 13, they show just how far David Jones has fallen behind their international competitors. Less that 1% of DJ’s sales are online compared to 4.5% of the UK’s House Of Fraser and 13% of John Lewis.

Australian executives claim they are in a global market for their talents which is why they deserve world standard remuneration. David Jones’ results show how hollow that mantra is.

The problems start with the board, five of the eight current David Jones directors were with the company when that decision was made in 2001.

None of them have been held to account.

David Jones illustrates the weakness in Australia’s business sector – largely unaccountable boards answering only to institutional investors who themselves have grown fat and lazy on clipping the compulsory superannuation ticket.

One hopes the some of the competitors who are displacing flaccid incumbents like David Jones are based in Australia or the locals may soon find that many of these sectors, not just in retail, will go offshore to better run companies.

Milking the dead cow

How Sensis killed itself and the lessons for Australian business

Many big Australian businesses seem untouchable as they dominate their markets to degree almost unknown in most other developed countries. As the story of Sensis shows, Australia’s big duopolies may not be as strong as they appear.

The last few months have been tough for Sensis; revenues last year fell nearly 25%, the once strong business was folded into the latest incarnation of Telstra Digital Media and now the CEO Bruce Akhurst has departed after seven years.

What could have been a dynamic business is now shriveling away, what went wrong?

Milking the revenue cow

Bruce did a good job of keeping revenue coming in during a period that the then owners, the Federal government, wanted to maximise the book value of Telstra before its sale.

Year upon year Sensis could be relied upon to squeeze more money out of the businesses advertising in it.

Management were focused on extracting revenue from the existing client base rather than responding to the obvious threat from online search.

Expensive distractions

When senior management decided to respond to the online world, they were sucked into unnecessary and expensive distractions; the most notable being the 2005 launch of Sensis Search where the then Telstra CEO – the disastrous Sol Trujillo – famously sneered “Google Schmoogle”.

Three years and hundreds of millions of dollars later, Sensis admitted defeat. By then the small business advertisers who were the life blood of the directory market had woken up to the reality their customers weren’t using the Yellow Pages anymore. Sensis had missed the boat.

Clunky processes

Whenever I spoke to small businesses about Sensis through the 2000s there was the same complaint, “I don’t have time to deal with their sales people, just let me tick a box on a web page or send a fax!”

Purchasing space was difficult for customers, their 1950s Willy Loman sales model should have been automated in the 1990s and never was.

Instead Sensis was locked into a high cost sales model and added friction for advertisers which they shouldn’t need, not only were they expensive but they actually made it difficult for their customers to place orders.

Should Sensis have been sold?

At its peak in 2005, Sensis was valued at between 8 and 10 billion dollars as a stand alone company.

Many, including myself, believe that breaking Sensis away would have been the best result given Telstra were at the time focused on protecting their fixed line copper wire monopoly and the directories business was not getting the management attention or capital investment it needed.

History shows though that we might be wrong.

Commander Communications was spun off from Telstra in 2000 and like Sensis had inherited an almost monopoly position in the small business communications market.

By 2007 Commander was out of business thanks to a combination of incompetence, management greed and an inability to recognise the changing communications marketplace.

The Australian disease

Commander’s biggest problem was it saw its customers as cash cows, just as Sensis did. This exposes a much deeper problem in Australian industry and management culture.

Over the last thirty years Australian government policies have seen duopolies develop in almost every key sector of the economy.

All of these duopolies share the same “customer as a milk cow” philosophy which, along with the rampaging Australian dollar, has dragged Australia into being a high cost economy.

The banking industry, while not a duopoly for the moment, is an even more debilitating example of the cash cow syndrome where small business has been crippled by excessive interest rates and fees – particularly since the 2008 crisis.

Sensis’ demise is systemic of a culture that fixates on extracting maximum revenue from customers; concepts like innovation, R&D or adapting to market trends don’t have a role in this mentality.

Milking cows is a fine business, but sometimes you have to think about the health of the herd.

The New Soviets

For many companies, customer service owes more to the Soviet Union

US based investment writer Mike “Mish” Sherlock called Sony’s support line to get a repair for his recently purchased laptop computer.

What followed was something from the 1970s Soviet Union – a simple request turned into a twelve day, 34 step odyssey of structural incompetence on the part of Sony.

The tragic thing is Mike’s tale is all the result of mis-matched rewards in Sony’s organisation;

  • Sony’s management wanted to increase profits
  • Extended warranties were identified as a revenue generator
  • A senior manager decided cutting support costs would improve returns
  • The technical support is outsourced
  • Costs are saved by splitting contracts
  • Each outsourcer has a different IT platform
  • The outsourcing contracts have quotas and penalties
  • Individual staff are penalised for escalating problems
  • Support staff have tight performance criteria

At every level performance indicators were met, despite the whole process costing far more than fixing the problem efficiently would have had – not to mention the loss of Mike as a customer – something that Sony can ill afford.

Not surprisingly, the computer ended up being fixed by a local IT guy. Richard almost certainly earns a fraction of Sony’s Executive Vice President Group General Managers, or whatever the title they have to match their compensation packages is, yet he gets the job done.

In Sony we see the Soviet model of management at work – an unaccountable, out of touch cadre of apparatchiks meeting their requirements under The Five Year Plan and are rewarded accordingly.

Just like today’s Executive Vice President Group General Managers with their KPIs and bonuses.

As we all know, the Soviet Union failed in 1991. One wonders when we’ll say the same thing about Sony or the dozens of other large corporations that have lost their way.

I don’t think I’ll write that

When self-preservation becomes self-censorship

A media release popped into my inbox from an old client recently. It was, to put it nicely, a total load of corporate tosh from an organisation that has been captured by its time serving management.

Having dwelt on this for a while, I went to write something about how this company had blown wonderful opportunities competing against a stodgy incumbent which had been given the opportunity to re-invent itself partly because of a new generation of smart, dynamic managers.

Then a little voice said “no, they’ll never invite you back; the mark of epically incompetent management is holding permanent grudges for pointing out their failures.”

So I didn’t write it.

In one way it doesn’t matter; much of what ails the Western world’s business communities is how a culture of managerial incompetence has been allowed to develop.

Almost everyone knows individuals who waddle from corporate disaster to debacle yet, despite causing the destruction of great slabs of shareholder value, move onto to higher positions and better paid jobs.

Some even get invited back to companies they’ve previously trashed.

We know who those people are; boards and big shareholders know who they are, yet they’ll still get hired.

Which is why its best not to upset them too much. For the moment, history is on their side.