Exceeding Expectations...the key to Competitive Advantage

The Day Job and the Change Job

2011-12-09T10:34:00.007Z

Yesterday The Times reported

"Taxpayers will foot the bill for a further £2 billion on a failed NHS IT project even though the Government has already pulled the plug on it."

It is reported that it is such a huge contractual mess that there is now no way out of it.

Now, we are told. the reform of the NHS is under way. The cost of the change process is now estimated at £3.4 billion. It is staggering, breathtaking - and appalling.

Any business management that is just managing to survive the present economic storm is learning what those that are already prospering and growing (sometimes at their expense) know. They are learning that you have to combine your Day Job (running the business - delivering service, products, customer satisfaction) with the Change Job (reducing waste, improving performance, re-structuring, introducing new technologies, operating smarter- etc.). They cannot afford to sit around and splash out big bucks for someone else to do it for them. They cannot afford to hire extra staff to "give themselves the time" (ah diddums) to do the Change Job. They have their hands on and in it up to their elbows - and their minds on making it better.

One of our clients put it perfectly "I expect the people to run the business, and my managers to improve it"

Until the Public sector learns this lesson, nothing will change.

We know how to enable this to happen. It is so frustrating to see no sign whatsoever that anyone in Government or Public Sector leadership recognises the need to build the Change Job into the Day Job.

Exceeding Expectations is brought to you by Steve Goodman and Tony Ericson partners in Achievement Coaching Internationa lwhere we help businesses to learn different thinking to enabledifferent actions that deliver thedifferentresults that Make a Big Difference.. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish regular articles using a recent business/financial topic to highlight different perspectives and conclusions to those obtained by conventional thinking and techniques. You can read the other three blogs at"Business Bloop Award", "You're having a laugh ... seriously?"and "Capitalism or ... Common Sense".

IT Turkeys act as Black Swans

2011-08-22T11:33:00.007+01:00

Big IT projects are spiralling out of control, costing shareholders and taxpayers billions of pounds, according to new research published this week in the Harvard Business Review,

In a study of about 1,500 projects, Oxford University and McKinsey & Co, the management consultants, found that one in six grew so massively out of control that they threatened the survival of the companies that commissioned them. These so-called “black swans” were so disastrous that, on average, they ran 200 per cent over budget and 70 per cent over schedule, the researchers found

The researchers said that the average cost overrun for all the IT projects was 27 per cent, but it was there was a minority of cases with the biggest budget blowouts accounting for most of the losses however, the percentage of problem projects was 20 times higher than they expected to find. They cited the example of Auto Windscreens, in 2006, the second-largest car glass company in the UK with sales of £63 million and 1,100 employees, which changed its financial IT system. By the end of last year, it had been forced into bankruptcy by a combination of falling sales, problems managing its inventory and overspending on the IT project.

The project leader, Bent Flyvbjerg, of Oxford’s Said Business School, said: “We were shocked when the data came in. IT projects are now so big and touch so many aspects of business, government and citizens’ lives that this poses a singular new challenge for top managers".

We wonder to what extent these shocking (but not surprising) results reflect the prevailing fashion in Management to de-skill and de-humanise business operations? Substituting "process" for individual competence and responsibility appears to be widely seen as "good practice".

The resulting levels of over-elaboration and over-definition generate complexity at exponential rates. So if the same mind numbing approach is used in the IT development itself, this is a Management Culture failure as much as anything else, so it is hardly surprising that dumb gets dumber and chaos ensues.

We were not surprised by this report, we have heard too many anecdotal stories of such tragedies (many sheltering under threat of libel action if publically reported) and recall one CEO stating "We are betting the Corporation on XXXXX" when he invested nearly 30% of his business' net worth in "an IT revolution". That bet was nearly terminal for the company, and definitely for that CEO. We recall one of our clients realising that a £2 million investment in "doing the same again but with more complexity" could be massively reduced so that they could "do it very different and simple" with just 4 PC's!

We think that it is time Managers reversed this slide into mediocrity and re-learned how to allow people to manage their own jobs; that is what the exceptional organisations do (you know, like Autonomy). They are the ones with the employee satisfaction awards and the excellence awards - oh yes, and the outstanding profitability and massive Comparative Competitive Strength.

It is interesting that this news should follow so closely on our previous blog about the effects of this insidious de-braining approach on the Probation Service. If you treat people as stupid then, first, they will respond accordingly and second, what perhaps might that tell the world about you?

So, once again, we repeat that is is the attitudes, behaviours and beliefs of a business leadership and management that determines the performance of the organisation. It looks as though this research shows that if you are dumb enough to think that a monster IT investment in complex systematisation will act as a substitute for competence in leading and managing your people, you will get exactly what you deserve.

The tragedy is that your employees, suppliers and shareholders do not deserve to lose so much.

Exceeding Expectations is brought to you by Steve Goodman and Tony Ericson partners in Achievement Coaching Internationa lwhere we help businesses to learn different thinking to enabledifferent actions that deliver thedifferentresults that Make a Big Difference.. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish regular articles using a recent business/financial topic to highlight different perspectives and conclusions to those obtained by conventional thinking and techniques. You can read the other three blogs at "Business Bloop Award", "You're having a laugh ... seriously?" and "Capitalism or ... Common Sense".

Formula One ideas can transform Probation Service!

2011-07-29T12:43:00.002+01:00

Last weekend I watched Lewis Hamilton drive his McLaren right round Fernando Alonso on the outside of a bend (wonderful mastery) on his way to win the German Grand Prix. Behind him two dozen Formula 1 engines spent over 100 minutes each revving up to 18,000 rpm or more for the whole 60 laps – and yet only 3 cars retired for mechanical reasons. And Lewis drove better than he knew how!

It offered an penetrating insight to Thursday’s radio news when I listened to Kenneth Clarke, the Justice Secretary, vowing to end the "tickbox, bean-counting culture" of the probation service after MPs revealed that officers spend as much as 75% of their work time on administrative duties rather than dealing directly with offenders. The MP’s report said that micro-management is continuing. It said NOMS (National Offender Management Service) is currently attempting to detail every component of every aspect of prison and probation work, measuring the time it takes to complete and then costing it.

It is abundantly clear that the top team in NOMS certainly cannot even spell “Management” or “Service”. Even now, in the 21^st century , we see a public sector leadership bogged down in the prehistoric “work study” management approach (and even making a mess of that). There has been a complete revolution in management knowledge and competence since the 1970’s – but not in Whitehall. NOMS is just one tip of the iceberg of ignorance that permeates so much of UK management practice – and journalism (the silly questions Clarke was asked!).

Every organisation is a machine – a mechanism for converting funds into outcomes. The job of operational management is to design a viable mechanism and then operate it effectively. The “Scientific Management” methodologies of the 1970’s understood this badly, teaching the type of approach that we see from NOMS. Systemisation, detailed tasking, tight targeting and intense measurement were to be the keys to successful operational performance – except they proved not to be. The approach ignored the uncomfortable fact that the mechanism of organisation contains some essential components that are neither mechanical nor systemised – people. It has taken us nearly 40 years to discover how to surmount this.

“What on earth has this to do with Formula 1 engines?”, you may ask.

Many years ago I met one of the leading engineers in Cosworth Racing, at the time when their engines dominated Formula 1. He told me something so amazing that I never forgot it. It should amaze you too. I guess we all assume that our car engines are great solid lumps of metal with bits whizzing around inside – and that the same is true of pretty much all the machines we come across. And so, we might assume, all the bits in these machines fit together much the same when they are stationary as when they are working. So, when managers think about organisations – the mechanisms for converting funds into outcomes – they may make the same assumption. And then specify all the components accordingly – wrong!

The Cosworth chief engineer told me that their race engine increased and contracted in height by 0.030 inches (1/32 inch, or 0.762 millimetres) during every single engine rotation and that this was at a different time for each of the 8 cylinders so the height varied along the cylinder block. Consequently every other component (piston, connecting rod, crankshaft etc) also stretched and compressed to match, and all of this happened at 18,000 rpm, so that the whole engine was in fact like a great elastic vibrating jelly. All of the components stretch and compress to work together perfectly. Wow! What an amazing and scary fact.

The difference between an engine and an organisation is that, in the organisational mechanism, a high proportion of the components are people – and unlike in the engine, these parts are intelligent, flexible and adaptable. Smart leaders and managers have learned how to combine robust operational systems with the best of human adaptability and flexibility. And, unlike machine parts, people can learn how to perform better all the time. That is how the very best companies massively outperform the average – they are not only built better, they think better too, from top to bottom. Winning mechanisms are flexible, champion organisations learn to be better all the time. Unlike the mechanism that NOMS is building which will be rigid, proscribed and of course will have eliminated “thinking” altogether. An approach that has been proven many times to fail .

It’s not just us saying this. There is a long line of research stretching back to the late 1980s that supports our conclusions. My partners and I are excited, and flattered, to see that McKinsey have just published research that once again confirms our own long held knowledge that peoples’ attitudes, behaviours and beliefs profoundly affect business performance – exactly as proved by Dr Vinod Singhal in 2001 and used as the basis for our Competitive Strength analysis published in 2003. McKinsey’s Scott Keller and Colin Price have coined the phrase “Organisational Health” to describe this; unfortunately, they offer no details of how it might be measured, but outline their strategy by which the necessary transformation may be achieved. Four years ago we launched our Competitive Strength Report to objectively measure exactly this dimension, and with a proven process to achieve the transformation needed. However, our approach will not compare with McKinsey’s as ours is incredibly rapid and very inexpensive.

So as I heard Kenneth Clarke, with the MP’s, railing at the incompetence of his management, I had an immediate mental picture of Lewis Hamilton exceeding his own expectations in front of all those extraordinary engine components.

Passing the competition round the outside of the bend – that is Beyond Excellence. You and your organisation can do it too, even the probation service might do it, but not with NOMS involved.

Exceeding Expectations is brought to you by Steve Goodman and Tony Ericson partners in Achievement Coaching Internationa lwhere we help businesses to learn different thinking to enabledifferent actions that deliver the differentresults that Make a Big Difference.. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish regular articles using a recent business/financial topic to highlight different perspectives and conclusions to those obtained by conventional thinking and techniques. You can read the other three blogs at "Business Bloop Award", "You're having a laugh ... seriously?" and "Capitalism or ... Common Sense".

Network Rail - Waterlogged or Sinking?

2011-07-22T12:44:00.004+01:00

Network Rail says bad reputation means that it just can’t get the staff

Excerpt from The Times July 22 2011 – by David Robertson

Chief says company is seen as a stain on the CV

Network Rail has claimed that it is struggling to hire talented managers because some people believe that their careers could be damaged by the company’s reputation.

David Higgins, chief executive, said, at Network Rail’s annual meeting in Birmingham yesterday, that ensuring the company had high-quality people to manage the UK’s rail system was the single biggest issue he faced. ………..

Mr Higgins said: “We are just not an attractive organisation with all the turmoil that has been going on. We are not seen as a good company for people to have on the CV.”

This recruitment crisis has been brought to the fore as Network Rail moves from a centralised management model to a regional one.

It is recruiting ten route managing directors, who will have oversight for a particular rail network. These route managing directors will be supported by five or six key executives who will be responsible for areas such as safety, maintenance and punctuality.

“We have been out in the market to get route MDs but we have been unsuccessful. We may get only one out of ten route MDs externally,” Mr Higgins said. “We need 60 or 70 people as we devolve route responsibility. We have to go to people in our organisation and take a risk with them. We have enough experienced people to monitor them. Finding quality people is the single biggest issue this company faces.”

We all now know that the biggest single factor affecting difference in business performance is the people in the business - their behaviour, attitudes and values. Network Rail has a long history of leadership that has demonstrated zero competence in this area; its culture remains stuck in its past.

Until they deal with this, nothing will change - nothing can change.

It does not have to be expensive Mr Higgins - but it will be mighty uncomfortable. Sadly, changing the organisation chart and recruiting new faces will change nothing - except to damage the recruits' careers (as they obviously have spotted).

So, Mr Higgins, you need to start with the attitudes, behaviours and beliefs of your top team - "the recruiters". You need different thinking to drive different actions that will deliver different results.

Only then perhaps, at last, you may start to achieve the real transformation of performance that we all need to see.

Some of your suppliers learned to do this, once upon a time - so it is not impossible in the Rail Industry.

Here is a starter question - Do you think you might first need to become a sufficiently attractive Leadership Team to attract and then retain the quality of management you seek?

Exceeding Expectations is brought to you by Steve Goodman and Tony Ericson partners in Achievement Coaching Internationa lwhere we help businesses to learn different thinking to enabledifferent actions that deliver the different results that Make a Big Difference.. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish regular articles using a recent business/financial topic to highlight different perspectives and conclusions to those obtained by conventional thinking and techniques. You can read the other three blogs at "Business Bloop Award", "You're having a laugh ... seriously?" and "Capitalism or ... Common Sense".

Merrill Lynch - Wrong Thinking Wrong Conclusions

2011-02-28T14:36:00.007Z

Last week, Merrill Lynch admitted it had been wrong to hold an “underperform” rating on ARM the Cambridge based technology company since November 2009. Over that period the value of ARM’s shares tripled and they have broken into the FTSE 100!

In a note published last week (entitled “ARM Wrestling”) Merrill admit that they “… had underestimated the potential for royalty rates to increase … and the sheer pace of end market growth addressable by ARM’s customers … and failed to appreciate the impact of Microsoft selecting ARM’s designs as the basis for the next generation if its Windows software …”.

How did they get it so wrong and for so long? This is the inevitable outcome of using conventional financial and business analysis to attempt to pick the next winner in an increasingly unconventional world. This way of thinking also assumes that all businesses perform in a conventional way and will therefore perform broadly in line with market conditions rather than outperform or underperform.

However ARM is not a conventional business in the way it thinks and behaves. If we apply the Competitive Strength perspective we can see that ARM have achieved a Competitive Strength condition of Excellent and may even have progressed to Free. Quite simply this means they are able to do things that other businesses with weaker conditions of competitive strength cannot. In this case the outcomes are higher royalty levels, customers who have exceptional rates of end market growth, major breakthrough deals with the likes of Microsoft and so on.

Merrill’s conventional approach is trying to spot the golden eggs, which goose is likely to lay them, as well as where and when. The Competitive Strength perspective identifies which geese have the capability to lay golden eggs because, as the Competitive Strength research base shows, that is invariably what they do. Can you also spot which is likely to to be the short term and which the long term investment perspective?

In spite of Merrill’s wrong call the market as a whole appears to recognise what ARM were capable of, though how many of the investment decision makers involved really know why is still a question in our view.

Can ARM do now wrong? Well watch out for any conventional sounding statements from the company, any sense of complacency and that they feel they have cracked it (no pun on the egg theme intended) and have become unassailable. This can be a sign that the Competitive Strength condition, how they think and behave, is slipping towards the Comfortable condition, where they will become vulnerable to external forces.

What about Merrill? They have now upgraded their stance on ARM to “neutral”. This indicates they are still using conventional thinking and analysis and/or maybe “neutral” is about exciting as it gets at Merrill Lynch these days.

Exceeding Expectations is brought to you by Steve Goodman and Tony Ericson partners in Achievement Coaching Internationa l where we help businesses to learn different thinking to enable different actions that deliver the different results that Make a Big Difference.. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish regular articles using a recent business/financial topic to highlight different perspectives and conclusions to those obtained by conventional thinking and techniques. You can read the other three blogs at "Business Bloop Award", "You're having a laugh ... seriously?" and "Capitalism or ... Common Sense".

Flying Blind - again

2011-02-15T18:20:00.004Z

Administrators called in at Auto Windscreens

The Times - Marcus Leroux

Last updated February 15 2011 12:01AM

One of Britain’s largest windscreen repair companies collapsed into administration yesterday without enough cash to pay its 1,100 workers.

Deloitte was called in as administrator after the company received a winding-up petition from Revenue & Customs over unpaid tax bills. Lloyds Banking Group, the state-backed lender, had earlier appointed Deloitte to try to find a buyer in an attempt to limit its exposure.

Matt Cowlishaw, a Deloitte partner, said: “It is extremely disappointing to see such a well-known business enter administration. The company worked extremely hard to try to recapitalise the business, but unfortunately this could not be achieved in the time available.We are now in urgent discussions with the key stakeholders and interested parties in an attempt to save the business.”

The company, the largest in the market after Autoglass, was well known to football followers as the sponsor of the Auto Windscreens Shield in the 1990s. It turned over £63 million last year. In 2009, the last year for which records are available, it lost £5.3 million on revenue of £77 million, compared with losses of £18.7 million on revenue of £99 million in 2008.

Sad, but from the figures quoted here, inevitable. They fail the common sense test.

With sales at £57,000 per employee, how might anyone expect this type of business (operators in vans with stock) not to lose money? And how can "re-capitalisation" be relevant when the cost base is so obviously too high and the revenue line too low?

This is a company with low Comparative Competitive Strength, and it has been so for some time. And now, inevitably, it has hit The Abyss. An objective view of its Competitive Strength could have seen this coming at least 4 years ago, time to have done something effective.

Probably an unnecessary failure, so it is sad for the employees, they have been badly failed by their management. Once again it looks as though the people on the flight deck have deluded themselves that all is OK, the wings have not fallen off, the fuel tanks have not run dry and the oh too solid ground is not 2 feet below them and approaching fast – “all we need is a little more time” (i.e. new wings, fuel , airspace = someone else’s money).

How often do we see management teams in failing businesses convincing themselves that they are “OK Really” when they really are not? How many allegedly professional advisors support such leaderships in this wishful thinking because, let’s not beat about the bush here, this is where their fees come from?

However, bankers, accountants, financiers and creditors could have looked at their Competitive Strength long ago, and taken precautions. They did not, so they deserve no sympathy.

Actually they should be hung, drawn and quartered for Wasting our Nation’s Wealth

The funds they have allowed to be squandered here could have been used to support other companies with the High Competitive Strength that can grow the economy and create jobs. So they have not only kept afloat a ship that should have sunk – but denied opportunities for success to others who deserve, and who we all need, to succeed

Until the financial decision makers and key influencers grow up from their dependency on accountancy practices and traditional indicators, they will forever be looking backwards. That means that they will continue to focus on the craft that haven’t crashed yet, watching where they have been to guess where they are going. This is because they don’t know how to look forward, how to recognise those businesses that can and will soar.

The Comparative Competitive Strength point of view can sound tough, but it does look forward not backwards.

Exceeding Expectations is brought to you by Steve Goodman and Tony Ericson partners in ChangeWORLD & Achievement Coaching Internationa l where we help businesses to learn different thinking to enable different actions that deliver the different results that Make a Big Difference.. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish regular articles using a recent business/financial topic to highlight different perspectives and conclusions to those obtained by conventional thinking and techniques. You can read the other three blogs at "Business Bloop Award", "You're having a laugh ... seriously?" and "Capitalism or ... Common Sense".

The analyst who gets it

2010-10-22T13:34:00.005+01:00

We have previously criticised conventional financial analysts' pronouncements on the fortunes and futures of businesses. Too often we believe their assessments and opinions do not identify the key drivers of performance because they are too focussed on the financial factors.

However Richard Fletcher, city editor of the Daily Telegraph has spotted perhaps the first example of an analyst who in his words "gets it". Richard Fletcher himself must have been "getting it" for sometime himself because he clearly knows one when he sees one.

The analyst is Marc Geall and his 26 page note on Autonomy, a software business is the subject of Richard Fletcher's article in the Daily Telegraph on 13th October. He reports that Mike Lynch, the Chief Executive of Autonomy, "used to claim that the city analysts didn't get it. With limited experience of software companies, he argued, the city scribblers struggled to get a grip on the complex £3.4bn business he had spent years building".

However Richard Fletcher reveals that Geall actually worked for Autonomy for more than two years before joining Deutche Bank in June, so he knows the company from the inside. Richard Fletcher states that whilst "Geall does stress at the beginning of his note that Autonomy hs a "unique product" that "dominates", his dissection of the group's management and business model is damning".

Here are some of the extracts he quotes from Geall's note:

"The management structure, control and sytems at Autonomy are more representative of a start-up than a major global player ... The senior management team is talented but lacks bandwidth. This can lead to some decision paralysis as the middle management is sometimes limited in its autonomy".

Autonomy still manages a very flat structure with a tight chain of command into the CEO and CFO,"... Although they have managed this effectively to date, we believe the business is becoming too big and time is now becoming the limiting factor. There after all only 24 hours in the day and 90 days in the quarter."

But it is not only the senior management that is found wanting. Autonomy's sales force are "hunters not farmers", according to to Geall and ill-prepared for the inevitable transition to account management as Autonomy grows and the number of "repeat" customers increases."

"Autonomy's margin structure is too high ... and the investment in the business has lagged revenues ... [which] could affect customer satisfaction towards the product and value it delivers."

Autonomy's service business is "too lean" ... "risks falling short of standards demanded by customers".

We are not saying that Geall is necessarily right, we don't have the facts behind these statements to make that judgement. What struck us though is that for the first time in our experience here was an analyst focussing on HOW a business thinks and behaves and the potential consequences this has for future performance, rather than just WHAT it does financially. Compare this with a few other analysts' comments reported in the Telegraph on the same day.

"Traders said that the efficiency review had hit ... and that there were worries over the prospect of the government attempting to renegotiate contracts".

"... he expected first half cash flow to be miserly ... and advised investors to bring your magnifying glass. He added that he anticipated continued revenue declines".

"... one of the most compelling retail roll-out opportunities ... clear and visible growth over the medium term backed by strong cash generation".

"... remains structurally challenged given its geographical and revenue channel exposure ..."

We do not claim that any of these are wrong, just very one dimensional. They are commenting only on financial outcomes, WHAT has happened and WHAT may happen rather than on HOW these outcomes came about. By contrast Geall comments on aspects of the core characteristics of Autonomy's organisational culture, how it thinks and behaves and how these could impact on future performance.

There is a growing realisation, backed by a growing body of research that the deep seated managerial and behavioural values and competences of a business are the main determinant of whether, over time, it will substantially outperform its competitors and successfully withstand unpleasant surprises. These values and behaviours manifest themselves in the form of the Competitive Strength condition of a business, which is:

How capable a business is compared to those that want to beat it

and

How capable a business is of mitigating those forces out there that can cause it to be beaten.

So without knowing it, we suspect, Geall has offered his analysis of the weaknesses in Autonomy's Competitive Strength condition and what the consequences could be. These weaknesses may currently be hidden by the advantage of its products' uniqueness and market dominance. If Geall is right then the research on which the concept of Competitive Strength is based demonstrates they could be doing up to twice as well right now. Furthermore unless corrective action is taken the cracks will start to show, it is only a question of when.

Should Autonomy take Geall's comments on board, given that he cannot be accused of not knowing the business? Autonomy shares fell substantially after it warned two weeks ago that full- year profits would be below market expectations, blaming "volatility rather than demand" in its markets. So if we were them and knew what we know then we would take Geall's analysis seriously. But we are not them and they may or may not know what we know, so we shall see.

Finally thanks to Richard Fletcher for spotting and publishing the difference. Let's hope it encourages more analysts to think about HOW rather than WHAT.

Exceeding Expectations is brought to you by Steve Goodman and Tony Ericson of Business Breakthrough Coaching. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish regular articles using a recent business/financial topic to highlight different perspectives and conclusions to those obtained by conventional thinking and techniques. You can read the other three blogs at "Business Bloop Award", "You're having a laugh ... seriously?" and "Capitalism or ... Common Sense".

What Goodwill can REALLY be worth

2010-08-03T14:36:00.006+01:00

Our last article back in March in the Exceeding Expectations section of our Excellence Quartet blog was about “Goodwill”, the difficulties of putting a value on it and the consequences if you get this valuation wrong.

In July in our “Capitalism or … Commonsense” section we wrote about how if you can do all the right things and you do them really well one of the results will be superior profitability and returns for shareholders.

In this article we bring these two ideas together in a story about how one business discovered just how much the goodwill they had created through doing all the right things and doing them really well could be worth.

This is the story of Hotel Chocolat and its “Chocolate Bond”.

For those of you that don’t have a sweet tooth and may not have heard of Hotel Chocolat they are a producer and retailer of top quality, exclusive chocolate.

From the start the founders, Angus Thirwell and Peter Harris were determined to do the right things and to do them really well. For them this included being brazenly committed to producing only authentic chocolate using only authentic wholesome ingredients. It also included their policy of “engaged ethics”. This not only involves paying their cocoa farmer suppliers above the world market rate but also being directly involved in helping them improve their own, their families’ and communities’ lives and futures.

The result of all this is that over the 15 years since they were founded they have grown sales to £52m and have over 500 employees, a success story by any comparison.

Earlier this year they decided to raise some capital to invest in further growth. To find this investment they did not go to the banks, the stock markets, venture capitalists or even a rich Aunty … they went to their customers.

Hotel Chocolat has over 100,000 customers registered as members of their Tasting Club. So they not only know where to find them but they also know their taste in chocolate and have carefully nurtured their enthusiasm for their products and company. These customers were offered the opportunity to buy “Chocolate Bonds” redeemable in full in 3 years and paying interest in … chocolate! This was equivalent to an interest rate of over 6% if paid in cash.

The bond issue was approved by the FSA and raised £3.7m. This will be used to expand Hotel Chocolat’s UK factory and invest in facilities in their wholly owned cocoa plantation in St Lucia. They believe up to 250 new jobs will be created.

The Chocolate Bond was an innovative idea but without the goodwill that had been built through doing all the right things really well it would never have delivered any value.

If you would like to find out what doing the right things and doing them really well could do for the value of your business why not take some time to talk to us. Call Steve Goodman on 07802 385586 or Tony Ericson on 07973 138253.

Exceeding Expectations is brought to you by Steve Goodman and Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the concept of Excellence as the key to prosperity. Each article uses a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques.

Goodwill - What is it and what's it worth?

2010-03-31T16:05:00.009+01:00

As reported in the Telegraph two weeks ago Fat Face the surfwear retailer reported losses of £225m in its accounts to end May 2009. The retailer has been forced to write off hundreds of millions of pounds of "goodwill". It conceded that its value has more than halved since it was bought by private equity firm Bridgepoint in 2007.

In general use "goodwill" is an accounting term used to reflect the portion of the value of a business entity not directly attributable to its assets and liabilities. It is an intangible asset that reflects the ability of the business to make a higher profit than would be derived from selling the value of the tangible assets. This value is often created and or crystallised at a point of acquisition or merger. However businesses have also been known to write "goodwill" valuations into their balance sheets to reflect what they believe is the true value of the business.

Actually valuing "goodwill" is much more of a challenge than simply accounting for it. In the case of Fat Face the explanation for the write down was "that it will take longer for the brand to achieve its full potential than ... previously believed". BC Partners recently wrote off the whole of its investment in Foxtons estate agents "... we made the wrong call". Frequently premiums paid for acquisitions are not reflected in subsequent financial performance.

Valuations of "goodwill" can get inflated to unrealistic and unsustainable levels. For example:

A business may have traded during exceptionally benign economic and market conditions, achieving levels of profitability that cannot be sustained when more "normal" conditions are restored.
A business may achieve a genuinely competitive advantage but then does not have the ability to sustain that in the face of greater competition and/or changes in market conditions.
And of course - when greed overtakes fear as the main driver of judgement

In contrast we had an example of a client whose advisors were quite unable to understand why the business had superior ability to make profits compared to its competitors and the consequent superior value of the business. They failed to attract buyers for the business at anything like its true worth.

So valuing "goodwill" is not easy and there are no clear criteria or formulae for getting it right. However the consequences of getting it wrong, whether upside or downside, can be serious. If we apply our Competitive Strength perspective to this we can immediately see the fundamental problem. Valuing "goodwill" is about the future but all the data and dimensions used are from the past and present - what a business has shown it can do in economic and market conditions that have existed up to now, rather than what it will need to be able to do in conditions as they might be in the future. Every offer for investment carries the health warning - past performance is no guarantee of future returns!

What is really needed is 20:20 foresight, but is that possible? We believe it is. Whilst it is very difficult to forecast the future it is possible to make an objective assessment of a business' ability to cope with and even to thrive in whatever the future turns out to be.

The key is to be able to make an objective assessment of the Competitive Strength condition of a business entity. This is a new business measure and is made up of two components:

How capable a business is compared to those that want to beat it

and

How capable a business is of mitigating the impact of those forces out there that could cause it to be beaten.

Competitive Strength is the manifestation of the deep seated managerial and behavioural values and competences in a business that are the main determinant of whether, over time, it will substantially outperform its competitors and successfully withstand unpleasant surprises. The rock solid research which identified this linkage also established that there are massive differences between the financial performance and sustainability of an average Competitive Strength condition and the truly excellent - much greater than previously thought.

This is because the greater the Competitive Strength the higher the organisational level of Changeability. Changeability, quite literally the organisational "ability and capacity for change" is a key attribute for superior performance and sustainability. We first defined and publicised this new business culture criterion in our "Why Excellence" seminars in 2003. It has been good to see that research carried out by Dr. Michael Jarrett, adjunct professor of organisational behaviour at London Business School and published in his book "Changeability" in 2009 has confirmed our own work and experience.

Hence the Comparative Competitive Strength condition of a business is a reliable indicator of its ability to make a higher profit than would be derived from selling its tangible assets and the potential value of its "goodwill". You don't have to forecast the future, just objectively assess the business' ability to to cope with and thrive in whatever that future might be - 20:20 foresight achieved!

By combining the research with our own work on Changeability we developed the Competitive Strength Report to enable business leaders and managers to objectively measure the Comparative Competitive Strength condition of their organisation, to clearly understand the implications for it future financial performance and its survival and to decide quickly and clearly what they need to do about it. What is more the web based process is fast (3 weeks), requires a minimum of executive time and is very low cost, so is it accessible by a very wide range of types and size of business.

So if you are a business owner thinking about an exit, or you are considering an acquisition, or you an investor considering where to make your next investment, or an advisor to clients in any of these scenarios,go to our website for more information on Competitive Strength and how it can help you make that all important valuation of "goodwill".

Different thinking - Different results

Self-stuffing Turkeys. New? No

2009-12-15T17:39:00.006Z

BA cabin staff have announced that they will strike for 12 days over Christmas.

The public response has been overwhelmingly negative. The media is awash with puns on Turkeys and Christmas.

Is it that word “British”? Does this word in a company name cause its employees, like the tragic folk at the British Motor Corporation/British Leyland, to believe that they are entitled to unlimited public support and funding despite their employer being seriously uncompetitive and underperforming on every front?

30 years ago and nothing learned. BMC/BL and even its final incarnation Rover is long gone, and all its jobs with it.

BA has been at a very low level of Comparative Competitive Strength for far too long. Its management has shown few signs of understanding this, its shareholders and advisors certainly do not. So it is not too surprising that its cabin staff should be deluded too.

Over the last ten years BA has swanned along smug in the self belief of its own invulnerability and almost god given right to go on for ever whilst in fact sliding steadily down through the Comparative Competitive Strength level of Comfortable into now the lower levels of Constrained. The fact that 90% of the cabin staff have just demonstrated they do not understand how desperate the situation is reflects the poor quality of management and leadership. Mr Walsh’s dramatics have been too little and far too late to be believed, and too many of his management have remained in denial. It is no wonder communications have failed. Look again at BMC and then subsequent BL and Rover leaderships.

Are we about to witness the Longbridge tragedy all over again? Is BA off to join BMC in The Abyss? Is this perhaps a terrible insight into the psychology of large scale corporate failure? Is this yet another case where sheer size, market dominance and organisational inertia obscures the recognition of corporate death at the time of actual occurrence. The business appears to carry on but ultimately, much later, and as a “sudden surprise”, the sunlight hits the wrong bit and the whole zombified structure suddenly collapses in a heap of mouldy dust?

Might the more thoughtful BA cabin staff use this time away from work to find out what happened to the workers at BMC? Could they realise that there is no such thing as a Perpetual Money Machine, and team up with BALPA and other longer sighted employees to work together to win themselves the management leadership and business transformation that they all so desperately need? And get themselves a future?

This forthcoming tragedy is predictable and therefore potentially preventable. Indeed, as Louis Gerstner demonstrated at IBM, it might even be reversible. A key indicator is the Comparative Competitive Strength Report. If you would like to know more about this uniquely independent and objective assessment of the managerial and leadership potential competitive capability of an organisation, and the financial implications of that, please have a look at the introduction on our web site here.

Exceeding Expectations is brought to you by Steve Goodman and Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. Each blog has a new article each month using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs are "You're having a laugh ... Seriously?",Business Bloop of the Month Award", "Capitalism or ... Common Sense" .

Oh, What a Surprise! Get your Bacon with your Beauty?

2009-09-25T14:59:00.003+01:00

There are companies who consistently exhibit both agility and inventiveness. They are more likely to “think outside the box”, to be “a bit of a maverick”, to do “something surprising”. Once the dust has settled and the consequences of the innovation can be seen clearly, the “surprise” is frequently downplayed by commentators with 20/20 hindsight as being “just common sense” and “obvious”. It wasn’t obvious then, it isn’t now and it won’t be in the future – agility and inventiveness has become part of the genetic structure of such companies. They will always surprise.

This ability to surprise is both a consequence, and a symptom, of the highest level of Comparative Competitive Strength, the condition we call Free. Robust research has proved that these companies produce financial results that massively outperform both their direct competitors and the general pattern of corporate returns. Their superior profitability endows them with a much greater freedom of strategic and tactical choice, and that in turn, allows them to consider greater risks to obtain larger returns. And, here is the elegant Catch 22, the vastly superior competence that enables them to deliver their high profitability can also underwrite their innovative enterprises so that, for them, the risks can be much lower than for others. Their true difference lies in the leadership, managerial and operational culture that pervades the whole of their business. Succinctly, they Act Different because they Think Different. So, unlike most of their competitors, they can afford to surprise.

Here is a wonderful example. In the news today, 25^th September 2009 –

Waitrose is aiming to double the number of its grocery stores by making a push into the convenience market, the company revealed yesterday. Its food will go on sale in Boots as part of the plan.

The employee-owned retailer said there is potential to open up to 300 convenience stores. This would be boosted by the huge store portfolio of more than 2,000 outlets owned by Boots. In return, Boots’ health products will be sold by Waitrose.

This looks like one of the biggest “Win –Win” deals of all time in UK Retail. As its competitors race around fighting endless Planning battles to secure “Convenience Store” sites (making local newspaper headlines right across the UK) and then reaching deep into their pockets to build and outfit them, Waitrose sails serenely past with 2,000 ready to run new outlets at little cost. Talk about being the swan in the duck pond!

And, what’s in it for Boots? Two things, increased footfall in their current premises, and more volume for their healthcare products. Sounds like a bit of a moorhen moment?

Well, it is better than nothing – and to be brutally frank, nothing is what Boots has had to look forward to, for a long time. Boots is a classic example of a once great company that remained in the Comparative Competitive Strength frame of mind we call Comfortable until, one day, its leadership and its shareholders were shocked to find that it was on a road to nowhere with the real prospect of sliding into serious financial trouble. The world around it had changed, and it had not. They had fallen into the Comparative Competitive Strength condition we call Constrained. They were truly headed for The Abyss.

Over the last few years Boots has struggled to innovate. They have had apparently “good ideas”, such as the Dental Clinics that disappointed, and their Opticians that, at one time, was losing a fortune. However, they had become a Constrained culture – and that meant that they did not have the cultural leadership, managerial and operational competence to manage such innovations effectively. So they didn’t.

There have been significant changes in the leadership at Boots since the merger with Allianz and returning to private capital ownership. It is interesting to note that, seen only through the anecdotal “cultural thermometer” of Customer Service experience, there are signs that the long march back is under way. This deal with Waitrose looks like a comparatively low risk innovation for Boots which should not be outside the competence of an organisation that is now travelling from the Comparative Competitive Strength condition of Constrained, through Comfortable and is obviously aiming for Excellent.

From the Boots point of view, there is another benefit that is unlikely to be spotted by conventional business analysts. It has such a substantial potential value that it would make it worth them paying Waitrose rent to be in their sites. It is the opportunity to learn from this commercial partnership, to gain insight and understanding of the cultural realities of a Free organisation. But, are they ready and do they have the ability to listen, look and learn?

On the other hand, there is a potential threat to Waitrose which again, conventional analysis will not have highlighted. Have they spotted it and are they prepared for action?

This threat has been observed in a number of mergers and acquisitions where a company with a high level of Comparative Competitive Strength has deployed its financial muscle to scoop up a competitor with a much lower level of such strength. In many cases they have not taken into account, or have been blithely unaware of, the substantial cultural differences between the organisations. Generally, an Excellent level culture mixed into a Constrained level organisation has not produced, through some magic, an Excellent level outcome. Diagnosis can be muddy because, in many cases, such moves have been accompanied by financial engineering that, through excessive gearing, has had the effect of simultaneously moving the buyer, unconsciously, towards a Constrained condition. This has been a typical outcome of the lack of awareness of Comparative Competitive Strength cultural factors

As a general rule, in mergers and acquisitions, it appears that the lowest common denominator of Comparative Competitive Strength will prevail. There is the same risk in commercial partnership.

Waitrose must be on their guard. They will need to work out how much extra effort they will be prepared to put into managing the consequences of the lower levels of managerial and operational competence they are likely to meet in their Boots interactions. They should be prepared to be disappointed and to have strategies ready to manage this constructively. The overall economics are not likely to compare to those 100% within their own control. This is tangible stuff, necessary otherwise it could all end in tears.

Waitrose must be doubly on their guard. Much more important, they have “the Partnership”, a unique and spectacularly successful working culture. They will need to think about how to protect the cultural integrity of those partners they require to work with Boots. Their partners have acquired a complex mix of attitudes, habits and ways of thinking and working that, outside the Waitrose environment, may prove to be quite fragile. Waitrose have to make sure that they do not allow the lower common denominator, the Boots culture, in any way to contaminate and destroy their working way of life. This is intangible stuff, essential otherwise it could all end in tragedy.

So let’s hope that the operational leadership and management of Waitrose are as consciously competent in their understanding of their own culture as their strategic leaders in the John Lewis Group. The key to the future prosperity of UK plc lies in the whole economy striving to approach their level of Comparative Competitive Strength.

Our unique Competitive Strength Report is a rapid and inexpensive way for any organisation to compare itself with the very best in the world and to find out whether its prevailing culture is Free, Excellent, Comfortable or Constrained and to fully understand the financial and strategic implications of that result. We know that the insights from the Comparative Competitive Strength point of view will show you things you had not previously seen and illuminate unexpected opportunities.

You can find out more about Comparative Competitive Strength and The Abyss from our ChangeWORLD site or the Competitive Strength Report site. Why not meet us to explore the ideas further?

Exceeding Expectations is brought to you by Steve Goodman and Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. Each blog has a new article each month using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs are "You're having a laugh ... Seriously?", Business Bloop of the Month Award", "Capitalism or ... Common Sense" .

Going, Going, Gone? – Auction of the Vanities?

2009-05-01T19:12:00.004+01:00

From The Times May 1, 2009

Need to know:

Motorola: The US mobile phone maker reported a first-quarter loss of $231 million (£156 million), an improvement on its $194 million loss for the same quarter last year. Sales were down by 28 per cent.

DSG International: The owner of Currys and PC World has raised £310.6 million to shore up its capital base after credit insurance fears contributed to a surprise rise in its net debt.

Chrysler: The American carmaker has gone into Chapter 11 bankruptcy protection, having won $8 billion (£5.4 billion) in US government funding to help it to restructure.

Smith & Nephew: The London-listed medical devices company reported an 18 per cent rise in first-quarter profits to £66.2 million, as the benefit of cost cuts outweighed a 5 per cent slump in revenues, caused by patients deferring non-essential orthopaedic surgery and by hospitals tightening their expenses.

From the Competitive Strength Point of View –

Going – Motorola, a once great technological leader that loudly trumpeted its own excellence that has been struggling for years. At best this is a company that is exhibiting the Comparative Competitive Strength symptoms of a Constrained condition. There is much that it needs to do to recover its previous value to shareholders, customers and employees – market leadership, product innovation, quality and delivery are examples. The fact that none of these are new factors over the last 18 months suggests that the only focus is now survival – that is a Constrained condition.

Going – DSG International, a large business that loudly claims market leadership but has been the subject of our adverse predictions over a number of years. The list of operational quality failures is massive and widely documented, especially where there is interest in customer service experiences. This report seems to indicate the next step in the inevitable death throes as this business slides from Constrained towards The Abyss.

Gone? – Chrysler, a motor company that has been so spectacularly uncompetitive for so long that the only wonder is that it has lasted so long. However, it has never been immodest – the blowhard communication habits of the Motor Industry run through its veins. The various managements of this vast corporation have been ducking and diving over the decades with acquisitions such as Jeep, international misadventures such as the shambles that was Chrysler Talbot, mixed ventures such as the mutually disastrous tie up with Mercedes, and a new vehicles that remain firmly unmatched to market needs (just look at the current range!) – and last but not least, a quality and reliability reputation that almost any Third World vehicle builder can beat hands down. This is a long Constrained business that has toppled into The Abyss.

The tragedy now is that their extensive Supply Chain will suffer a massive financial blow that they are also ill equipped to withstand. It is very probable that much of their Supply Chain is also in a Constrained condition and that The Abyss awaits them too. And, meanwhile, the worthless Brand Name totters on in the name of job protection, is there any other logical reason? This time about to be hitched to the paragon of automotive quality leadership that is FIAT – another Constrained organisation that exists only by governmental fiat – what a combination that promises to be..

A Lesson from Chrysler – the LCD Effect

The brutal reality of the Competitive Strength point of view is that, in the majority of cases, in any interdependent business relationship the Lowest Common Denominator sets the pattern of values, thinking and behaviour for the whole. So, because Chrysler has been for so long in a Constrained condition, tragically many of their suppliers may also have come to share the condition – and be therefore be doomed in turn.

The Mercedes/Chrysler tie up illustrates this so well. Mercedes, strong in the self belief that they were an example of Excellence in Competitive Strength, entered a joint venture with Chrysler (a Constrained operation desperately seeking yet another silver bullet). There were two unexpected outcomes – first, Mercedes’ reputation in the USA for quality and reliability with engineering excellence suffered nearly terminal damage from their first locally built vehicles – second, the world wide market spotlight fell across the quality and reliability of all Mercedes’ range and they too were seen to be found wanting. Mercedes’ self perception of Excellence had been a myth – they were in fact, and had been for some time, merely in a Comfortable condition. And that is why they slipped downhill with Chrysler without even realising that it was happening.

However, although it has taken a few years, Mercedes’ leadership realised what was happening, distanced themselves from Chrysler as far as possible, and made a massive investment in restoring their internal culture towards Excellence. The only question now is whether they have made enough progress to withstand the credit crunch?

However, the News is not all doom and gloom today -

Staying – Smith & Nephew, is a company with a quiet reputation for excellence in everything that they do. It has demonstrated a high degree of agility in both market shaping and leadership through an adept and innovative mixture of product leadership and flexibility in distribution channel development. In fact, it exhibits several symptoms of the Competitive Strength condition beyond Excellence that we call Free. So it is no surprise to see, as reported, that they have been able to respond rapidly and productively to a sudden shift in market conditions.

So, does your company think it is the greatest?

Do you shout your superiority from the rooftops? Are you one of the business leaders fooling your customers, your suppliers, your shareholders and, worst of all, yourself that You Are The Best?

Times are tough – and in Warren Buffet’s memorable phrase - the tide is going right out.

In terms of Competitive Strength levels -

· If your business is in the condition of Excellence – you are in for some nasty surprises

· If your business is in the condition of Comfortable – you are in for a terrible time – you will very probably slide into a Constrained condition without knowing it has happened until it is too late.

· If your business is in the Constrained condition – you are unlikely to survive

· If your business is in the Free condition – you don’t need us to tell you what to do, you will already have done it.

Whether you are a business leader, proprietor, investor, financier, supplier, banker, manager or employee – you would be wise to look hard at the Competitive Strength condition of the companies with which you are closely associated. If they are going down, they may take you with them without you even realising that it is happening.

If you want to find out more about the Competitive Strength Report, the true financial value of exceeding expectations and the importance of changeability for survival and prosperity, please look at our ChangeWORLD web site here. If you have the courage to wake up and face reality – contact us before it is too late.

Exceeding Expectations is brought to you by Steve Goodman and Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. Each blog has a new article each month using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs are "You're having a laugh ... Seriously?", Business Bloop of the Month Award", "Capitalism or ... Common Sense" .

The Fallacy of Market Share

2009-03-16T09:12:00.005Z

In our last Exceeding Expectations article we demonstrated how being in a high growth market sector and/or having a temporary market advantage are not reliable indicators of long term performance for a business. In this article we explain why “market share” is misunderstood and misused as an indicator of future performance – and so often also as a strategic goal. Given that the ONLY rationale offered to persuade Lloyds TSB shareholders to support the merger with HBOS was the “largest-market-share-in-UK-retail-banking-Gordon-has-given-us-the-nod” argument , this is a highly relevant subject to address.

The argument in favour of achieving high market share is that this creates many advantages that lead to superior financial performance. This fallacy has a corollary– the conclusion that high market share requires a very large organisation. Frequently this prompts boards to “shortcut” their way to increased market share through merger and acquisition. However as the record shows, M&A has a chance of between 50 and 80% of failing to produce value; what does this say about the advantages of high market share?

The research on this subject appears superficially to back the notion that high market share leads to superior financial performance. However one piece of research identified a crucial element needed if this superior performance is to be sustainable. The research, carried out at Harvard and still ongoing is titled Profit Impact of Market Strategies (PIMS). This research involved gathering performance data over many years from many thousands of business units to identify the business strategies most likely to lead to success in a range of contexts. In their book (“The PIMs Principles”) Robert Buzzell and Bradley Gale showed how their PIMS research discovered that only market share growth based on relative perceived superior quality will result in market share growth that delivers sustainable superior financial performance.

For an example of how the lack of relative perceived superior quality results in poor financial performance in spite of high market share we need look no further than DSG, the owners of Currys and PC World. This company built itself into the market leading electricals retailer and showed all the characteristics of a high market share operator, e.g. using its buying power to offer low prices and occupying prime retail sites throughout the UK. Three years ago, after one of our clients suffered one of the worst customer experiences we have witnessed from PC World’s so called Business Division, we looked at DSG from our Competitive Strength perspective and warned that all was not well. Since then other commentators began to voice concerns and in due course DSG’s profits began to slide along with its share price.

Then came the recession and of course this has meant a tough period in retail. In spite of this a few retailers have been able to report results that exceeded expectations whereas DSG announced trading results that were every bit as bad as expected. The media’s financial and business pundits once again cited market conditions, the credit crunch, shifts in demand for one technology or another, and so on. DSG attempted to cushion the bad news by reporting that trials of new store formats had delivered increased sales and margins. On the strength of this news one analyst actually changed his recommendation from sell to hold – obviously he has never heard of the Hawthorne Effect (research that showed the refurbishing of working environments can improve performance – but only for an extremely short time). The thinking (or is it a Prayer?) goes that if the market leader upgrades all their stores, the improved performance seen in the trial will replicate across the business to restore the high market share and once again deliver high profits.

We have to ask - has this analyst or any of the other commentators actually tried to buy anything recently from a DSG store? If they had, they might just understand why even an infinite number of expensive store refits will not stop DSG plunging further and crashing – why there is no sign of a competent pilot and no River Hudson nearby.

Recently, my wife and I popped into our local (large) branch of Currys. She wanted to buy a new electric iron. There was a reasonable choice of items lined up along a display shelf. The chief decision maker examined them and finally decided which one she wanted to buy. We looked at the lower shelves for the boxed item. It was not there – in fact, there were boxed examples of fewer than half the items “on sale”. After a search, I found two assistants busy chatting and asked for help. Visibly irritated at being interrupted, one of them came to the shelf, removed the label, disappeared to a computer terminal and then returned. “We don’t have one, but you can order it”. We asked when, if we were to order, would it be available? He did not know. He asked another lady assistant who said that a delivery would be in 4 days. Would it include that item? “Probably – if you order it”.

My wife asked if we could buy the display item? Could we have the box and instructions? “Oh no, we throw those away. We would be full of cardboard boxes, wouldn’t we?” My wife then asked how much reduction they would offer for the item as incomplete. “Oh no, we can’t reduce it because it is a current stock item. You can order it”. She walked out, fuming. We went straight to Sainsburys – a whole 300 yards. Within 10 minutes she found what she wanted and bought it.

This is why DSG are doomed. Disastrous Customer Service experiences and the inability to deliver the basic function of a “shop” (somewhere that sells things you can buy there and then) demonstrates DSG’s relative perceived inferior quality. Disposing of the packaging and thereby devaluing all their display stock is simply one of many inevitable, stupid consequences of the core problem. This core problem is low Comparative Competitive Strength for which no amount of “bigness”, whether in market share or anything else, can compensate.

Their new chief executive is promising change “but it will take time”. With rapidly diminishing Competitive Strength, my friend, you don’t have the time. This is a business behaving in a way that spells disaster even in good times. What hope does it have in a time of economic crisis? The Abyss looms – and a great deal faster than you may wish to believe. Size matters, a bit – the Titanic took much longer to slide under the waves than a rowing boat, but the only variable was the time, not the sinking. And, as a very large organisation, when DSG crashes, the tsunami will drown many others that do not deserve to die. If, as they have announced, DSG think they need redundancies – it is not in the stores – it is in their leadership.

If you own DSG shares, forget them, write them off. If you are a DSG employee, sorry, look for another job now. If you are a DSG Supplier – get ready for massive contractions at any minute. If you are a DSG Creditor – take protective action now. If you are a Financial Analyst, ask yourself if you are saying the right things but for the wrong reasons and consequently at risk now of giving wrong advice? If you are an Institutional Investor (on behalf of my pension fund perhaps?) and if you still hold a stake, you should be sacked, now.

If you think we are just picking on DSG, what about Lloyds TSB and HBOS? Sorry, Lloyds shareholders, it is probably too late, get ready to sue your Board members and the government.

The only hope the UK has in these troubled times is for every business to raise its game NOW. There is no longer time to pussy foot around. Every enterprise that fails, as DSG seems determined to do, will be an avoidable burden on the few survivors. Don’t expect the Government to help – they haven’t a clue about Comparative Competitive Strength or its importance to saving the British economy – just a few stalwart pursuers of Excellence will, if the banks don’t stop them, provide the only solid base for our future economic survival.

Frankly it makes us want to cry. But if you are of stouter heart, and want to know more about how you can raise your game – NOW – please have look at our website here and at the Comparative Strength Report page here.

Exceeding Expectations is brought to you by Steve Goodman and Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. Each blog has a new article each month using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs are "You're having a laugh ... Seriously?", Business Bloop of the Month Award", "Capitalism or ... Common Sense" .

The Fallacy of the "Market"

2009-01-22T17:01:00.018Z

As we move into the early part of 2009 one of the business names shortly to be added to the casualty list is Foxtons estate agents.

Foxtons grew rapidly on the back of the London property boom and became famous for the Minis in Foxtons livery darting around the streets of London. Jon Hunt, the founder, sold the business to BC Partners for £360m just before the credit crunch. Now comes the news that Foxtons have breached their banking covenants and BC Partners have conceded that its decision to buy the business was a mistake. “As housing markets fall, so do estate agents, so we got that wrong. In hindsight, we made the wrong assessment of the market,” said a spokesman.

Well yes you did, but the really wrong assessment was not “of the market” – it was of the company itself. Jon Hunt had done a great marketing job, the company Minis were just one example. He rode the boom astutely, opening more offices, taking on more staff, positioning the business as THE estate agent in London and timing his exit impeccably – good luck to him! Yet many who had attempted to buy or sell a house with Foxtons had perceived the company as inefficient, its staff incompetent and unprofessional (remember the Put-A-Sign-on-Anybody’s scandal?) and putting its own interests before those of its clients. A bit of research amongst Foxtons’ clients and London house owners who had had anything to do with them would have revealed a business that was likely to be unsustainable other than in a booming market.

There is a mindset amongst many investment analysts and managers that leads them to believe that investing in businesses in so called “high growth” market sectors and/or with apparently unassailable market advantage in their products/services is the Holy Grail that will produce the stellar returns they seek. This leads them all too often in to over-valuing the “biggest” – because, “obviously it must have grown more”. The same immature logic has driven company directors to pursue Top Line growth regardless of expense, because it will impress these analysts who will then recommend their shares.

This is just rubbish thinking because all “high growth” sectors and any market advantage are at best temporary and frequently illusory as BC Partners experience with Foxtons illustrates. There is no substitute for being a good, well run business that has developed a high level of Competitive Strength that ensures it stays that way.

In 2003 Irish Drinks Group C&C, launched Magners Cider. Described as “a triumph of marketing” the new concept of “Cider Over Ice” swept all before it. Sales grew strongly during three successive summers and into 2007’s early Spring heat wave. Over the same period C&C’s share price grew strongly too, from €2 to €14. However in reality this was based on just two assumptions – that no competitor would enter the market and that it wouldn’t rain.

Well, S&N launched Bulmers Over Ice in 2006 and recaptured 20% of the market - and it started to rain. In two months C&C shares dropped to €6 as sales and profits collapsed. The business simply did not have the Competitive Strength to maintain and build on the advantage it had gained with its new product. Their share price is now around €1.45, their Chief Exec has gone to be replaced by John Dunsmore former Chief Exec at, guess where, S&N!

For the most spectacular example of a booming market masking fundamental weaknesses in the business, look no further than the banks!

However an example of how this works in reverse is Sainsbury’s. For some time their market share, sales and profits wilted as competition from Tesco, Asda and Morrison’s hotted up. Financial and investment analysts were forever claiming that Sainsbury’s must reposition up market, down market, sideways, anywhere where there was less competition if they were to have a future. Successive managements arrived, tried, failed and went.

Then along came Justin King, with the novel strategy of making Sainsbury’s a “better business”. The result has been growing market share, sales, profits and the resilience that will see it through the downturn, all of which had nothing to do with the market. Can you imagine the previous state of the company enabling it to introduce its expanded non-food offer and its new value lines as effectively as they have done now? As a “better business” Sainsbury’s are not only spotting changes in the needs of their customers but are actually now capable of responding.

We are not saying that the market and/or market advantage from a break through product or process will not have an effect on the performance of a business, it is just that on its own it is not as crucial as many think it is and certainly not as significant as Competitive Strength. Businesses with high Competitive Strength conditions, what we call Excellent or Free, can not only respond faster to market changes but are frequently the instigators of those changes. They can profit from high growth and continuously create and renew their market advantage.

Experience and rock solid research has proven that how an organisation thinks and behaves, the deep seated managerial and behavioural values and competences of a business, are the main differentiator of whether over time they will substantially outperform their competitors and successfully withstand unpleasant surprises.

This manifests itself in the form of Competitive Strength, a new measure of business performance.

Yes, you can actually measure Competitive Strength, either in your own business or in any businesses you are considering investing in. The Competitive Strength Report Process is the only tool available from anyone, anywhere that provides an objective measure of Competitive Strength compared to the very best in the world. The Competitive Strength Report enables a business leadership to understand where they are positioned, in comparison to the very best, where their main threats lie, what the implications are and helps them decide very clearly, collectively and speedily what they need to do. There is nothing else as fast, as accessible or as affordable.

Find out more about it on our Competitive Strength web site page – or at the Competitive Strength Report website.

Exceeding Expectations is brought to you by Steve Goodman & Tony Ericson of ChangeWORLD. For more lighthearted comment with a serious point on current business related topics go to our You’re having a laugh … seriously? and Business Bloop of the Month Award

What Westminster and Whitehall don’t want to know

2008-12-22T14:47:00.000Z

In his novel “High Profile” the brilliantly laconic American author Robert B Parker mentions, quite in passing, “Tax-and-spend big government liberals” and “Spend-and-no-tax big government conservatives”.

In Europe we would call this the choice between “Tax-and-spend big government social democrats” and “Spend-and-no-tax big government conservatives”. I suppose that there might be an alternative such as “No-spend-and-no-tax big government”, but that option could only be for the economically reckless.

Following Parker’s logic, there is an another alternative –

No-spend-no-tax-and-not-big government.

“Not-Big-Government?” This is so radical an idea that it is regularly declared impossible.

Why? There are three major factors -

Vested interests – tens of thousands of managerial jobs depend on the unnecessary complexity of big government – thousands of bureaucrats don’t want to give up their power – millions of public employees benefit from the make-work activities that keep them occupied, pay their wages and promise their unaffordable pensions.

Inability to innovate – the prevailing managerial ethic in the public sector, whether national or local, is to operate by precedent – they always do what they have always done (and when faced with a new challenge, they search for the nearest similarity to apply so that, once again, they can do what they have done before) – and they get what they always got – inefficiency selectively breeding even greater inefficiency.

Overwhelming arrogance of leadership – the public sector is systemised to the ultimate degree to try to ensure that the outcome of every decision is pre-determined – it demonstrates micro-management to an absurd level – there is no trust by their leadership in the competence and judgement of public sector workers – they are led by a politicians who genuinely believe they know how people should lead their lives and do their jobs better than they do – with all this exacerbated by a media that constantly seeks to allocate blame and demand infallibility.

Given these three drivers of perception – change really is inconceivable – it has become unthinkable.

These three drivers helped kill the UK‘s Motor Industry, Shipbuilding, Steelmaking, Mining, Textiles, Chemicals and Electronics industries – and others. The bulk of these have gone to other countries – nevertheless in the UK tiny pockets of Excellence do survive where they Think Different. There is no “other country” to take away our Public Sector – although they have even tried to give it away.

Our Public Sector as it currently exists, and is developing, is no longer sustainable in our economy. If it does not change, it will totally destroy our nation’s wealth.

We all know it is a problem, but the real PROBLEM is HUGE –

The alternative is so unthinkable that NOTHING is being thought!

So let’s try Thinking Different about Government.

Let’s apply the Competitive Strength point of view to the Public Sector and see what it might tell us.

The high numbers of public reports of administrative incompetence tell us, in general, the public sector can barely control its Cost of Quality. We know that, in the private sector, those companies with outstanding comparative Competitive Strength have moved way beyond Cost of Quality control by massively reducing their Cost of Behaviour. We know that difficulty in managing the Cost of Quality is exhibited in the Competitive Strength condition we call Constrained and we know that those outstanding businesses define the level we call Free. The Comparative Strength Report tells us that the economic difference between Free and Constrained is between 75% and 85%. It is a huge gap of enormous significance.

The significance is that it means –

If the Public Sector were to operate at the Free level of comparative Competitive Strength, it could deliver all current services for between 20% and 33% of the current cost.

Financially, that really is Not-Big-Government. And, as it happens, the cultural imperatives that drive the transformation of performance to the Free level would ensure that organisationally it could not be “Big-Government” and that the service experience would be massively better all round.

A Solution Is Possible

“Not-Big-Government” is not inconceivable. But it won’t be easy to get there.

It will be massively different from our current doomed state. It will need political leadership of the highest order. It will require a total regeneration of ethos in the Civil Service leading to substantial changes in internal leadership and organisation. It will demand a complete transformation of operational managerial competence in the Public Sector, national and local. It must be matched with a vigorous programme to re-distribute a high proportion of the nation’s employed base from non-productive public sector activity into nationally (and personally) enriching economic output. There will need to be continuous change for many years but it needs to be fast, sustained and self generating - that will require the acquisition of high Changeability by thousands. That has been demonstrated, it is not impossible.

This will need Different Thinking to get Different Actions to deliver Different Results.

Different Thinking?

The first step to be effective in the Transformation of Performance is to Decide to Act. This decision must be unconditional – there is no need for any feasibility study, process of consensus, strategy mapping, or any of the other techniques that can be used to avoid decision.

The first step is to decide that Something needs to Be Different, what that Difference needs to look like, why alternative outcomes must be rejected and how you will Know when the Difference is achieved. That is all that is necessary.

The present state of our State is not sustainable.

If nothing changes, then nothing will change.

Can we Decide to Act?

Is there a sufficient will to survive left in our over-regulated, over-spun, over-manipulated, demoralised, dispirited, and newly impoverished population?

We don’t know. We do know that individuals and businesses can Decide to Act. They can elect to Transform their Performance up to the level of comparative Competitive Strength that we call Free – and they will, like those existing pockets of Excellence we mentioned before, win themselves the maximum probability of continued survival, freedom of choice, and prosperity.

You can Decide to Act, before it is too late.

Have a look at our web site and then contact us to find out how we can help you to help yourself.

Competitive Strength = FREE - What's It Like?

2008-11-26T11:22:00.003Z

In our Blog posts, we write about the various levels of comparative Competitive Strength - we regularly refer to Constrained, Comfortable, Excellent – and only every now and again do we find the opportunity to refer to Free, the highest level. Why is this? Because it is rare and precious – the businesses that operate at the Free level are the organisations that are outperforming the average by at least 50% on all financial measures.

So what is it like to be Free? For a start it is not a list of things that the organisation does – it is not policies, methodologies, procedures, systems, assets, training programmes – although all of these may be outcomes of their essential difference. That essential difference is that they Think Different – they have a different way of mind – they have a different way of being – they have a different way of working - they are on another planet – the planet Beyond Excellence.

A wonderful coincidence - I have just joined Skype because it comes with the “3” mobile that is replacing my “Orange” phone (12+ years of customer loyalty lost as they have slid from Excellent down through Comfortable to Constrained, time to get out). And, whilst finding out about Skype, I found this address by their Chief Executive to his team – extracts only

Home Improvement - Josh Silverman on November 20, 2008

"Skype remains a work in progress. We’re a dynamic, fast-growing company that learns from a changing world and adjusts accordingly. For us to continue thriving, change cannot be a one-time thing. It has to be a way of life. Stagnation, the dismal alternative, requires no effort and creeps up silently. People tend to get stuck in their ways and companies are no different. When they get bigger, they get clumsier.

I’d rather avoid that last bit. So, in August we began evaluating our structure to make sure, really sure, that we don’t join the Clumsy Club.

Now, 2008 has been a very good year for us. Our growth rate has been terrific and I’m cautiously optimistic about healthy growth in 2009 as well. Obviously, anyone claiming to have a reliable crystal ball is either a fool or a gambler. We’re neither. But in difficult times, people tend to turn to value. And Skype represents value. We’re monitoring the market closely, but based on what we see at the moment, we plan to continue growing our team to help achieve Skype’s full potential.

Excited as we are about bringing new colleagues aboard, there’s more to reorganizing our structure for continued growth. Back in the summer, we set out to be smart about it. And transparent. And fair.

Which is why we held numerous workshops to gain input from the team on how our structure and ways of working need to change. Change that we hope will lead to sustained growth, better products and an even more empowering work life at Skype. One of the things we’re doing is to create smaller “companies” within the company: consumer-, business-, mobility-, and developer-focused business units vaccinated against shackles that curb innovation and risk-taking. Each new business unit is designed to emulate the feel of a start-up and to cultivate a deeper sense of ownership.

This is just a low-resolution snapshot from what’s a continual journey of change. There’s much more to it, of course. Replotting our roles, responsibilities and accountability takes time. While we think that we’ve done most things right, some won’t come through as intended. Tweaking them for a few months should make life at Skype work well for everybody.

Naturally, changes will be most meaningful to us on the inside. If you’re a Skype user, I hope you don’t care too much about our organizational plumbing. The pleasures and struggles of your own life are much too important for that. But here’s the thing. Our structural rethink isn’t about change for change’s sake. From day one, everything at Skype has boiled down to delighting the customer.

With a bit of home improvement to support further growth and innovation, we’re just making sure it stays that way.

Skype will always be a work in progress."

I have highlighted the interesting key indicators in bold

If you can see how different this is, and you are intrigued, there may be hope for you and your business.

If you think that they are just riding the wave of novelty and have yet to “grow up” – (e.g. if “they don’t know they are born” flashes across your mind) - you and your business are probably doomed.

Josh Silverman knows that

If you always do what you always did, you will only get what you always got

He is demonstrating a deep understanding of Changeability and a serious commitment to making sure that it remains high in his ever expanding empire. He is actively seeking to continue to Transform Performance and, in setting the path for further expansion in troubled times, exhibiting his confidence in the comparative Competitive Strength of the business. He has understood the importance of agility and flexibility – he realises that his fleet of gun boats has the potential to run rings around the clumsy battleships of traditional telecoms companies.

The Competitive Strength Report Process is the only tool available from anyone, anywhere that provides an objective measure of Competitive Strength compared to the very best in the world. It is based on extensive and rock solid research into what it takes to create and sustain an organisation that can exceed expectations in every respect.

The Competitive Strength Report enables a company leadership to understand where they are positioned, in comparison to the very best, where their main threats lie, what the implications are and helps them decide very clearly, collectively and speedily what they need to do. There is nothing else as fast, as accessible or as affordable

Find out more about it on our Competitive Strength web site page – or at the Competitive Strength Report web site.

Why am I feeling Good today?

2008-11-14T16:48:00.003Z

Yesterday was bad news for a good person. Today, my attention was drawn to the other side of the coin, some good news.

There are a tiny minority of companies with the highest level of comparative Competitive Strength - the condition we call Free. One of these is AEASEAL in Rotherham.

Here is an extract from one of their web site news pages

How does the Exceptional Customer Service Industry Leader, Stay Ahead?

The answer is simple: They invest in Technology, People and Processes.

There are few 9-axis machine tools running in the UK today, even fewer tasked with making small batches (1 to 3 off) in an ultra fast-response environment. AESSEAL® has now bought 9-axis machining centres for their dedicated Hydrocarbon Processing Manufacturing cells. The vision is simple; to provide exceptional customer service for unique and custom made Oil and Gas mechanical seals.

AESSEAL® is the industry leader at providing exceptional customer service for the mechanical seal industry. The business delivers 62% of ALL its products within 24 hours and 72% within 72 hours…. pretty impressive when you have 66 sites located in over 30 countries.

Exceptional customer service values run through the organisation’s veins. Service enhancement developments are second nature. This is true even for complex, low volume, custom made non-standard designs as found in the Oil and Gas Industry.

If you were to consider making a one-off engineered component on a highly complex and expensive multi-axis machine tool, some may well question your sanity.

However, given the fact most mechanical seals found in the Oil and Gas industry are hard piped, the last thing the customer wants is the expense of changing this when the seal needs changing. Therefore, practically every gland plate is custom made to suit the application making it impossible to put advanced inventory in place.

When you can’t put an item in inventory, you create a process and invest in technology that eliminates the need for inventory.

By making parts in a fraction of the time that it would typically take using conventional methods, eliminating the need to set-up the machine tool at the same time, the vision of delivering exceptional service on non-standard products becomes a reality.

In a unique initiative, AESSEAL plc is creating machining cells in which the machines themselves and the supporting infrastructure replace the need for inventory. Complex geometrical components will be made so quickly that customers will receive seals as if they had been already produced and available “off the shelf”.

The highlighting colours and bold emphases are mine, not AEASEAL's

This is Different Thinking and is delivering Different Results.

AEASEAL is a UK Manufacturing company that has maintained unbroken growth since its foundation in 1983. Their total focus is, and has been from Day 1, on Customer Service. Please go to their web site and read all about them(there is a link at the bottom of this page) .

You too could follow this path - if you have the courage, the determination, the sustained inventiveness and develop the disciplines, the attitudes, the values and the competence they have. If you develop the Different Thinking that they, and all the others that are at this level of Competitive Strength, have learned to do. We have spent 15 years developing tools and techniques to help you to help yourself to make this transition, better, faster, cheaper.

Why do I feel good about this? In 1982 I went to work for McDonnell Douglas Automation Company to sell their new CAD/CAM technology here in the UK. Way back then, I saw an extremely complex and urgently needed ( 4 days to launch) Space Shuttle component being machined whilst the design was still being completed - the Design to Manufacturing lead time was 30 minutes! I learned at that moment that nothing was impossible.

Over the next 6 years our small McAuto UK team helped British manufacturing pioneers to introduce this new technology to transform their businesses - mould and tool makers, aerospace component makers, telephone companies, machinery makers, and JCB. Others followed. We were encouraging a revolutionary manufacturing strategy, the ideal goal of maximum flexibility and adaptabilty in manufacturing capacity - the shorthand was "Economic Batch Quantity equals One". ("EBQ=1" - does anybody remember that buzzword?).

Now, 26 years later, this is a perfect demonstration of the achievement of that goal - and for a business differentiating purpose - outstanding Customer Service.

You can find out more about the new concept of comparative Competitive Strength on our web site page. You can learn more about Different Thinking for Different Results on our insert page.

And you can learn more about AEASEAL, a beacon of Excellence - here.

Why I Feel Bad Today

2008-11-12T14:24:00.002Z

Today I learned that a prophecy I had made to someone nice had come true, for them. And it is not good news.

Last week I phoned VirginMedia to tell them that they were trying mistakenly to extract payment for my cancelled account. I had to quit VirginMedia Broadband because they totally failed to perform, and repeatedly misled me. My ChangeWORLD business partner, also a long time Virgin customer, had to quit after a total and lengthy failure of service. He was told by Offcom (it was that bad) that they were in breach of contract.

My call was answered by someone who insisted that there was a penalty charge - when I questioned this and asked to speak to a supervisor I was disconnected - that is what we have come to expect from VirginMedia. My second call was answered by someone totally different. This lady checked the facts, apologised nicely for an administrative error, and acted at once to cancel their end of the Direct Debit arrangement. I was so pleased to be treated with courtesy and respect.

So pleased that, as I said goodbye, I suggested to the lady that she should start as quickly as possible to find a new job. I explained that I was one of the authors of a business health measurement tool and that it was indicating that VirginMedia was going downhill, fast. I told her that I was very sorry, after all the good years I had enjoyed with VirginNet, at the certainty that many jobs would be lost - possibly hers too.

We predicted this via the Competitive Strength point of view elsewhere in this Blog series.

Today's news is that VirginMedia will shed 2,000 jobs.

There are times when it is horrible to be proved right.

Get Your Life Rafts Ready - NOW

2008-11-12T11:13:00.005Z

Different Thinking for Different Results is our constant theme. It is the essence of Changeability, the key to survival in these turbulent economic conditions.

We are so grateful when it is vividly highlighted as in the excerpts below: -

From The Times November 12, 2008 - David Wighton: Business editor's commentary

Gordon Brown should take note of Vodafone's strategy for the recession as the telecoms giant battens down the hatches

Vittorio Colao and Gordon Brown are adopting rather different strategies for piloting their vessels through the economic storm. At the good ship Vodafone, Mr Colao is battening down the hatches and reefing the sails.

At HMS UK, Mr Brown has thrown away the charts and is going full steam ahead.

The market reaction has also been different. Mr Colao's promise to cut costs, focus on cash and forget about acquisitions was rewarded with a 6 per cent jump in the share price yesterday.

Mr Brown's promise to cut taxes, focus on spending and forget about government borrowing saw sterling sink to a new 12-year low.

Mr Colao's call for the company to make better use of what it already has rather than chasing new markets looks eminently sensible.

After years of fast growth and acquisitions, there should also be plenty of efficiencies to be squeezed out. The aim to build a leaner and more nimble organisation plays to the strengths of Mr Colao, a fanatical competitive cyclist.

And there was clear evidence of the new cost regime yesterday. Rather than the lavish spread previously provided at press conferences, journalists had to make do with a few stale buns left from the analysts' presentation.

The new focus on “giving customers what they want” is a bit of an indictment of what it was doing before.

But it also reflects the reality that in rapidly deteriorating conditions businesses need to be very sensitive to the changing needs of customers and tailor products and pricing accordingly.

Vodafone’s leadership is demonstrating Different Thinking – and because it looks likely to contain downside risks in the current economic turmoil – it will deliver Different Results. This behaviour is characteristic of an organisation with the level of comparative Competitive Strength that we call Excellent. This is the flexibility, adaptability and readiness to ask itself the tough questions that takes such companies into leading their marketplace, rather than playing catch-up.

These are courageous decisions for an organisation that, like its peers in the mobile communications marketplace, has been hell bent on growth, customer head count, volumes and headline revenues and fuelled by truly cosmic levels of leveraged debt. Swinging the internal culture into a focus on operational excellence, on outstanding competence, on extraordinary effectiveness in all matters, is going to be a big challenge.

Never is this more true than when a business culture has been Sales led. We have seen this demonstrated massively, and disastrously for us all, by so many of the Banking sector. This is where our assessment last year of their comparative Competitive Strength condition as Comfortable turned out to be far too true – so Comfortable that within a few weeks of a changed environment they found themselves flailing about in the Constrained condition – and we found ourselves , with them, peering into The Abyss.

Mr Colau is too smart to let this happen. But, he will have to get his battleship sized organisation to move rapidly and convincingly into the new way of acting that he has identified. And that will require a New Way of Thinking. That can be done but has not been easy, as other large corporations have found. We wish him well, and will watch with interest.

On the other hand, Mr Brown is not too smart, as we all know. He is going to keep on doing what he has always done – and we are going to keep on getting what we have always got. God Help Us All.

There is no organisation that is more totally “Sales” led than this Government. There has been such a consistent pattern of the same behaviours repeated over and over again, the delusion that giving something a different name actually causes it to change, that shuffling data to show different results means that change has been achieved, the constant changing of organisational structures for “Sales” purposes – I better stop here, my frustration is all so non-productive – as is its subject. This is, in our terms, more like what we would describe in a corporate comparison as a Constrained condition – but down at the lowest level of that, next to what we call, in a deeply technical phrase “Basket Case”. Beyond the sort of remedial transformation that businesses might be able to achieve.

So, we are all in the same boat. And, as the article suggests, we are sailing at full speed into the ice fields with our Mad Captain on the bridge - with his charts torn up, his radar switched off and listening to none. Moving the deckchairs is not going to make any difference. Like Mr Colau, we all need to apply Different Thinking to make sure that we too get Different Results, that we too are as prepared as we can be for the nasty surprises that lie ahead, that we too are focused on What Matters and not on what we might have been up to now. We must all have our life rafts ready and survival kits prepared. It is time for Different Thinking.

We developed our Competitive Strength Report to help business leaderships start their Different Thinking better, faster and cheaper, than any other tool before. The Competitive Strength Report Process is the only tool available from anyone, anywhere that provides an objective measure of Competitive Strength compared to the very best in the world. It is based on extensive and rock solid research into what it takes to create and sustain an organisation that can exceed expectations in every respect - the demonstrated doorway to increased resilience and survivability.

If you would like to know more about this, or ask us any questions, please have a look at our Competitive Strength web page with video - and our Different Thinking web page

Just How Stupid are our Leaders?

2008-10-15T14:34:00.003+01:00

Probably more than we have ever dared to think. We are starting to suspect that their thinking may be based on deep and fundamental ignorance. It is a terrifying thought.

An extract from

Stumbling and Mumbling Chris Dillon’s Blog 14^th October 2008

On the subject of our economic leadership -

…….. “I thought: “But surely they’ve learnt from statistics and experience by now. Their risk management can’t be as terrible as Taleb claims. I know bosses are stupid, but they can‘t be this gibberingly, imbecilically, carpet-chewingly, moronically cretinous, can they?” I suspect most economists thought my way.
It looks like we were wrong and Taleb right.
But this isn’t because Taleb had any great insights into the nature of risk. It‘s because he thought banks‘ risk managers were idiots, whilst economists didn’t think so - not even me.
In doing this, however, we were just following economists’ standard procedure - of assuming that agents were if not rational then at least not wholly stupid. “ ……..

There were over 30 comments, all by erudite and thoughtful experts – and for me, all missing the point. I selected this extract from Chris' blog because it highlights our core message

“To get Different Results you must apply Different Thinking”

As we say in our web site – if you always do what you always did, you will only get what you always got.

And that is what the economists, the financial analysts, the bankers - and the government – have been doing. And that is why, when the balloon finally ran out of the hot air they had all been spouting, the fall was so fast and so catastrophic.

As an engineer, I learned the Laws of Thermodynamics. Amongst them were two topically relevant concepts -
- All types of Perpetual Motion Machines are impossible.
- All transactions involving Energy are "lossy".

Wealth is the Energy that powers our social existence. The same rules apply.
We have had 12 years of the leaders of our economy ignoring, or trying to conceal, "lossiness" and imagining they had a Perpetual Motion Machine of Wealth – truly not understanding that they were doing.

We engineers learned that the energy efficiency of any device depends on how close we can make it to a hypothetical Perpetual Motion Machine – in other words – on how much we can reduce its “lossiness”.

In ChangeWORLD we know, not just from experience but from rock solid research, that the organisations that massively outperform the rest, and that will be least threatened by the current economic shambles, are in fact those with the least “lossiness”, the lowest waste and the highest quality of business process . They are the ones that, on our Competitive Strength Report scale, will rate as “Free”. There are very few.

The majority, with the Comparative Competitive Strength level of “Comfortable”, are now faced with the prospect of a very rapid, unexpected and enforced transition into “Constrained” - the doorway to The Abyss, total failure. There will be absolute carnage over the next 18 months. There does not have to be – there could be more survivors if they can apply Different Thinking fast enough.

The same rules and logic apply to Government, and to our national economy. If we have an excessively “lossy” economy, it will have low Comparative Competitive Strength. It will become, inevitably, “Constrained”, facing The Abyss. Our leaders have indulged themselves in the illusion of success, ignoring the “lossy” economy, during the exceptionally benign economic conditions of the “NICE” decade. Self-deluded and smugly claiming "Excellence" they were actually only “Comfortable”. Now everything has changed, and they don’t know how to face The Abyss.

Like we all are, right now. Have you noticed the number of references to the “Abyss” in the last two weeks?

Our absolute screaming frustration is that all of this is known – and all has been ignored – because it is predicated on the idea that:

Solid and sustainable Wealth is the outcome of applied and continuous effectiveness of performance.

That has never been what the wheelers and dealers of the City, Whitehall and Westminster have ever wanted to hear – it is what they have never been able to do – it is what they have never understood. And, sadly, it appears that the economic experts (as their lap dogs) have snoozed on their leads next to their food bowls!

Do you want to know what you can do right now to pull your business away from the Abyss? Are you going to do it to them before they finally do for you?

Learn more about the Competitive Strength and – Thinking Differently? Have a look at our ChangeWORLD web site and the Competitive Strength Report web site.

God Save us from Experts!

2008-10-01T11:19:00.007+01:00

Recently a good friend of mine has been through a very unpleasant health scare. Whilst on business in Australia he was overcome by highly debilitating chest pains that pretty much completely immobilised him. Whenever he made any effort to move about the pains kicked in unbearably.

My friend has a history of heart and artery related problems which he has been told will require surgery at some point. He had taken all his medical notes with him as a precaution which he gave to the Australian medics when he was admitted to hospital. They carried out all sorts of tests but could not find a cause for the pains. However they assured him it was not heart related.

Eventually he was crated up and shipped back to the UK. Not a pleasant journey but he made it. More test and observations, still no answers and still "definitely not to do with your heart/ arteries". Last week he had an especially bad attack and was rushed into hospital again. This time and for the first time, either in Australia or the UK, they decided to carry out an angiogram. They discovered three blocked arteries including one that was 99% blocked, operated immediately and the problem is now both identified and resolved. This is after two and half months of suffering and anxiety for my friend and no answers from the combined medical experts of two advanced developed nations!

Now I am no expert. I have not done the 5 years at medical school and all the other training besides to make me technically qualified to comment on this case. However if anyone had asked me "have they done an angiogram on Terry?", given what he has told me previously about his condition I would have replied "well I am sure they must have".

This has got me thinking about another group of experts who are currently putting us all through suffering and anxiety. For example:

Did all these property developers really look into the market for new offices/shopping centres, flats etc.etc to ensure that the demand was really there? Well I'm sure they must have.
Did the banks do a thorough study on whether the strategy of falling over themselves to lend on any property deal to build more new shops/offices/flats etc. etc was sound? Well I'm sure they must have.
Did Northern Rock consider what they would do if their main source of funding from the wholesale markets was suddenly to dry up? Well I'm sure they must have.
Did Bradford & Bingley fully assess the risk of granting all those buy to let and self-certificated mortgages? Well I'm sure they must have.
Did all those financial institutions work out why it was such a good idea to lend money to people who cannot afford to pay it back? Well I'm sure they must have.
Did the accountants who signed off the big banks' accounts all reporting record profits over the last 5 years or so carry out a thorough audit? Well I'm sure they must have.
Has Hank Paulson worked out what he will actually do with $700bn to bail out the US banking system? Well I'm sure he must have.

And so on.

Why do the "experts" get so much wrong and let us all down so often? Because they think like experts and are incapable of adapting their thinking in the face of change. In fact they dislike and even fear change because it challenges their expert status by making their expertise outdated. They think that because they are experts then only they can come up with the right answers (Hank Paulson a graphic and disastrous example). Even when they cannot find the answer they cannot envisage anyone else being able to because they are not "experts".

So once again we say, what is needed is different thinking and for experts it's accepting they probably don't know and that they need to learn how to find out. In fact this kind of thinking, accepting you don't know but knowing how to find out, is one of the characteristics of the few truly excellent organisations on the planet. What is more research has shown that these excellent organisations consistently outperform the rest and are best able to cope with the nasty surprises. To find out more about why this makes sense and how crucial it is visit the Changeworld website.

Different thinking is especially needed in our banking and financial sectors, their regulators and the governments that ultimately set the frameworks through fiscal, monetary and economic policy. If the thinking does not change then given the same circumstances the bankers, financiers and their associated organisations, will do exactly the same as they have just done, with exactly the same results.

Will the thinking change? Right now I am not hopeful. When I read as I did yesterday in an article by Hugo Dixon in the Daily Telegraph that Barclays and Nomura have set aside a reported $3.5bn in bonuses for the staff of guess who - Lehman Brothers! This it is reported to be based on what was paid in 2007 to the staff of the Lehman's business being bought by Barclays and Nomura. How can basing this year's bonus on last years boom numbers make any kind of sense? As I said I am not hopeful.

However for all our sakes and futures this has to change. We all of us have to insist that is does. This blog and the articles that we have and will continue to write and disseminate are just one part of the effort we are making to get this message across. We would love to hear from people who agree with us, or have another view, or even those who disagree.

Different Thinking for a Different World

2008-09-26T17:40:00.004+01:00

Our constant focus in this series of notes is on the need to find a different way to think about the imperatives that drive our business and our economic performance. The key to success, and survival even, is to have high levels of comparative Competitive Strength. And the first step to achieving that is to become radically more adaptable, flexible, agile, and changeable.

As it says in our Changeability video, in our web site –

“If you always do what you have always done, you will only get what you always got”.

§ My English teacher will be so shocked – but this message cannot be made more clear by polysyllabic multi-miasmic plurals**t (my disrespectful phrase for academic/management speak).

Never has this been more true or more relevant than in this week of impending doom and disaster in the financial world. So it was with a sense of excited recognition that I read the latest newsletter from Brian Paxton at MBendi – one of the largest and most influential Web Service providers in Southern Africa – please have a look at http://www.mbendi.co.za – maybe their Blog would be a good starting point.

Here is the extract from Brian’s message that made me sit up and think –

“The other thing that strikes me most forcibly as I consider these battered African and American families, is that maybe now the myth will finally be dispelled that the risks of living and working and investing in the developing world are somehow much, much higher than the risks of living and working and investing in the developed world. It's a myth that has been perpetuated for ever and a day by first world based credit rating agencies - perhaps they should be called discredited ratings agencies after their recent dismal performances - to the detriment of governments and companies and individuals around the world.”

I repeat - “If you always do what you have always done, you will only get what you always got”.

“Just as the world's financial systems are about to be redesigned - no doubt with next to no input from the finance mandarins in Korea, China, India, Russia, Brazil, the Middle East and the other future economic powerhouses of this world - maybe it's also time to redesign the credit rating systems and procedures so that they no longer reflect the first world prejudices, subjectivity and, often, ignorance of the past but instead accurately measure risk in a completely dispassionate way. That would also make life less risky for families everywhere.”

This is Different Thinking

There is a need for Different Thinking – NOW

Brian and his colleagues have a unique insight that comes from their geo-economic positioning and the extraordinary array of contacts and intelligence available to MBendi. He is highlighting, from that different point of view, that the “traditional financial models” are bust. He is suggesting that they are so broken that the financial future of our world will be governed by new faces, new minds and new structures in new locations. It is an alarming prospect.

In Blog entry after entry here we have stated that conventional banking and investment analysts regularly miss the point by looking mostly at the numbers, and not the embedded behaviuors and mind sets. We say that Different Thinking is needed to understand the real potential of a business – we say that it is not WHAT the business leadership thinks about their business, but HOW they think about it that counts.

Our Competitive Strength Report cuts through this barrier to understanding better, faster and cheaper than any other tool available. Find out more about The Competitive Strength Report at the Competitive Strength website or with the short video on our web site Competitive Strength page.

Oh yes, I must mention that our friends at MBendi host the Competitive Strength Report and Achievement Network websites.

Have you any idea what the advantages of a South African based web service may be – Different Thinking!

The Olympic "edge"

2008-08-27T15:46:00.005+01:00

When you are running a blog entitled "Exceeding Expectations" you really have to include an article on the Beijing Olympics and especially the performance of Team GB.

We define Excellence as exceeding both requirements and expectations, requirements being tangible and expectations being intangible. The team exceeded requirements in terms of both medal count and final position in the medal table. In doing so they exceeded the expectations of their funders and sponsors and of the country as a whole. Certainly we did not expect to become a sporting superpower but that's exactly what fourth in the Olympic medal table makes us and boy do we all feel good about that!

We know that Competitive Strength is strongly linked to Excellence. High levels of Competitive Strength in any context enables people to exceed requirements and expectations. In the case of Olympic athletes this is not just about the talent, dedication, hard work and ambition of the athletes themselves but about the back up teams performing to the same level.

Here is Bradley Wiggins a double gold winner and member of the all conquering GB cycling team on this subject. "We have an unbelievable team behind us, management and technical. I know with confidence that when I step onto the track my bike will be in absolutely perfect working order. I can't remember the last time a mechanical problem was a factor in any GB races. When I start a race it is big boost mentally to have certain knowledge that nobody lining up against me starts with an edge. In fact it is always us who have the edge".

With this level of Competitive Strength our cyclists were nigh on unstoppable. They are best cyclists in the world with the best back up team. How many of us running businesses or public sector organisations can honestly say that our front line people can line up to do their jobs every day "knowing they have the edge"? What could they achieve if they did know this?

Our last few articles have focused on the different thinking that is needed to achieve Excellence through Competitive Strength. So what about Usain Bolt then? This man is not built for sprinting says the conventional thinking. He is too tall, his stride is too long and slow and really he is much better suited to 400 or 800m. Well Bolt and his coaches have rewritten some of the rules of sprinting by finding a way to adapt his stride pattern in such a way that the supposed weaknesses are turned into competitive advantage. With this Bolt made history and now other coaches will have to rethink what it takes to sprint 100 and 200m. It certainly is not going to be "run a bit faster the way you have always run", because that isn't enough to beat Usain Bolt!

The last two articles have focused on British Airways and how their conventional thinking dictates their strategy and response to challenges. In the last article we contrasted this with the different thinking displayed by Virgin Atlantic with an example of a stunningly high standard of customer service. Well today Virgin announced a leap in profits from £6m to £34.8M for the year. Profits for the first quarter of the current year are £23.5m and business class passengers (the most profitable) are up 22% with overall numbers up 7.6%. So whose employees know that they " have the edge" and does it make a difference? Answers in the comments please.

So congratulations to Team GB and here's to London 2012. To find out more about Competitive Strength and different thinking go to the brand new Changeworld website.

Above & Beyond

2008-08-04T12:35:00.006+01:00

In our last article on the theme of different thinking we highlighted British Airways' explanation for their falling passenger numbers (increases in fares and the economic slowdown) and their persistance in pursuing their strategy of merging with other carriers. We demonstrated how BA are trapped in their traditional thinking and their strategy and responses are therefore all about how they can keep on doing things the way they have always done them.

This article is a story from the same industry which demonstrates different thinking in action.

Two friends of mine had booked a holiday in Barbados. They arrived at the airport looking forward to two weeks on an island paradise. Unfortunately the flight had left the day before and there was not another flight for 4 days! Our friends had got the wrong date in their heads so it was entirely their fault.

They were flying with Virgin so they were taken to the Virgin desk to see if anything could be done. The Virgin staff worked out a way to get them to their destination that day by flying them to Antigua then on an internal flight to Barbados. With transfer charges and the additional flight this was going to cost a further £500 plus. However when Virgin realised our friends were previous customers they immediately waived all the transfer charges.

What is more when our friends arrived in Barbados they took a taxi to their hotel as the coach transfer was obviously not going to be there for them. The next day when they met their Virgin representative at their hotel she asked how they had travelled from the airport to the hotel. When they said by taxi the representative said "just let me have the receipt and we will reimburse you for that".

To say our friends were impressed is an understatement and they never stop telling people how good Virgin were. They were staring a ruined holiday in the face and would have paid almost any sum to have it sorted out. Virgin not only rescued it but did not take advantage of our friends' mistake and only charged the minimum for solving the problem. This is different thinking. None of the "well we will see if we can get you on a flight later in the week" or "well if you write to Head Office they might be able to do something about the charges". All the decisions and actions were taken by front line staff, no reference to managers for permissions was needed.

Different thinking is the key. No amount of carefully written policies and procedures handed down from above would have enabled the Virgin staff to have acted the way they did. The personal and organisational recognition of the value of the existing customer is a manifestation of this different thinking. They not only represent future repeat business but can also be the strongest and lowest cost advocates for your brand.

Also Virgin clearly understand the business they are in and it is not simply transporting people from point A to point B. They know they are in the holiday business and that their customers value their holidays highly. So meeting or even exceeding their customers expectations is the key to success. In the case of our friends it was "you have given us your business, not just on this occasion but previously so we will see that you get your holiday".

This is just one story from one source and no doubt Virgin do not get it right every time. However would you honestly expect to hear even one story like this involving BA, even though they give themselves plenty of opportunities and don't have to wait for a customer to slip up?

This demonstrates the superior level of Competitive Strength that Virgin's different thinking has enabled them to achieve. When Richard Branson set up Virgin Atlantic in direct competition to much larger and often heavily subsidised national flag carriers few industry insiders gave him any chance of surviving. However his airline and the accompanying holiday business has both survived and prospered. As the sector faces up to the massive hike in its fuel bill and slowing demand which business do you think will emerge the strongest? BA with its strategy of getting bigger so it can be what it always has been or Virgin with its highly developed customer service ethos and consequent superior Competitive Strength.

Any business can do what Virgin does and profit from it. To find how and perhaps more importantly why, go to the Competitive Strength website.

BA - Same thinking, same excuses, same result

2008-07-07T10:37:00.005+01:00

From The Times, July 4, 2008, David Robertson

Cost-hit British Airways flies with quarter of seats empty

British Airways flights are taking off with almost a quarter of their seats empty after higher air fares and a slowing economy led to 87,000 fewer passengers using the British flag-carrier last month.

The airline said it carried 2.9 per cent fewer passengers than the same month last year with traffic to Africa, the Middle East and the United States being the weakest.

The load factor on BA's aircraft, a measure of how full each plane is when it flies, fell 3.8 percentage points to 76.7 per cent. That means nearly one in every four seats is now empty on BA flights.

The traffic figures are disappointing because June usually produces an increase in the number of passengers because people begin their summer holidays.

BA blamed the fall on “significant” increases in ticket prices because of the record high price of oil and a tough consumer environment in the UK.

Further on his report David Robertson writes:

IATA, the air travel industry body, said that International air traffic held up against the economic slowdown in May, rising for the first time in three months to 74.3 per cent.
The figure shows a rise of 6 per cent on May last year.

Of course air travel will be affected by the economic slowdown and by the need to raise prices in the face of significantly increased fuel costs. No one would expect BA to be immune from this and they still appear doing better than the IATA average. However BA is experiencing a drop in load factor at a time of year when an increase is usually expected. The IATA figures indicate this seasonal increase is happening, albeit perhaps at a lower rate than previously and both Easyjet and Ryanair report no drop off in passenger numbers.

Has it not occurred to BA that their appalling customer service record might also have something to do with why fewer people are using its services? In our last two blog articles we highlighted the crucial need for different thinking as a pre-requisite for finding solutions to today’s challenges. BA appears unable to change its thinking. It claims it has been forced to increase its prices and that customers just have to accept that is the way it is. Well they might if they thought that BA offered fair value in return, but they don’t and BA cannot, it appears get its head round this.

This is about both “value” and, crucially whose opinion of “value” really counts. Way back in 1987 Robert D. Buzzell and Bradley T. Gale wrote in their book The PIMS Principles:

“Value is the relationship between quality and price. A customer who gets superior quality at a low price gets better value; a customer who gets inferior quality at a high price obviously gets worse value. But who determines what counts as good or poor quality, high or low price? In a competitive context the customer’s behaviour is crucial: who he buys from and at what price, determines who wins and who loses in any competitive market. Therefore quality is whatever the customer says it is, and the quality of a particular product or service is whatever the customer perceives it to be. How does a customer decide whether a particular offering represents superior or inferior quality, or a high or low price? He makes that assessment on the basis of comparison; is this offering (product or services) better or worse than those of competitors? and; At how much higher or lower price?" (Buzzell & Gale. 1987.111)

So in a few succinct words, based on the extensive research from the PIMS database, Buzzell & Gale explain exactly why “Customers Count” and why customers’ perception is all. “Therefore quality is whatever the customer says it is, and the quality of a particular product or service is whatever the customer perceives it to be”.

As costs rise and the economy slows businesses are faced with some difficult decisions about value. Increasing prices, even if apparently justified by passing on increased costs may push the price of a product or service beyond the point where the customer consider it to be good value. In certain instances this may be the point at which some items actually become unsaleable as the price they must be sold at to recoup costs becomes such poor value. Furthermore customers may change their basis of comparison in assessing value and concerns about the economy can influence customers thinking in this respect.

This is where the different thinking comes in. Our work on Competitive Strength has shown that those businesses in the strongest Competitive Strength condition – Free and at the top end of Excellent – think differently to the rest. One of the characteristics is an ability to see things through the eyes of their customers. This is not about good market research but about a culture that is focused on the customer and makes its decisions based on what the customers want first and foremost. Consequently they can identify quickly and clearly how their customers perceive the value in their products and services and when and why those perceptions might change.

The second characteristic of this different thinking is high “Changeability”. So not only can they identify changes in customers’ value assessment perceptions earlier and better than their competitors, they have the ability to respond to any changes faster and more effectively, including the unexpected ones!

BA is not exhibiting this different thinking. Indeed it is still pursuing a merger with American Airlines and Iberia that would create a dominant carrier on transatlantic routes with the semi-monopolistic culture that BA has never been able to shake off. It is pursuing the merger not thinking about its customers but about how it can carry on the way it always has. Trapped in its traditional thinking this merger may be the only way BA can find to survive the economic slowdown.

Applying yesterday’s thinking to the challenges of today and tomorrow is not going to work. For more information on the different thinking that comes with High Competitive Strength and consequent Changeability please look at the Competitive Strength Report website– and the ChangeWORLD website.

Just how different does your organisation's thinking need to be if you are going to survive these turbulent times?

Nassim Nicholas Taleb: a Scary Message you must not Ignore

2008-06-10T12:57:00.005+01:00

Some extracts from The Sunday Times June 1, 2008

When this man said the world’s economy was heading for disaster, he was scorned. Now traders, economists, even NASA, are clamouring to hear him speak
Last May, Taleb published The Black Swan: The Impact of the Highly Improbable. It said, among many other things, that most economists, and almost all bankers, are subhuman and very, very dangerous. They live in a fantasy world in which the future can be controlled by sophisticated mathematical models and elaborate risk-management systems.
To explain: black swans were discovered in Australia. Before that, any reasonable person could assume the all-swans-are-white theory was unassailable. But the sight of just one black swan detonated that theory. Every theory we have about the human world and about the future is vulnerable to the black swan, the unexpected event. We sail in fragile vessels across a raging sea of uncertainty. “The world we live in is vastly different from the world we think we live in.”
In December he lectured bankers at Société Générale, France’s second biggest bank. He told them they were sitting on a mountain of risks – a menagerie of black swans. They didn’t believe him. Six weeks later the rogue trader and black swan Jérôme Kerviel landed them with $7.2 billion of losses.
As a result, Taleb is now the hottest thinker in the world.

Taleb goes much further. In his book he claims that the increasing centralisation and consolidation of both economic and financial structures is leading to two very dangerous outcomes. The first is the excessive and little understood dependence of large lumps of the economy upon each other – now trouble in one area brings unexpected repercussions in another. The second is the “brittleness” that results from over-complexity and over-control. By brittleness we mean the combination of rigidity and slowness of response from which an organization will go much further down the path into serious trouble before it either becomes aware of the risk to itself or able to do anything about it. Recent examples include Northern Rock and Bradford & Bingley - oh yes, and the Gordon Brown Government.

Taleb spells out for economists and financial analysts what every control engineer has always known – lack of damping produces massive instability and over-damping leads to sluggish response. He illustrates what every scheduling engineer has always known, that over-utilisation leads to performance failure and unexpected costs. He spells out, albeit in less than simple terms, that over-concentration of resource, over-regulation, over-complexity of systems and organisation, over-attention to “efficiencies” all add up to excessive fragility - to a lack of robustness – to a loss of agility - and inability to cope with the unexpected.

He says that the people who lead the economy are Not Thinking Right.

Taleb argues that every major change, either good or bad, is unexpected – is a Black Swan. We agree very strongly with his analysis. We have been arguing for years that the key to success in an uncertain world is Changeability – the ability to manage change rapidly and effectively for yourself, the people you work with, and your organisation. We maintain that flexibility and agility are the keys to rapid response to unexpected events. We say that 100,000 tons of gun boats will beat 100,000 tons of battleship every time and then be ready to do something else very different but useful as soon as that is sunk.

This is a Different Way of Thinking.

We are certain that high Changeability is one of the determining attributes of organisations that massively outperform their competition, that win Excellence awards and that have been shown, by Dr Vinod Singhal of Georgia State University, to deliver outstanding financial results. We suspect that our long held view about the high agility of small organisations compared to large is supported by Taleb’s analysis. We do not believe that centralisation and consolidation of systems and resources will necessarily deliver “efficiency”. All too often the opposite can be seen as the wrong measures drive in the wrong results*. The NHS may prove to be a case in point.

* Want a Wrong Measures example?
A large company decides that a new single networked linked printer will save cost compared to the many desktop printers scattered around its offices. The print-cost-per-copy saving is massive. It’s a no-brainer. It’s obvious. They install it. Now they have staff queued up by the machine, or walking to and from it, waiting for print outs instead of being at their desks talking to customers and dealing with transactions. That is not a real saving – invisibly their overall costs will increase (lower productivity), very probably their customer service level will decrease. (But do they measure that?)
This is a simple example, maybe you have experienced something similar yourself once upon a time – just how many other parallels can you think of?

Taleb is telling us that we need to be ready.

Are you Ready?

Have you any idea just how Different your Thinking might need to be? You can measure your own Changeability – you can get a very good idea of how well your organisation will handle the next Black Swan to come your way – you can even give some of your white swans a brisk shaking to see if they conceal black. And you can decide quickly what to do about all this.
You can do all this with the Competitive Strength Report process. It is rapid but rigorous. It is simple to do but without simplistic answers. You can complete the process within 3 weeks: 40 minutes on a web questionnaire, 2 hours of homework with your 60 page workbook and two half day workshops. And it is designed to be highly affordable.

The Competitive Strength Report is the World’s first speedy, affordable and totally objective measure of Comparative Competitive Strength. You can find out more at our web site www.changeworld.co.uk/csrataglance.

The “Nice Decade” – was anybody listening?

2008-05-20T14:21:00.006+01:00

Last week saw the media pick up on the statement from Mervyn King the Governor of the bank of England that the “Nice Decade” was over and something altogether nastier is now upon us. Significant column inches were devoted to comment and analysis of the Governor’s remarks, including multiple attempts to come up with four words starting with letters that spelt out the word for the economic brown stuff we are now in.

However amongst all the words that were written and broadcast on this subject I can find no mention of the fact that Mervyn King first warned us about the “Nice Decade” coming to an end in October 2003! He said the same in a speech in Leicester four and half years ago as he said last week, but this time with the benefit of hindsight, on risk, asset prices, oil prices etc. He was also too polite to say “told you so”.

In spite of the fact that this man is paid to give us these warnings and that he did so in plenty of time, clearly nobody listened first time round. Government didn’t, banks didn’t, the FSA certainly didn’t, consumers didn’t and many business leaders didn’t. This is in spite of the fact that history shows us that a “Nice Decade” is an aberration, a highly unusual and temporary occurrence and therefore could not possibly last. The current level of economic and business challenge is actually closer to normal conditions; it’s just the nature and causes of the challenge that differ.

Why didn’t they listen? Can it be just explained away as a natural human trait that does not want to hear bad news and in the good times finds it easy to forget the hard times? Or is it the combination of short termism and herd instinct in financial markets? Whilst these have an influence we believe that the root cause is conventional thinking in finance, business, economics and in government. If the thinking does not change, then decisions and action will not change and results will be no more than what you deserve.

Applying our Competitive Strength perspective we can see that those few organisations who have achieved the Competitive Strength condition we call “Free” think very differently to the rest. This is why Warren Buffett enters the downturn with billions of dollars available to make acquisitions whilst the UK government’s coffers are empty. One aspect of this different thinking is that “Free” organisations always expect the unexpected and continuously improve their organisational competence and agility. This “Changeability” is at such a high level that they can respond to both positive and adverse circumstances as they happen, taking maximum advantage of both.

The Competitive Strength point of view shows that the deep seated managerial and behavioural values and competences of a business are the main differentiator of whether over time they will substantially outperform their competitors and successfully withstand unpleasant surprises. Yet this is not conventional thinking. This is not how analysts study performance and share values to make their recommendations, this is not how companies and their advisors evaluate the potential of a merger or acquisition and it is certainly not how government makes and attempts to implement economic policy.

This is just not good enough, as we are now finding out. Applying yesterday’s thinking to the challenges of today and tomorrow is not going to work, whether this is about dealing with the effects of the credit crunch, entering new markets, finding and keeping the skills you need or any of the many challenges we all face. For more insights into why Competitive Strength is such a key factor for business, the economy and even for our ability to tackle global challenges such as climate change please look at the Competitive Strength Report website– and the ChangeWORLD website

"Not Coaching" delivers "Not Excellence" - Surprised?

2008-04-18T17:14:00.005+01:00

A rant by Tony Ericson

For some time many management “experts” have been telling us that Coaching is the new “IT” for the Management of the Future. It certainly is - but certainly won’t be the way they tell it.

It's Not New - and It's Not Working

In fact they have been telling us this since the early 1990’s. Sadly, apart from some outstanding individual examples, there is little evidence of coaching management culture developing across business as a whole. For example in a survey published in Harvard Business Review in 2006 of nearly 7,700 mid-career employees (aged 35 – 55) over a third were not motivated by their work. This group also has the lowest satisfaction rates with their managers and the least confidence in senior executives. What's more, the trend of dissatisfaction is accelerating. Another survey of more than a 1,000 middle managers published last year reported that one third say they are kept in the dark about company plans and almost two-thirds confess they are at a loss to understand their role.

Even in this year’s Sunday Times Best Companies To Work For, employees from half the winners 11 to 100 reported a need for improvement in company leadership, relationships with middle and line managers, teamwork and personal growth – areas where it is claimed that coaching should bring benefits. If so many of the best still need to improve, what has happened in the rest?

And yet there is More that will Not Work

In spite of, or maybe because of, this “Coaching” products are springing up like acne across the blotchy, punch drunk face of the "Management Fashionista" supply establishment. People who only know to do what they have done before are doing what they only know to do – clambering onto the next bandwagon that they see. Just as in the past, in a scramble of translation, transcription and adulteration to secure commercial advantage, they have devalued and debilitated valuable transformational tools and techniques such as MBO, project management, Black Box Analysis, FMEA, TQM, MRP, Kaizan, 6 Sigma and so many others. They are forming the “Institutes”, the “Academies”, the Service Packages, the Product Bundles – I will not be surprised to see the new Inter-Relational Database Coaching Toolset – “why talk with smelly, tricky, scary people when you can just communicate via a machine”?

Am I Angry about This?

By now you may possibly think that I have an axe to grind. Correct. I have been working as a professional Coach for 15 years. My business partner is another successful Coach. We were especially fortunate to learn our core skills within a small group of gifted coaches influenced by Paul Kalinauckas (co-author of a definitive book published in 1994). We have successfully coached individuals, groups, teams, and stretched the skills to use them with other toolsets to enable effective and sustained change in organisations.

“We have successfully coached” – what does that mean? It means that those individuals, groups, teams and organisations have been successful – that as an outcome of their coaching process they have in some way or other transformed their own performance and often their working lives.

Abuse the Idea - Devalue the Results

Coaching has become a sadly abused and overworked word. How on earth can anyone understand what it really is all about underneath all the wrappers, the labels and the over-simplifications? There are so many things that are said to be “coaching” – training an athlete or a sports team; academic tutoring; personal training (in all its many interpretations); performance appraisal; management mentoring; Life coaching; Executive coaching; even, Counselling.

Coaching Skills do underlie to some extent all of these but none are actually “Pure Coaching” – they are all processes that contain some selected and truncated sub-set, usually to deliver a particular agenda. That means that the purpose of their use is defined before the start of whatever is going to be called “coaching”. This approach equips someone with but a single “coaching process”; it is like having only one single tip screwdriver regardless what type of screw head you will meet (this analogy holds, if you use the wrong tip, the head gets damaged, sometimes wrecked! – the pun is intentional).

This is not only 100% wrong, it completely misses the point and, we believe, this is the reason why, so far, “coaching” has failed to impact on management culture in any meaningful way.

Doing it Right

Pure Coaching starts with no agenda. The challenge of Pure Coaching is that it starts with the premise that the Coach knows absolutely nothing, has no need other than the other person’s need, has no purpose other than theirs and no agenda other than the resolution of whatever needs to be resolved. This sounds simple and it is, but is not an easy point of view to acquire let alone sustain. Even so the skills have been acquired successfully by many strongly driven, over-achieving, over-competitive, “difficult” people – and it has transformed their lives and the working experience of those around them.

It may be helpful to describe what happens in Pure Coaching. The coach asks questions and listens to the answers, the next questions are driven by the last answers, the only purpose is to seek clarity and comprehension by the speaker, the only structure is whatever is needed to assist the speaker’s understanding. There is never a coach’s point of view or opinion; there is no advice, no information transfer, no emotional engagement, no external referencing. The Pure Coach may often speak for a total time that is as little as 10% of the whole coaching conversation – 12 minutes in two hours.

For the coach there is enormous concentration and focus on the person being coached, little sensation of the outside world, no topic in mind except what is being said and what that may or may not mean. It is extremely intense and demands high energy yet with virtual silence. It demands enormous self discipline and self control. It demands the exclusion of everything that you think you know. It insists that you do not need to know. It needs complete humility to the process and the client. It is possible to have a productive coaching conversation with someone about something of which you are totally ignorant. Here are a couple of examples.

In a client training session where they were learning Pure Coaching skills, one of their accounting staff did a role play coaching one of their IT managers. She was a quiet, modest technophobe and he was …. the total opposite. He selected an arcane and complex technical issue as “his big problem” and the coaching conversation started. Little external assistance was needed. Neither we nor the other trainees had a clue what it was all about. After 15 minutes, he sat back and said “That has cracked it. I really was stuck on this. How the heck did that happen?” and the trainee coach asked “What was that all about?” Then we all knew we had seen what Pure Coaching Skills really could do.
Another and more personal illustration – some years ago, in a refresher training exercise, I had the task of acting as coach for a colleague, an extremely talented and knowledgeable individual. Our conversation took over one hour, I gathered afterwards. I was totally exhausted at the end, something had been emotionally extremely intense and my shirt was damp with sweat. Yet, I had no idea before, during or immediately after what we had been discussing. A few days later, we discovered that she had made one of the biggest life changing decisions of her career.

How does Doing It Right compare?

Pure Coaching Skills are therefore the ability to conduct a purposeful non-judgemental dialogue. They lie at the far end of what we call our “Teller-Seller” Spectrum. At the other end of this spectrum is the Instructor, someone who gives out exact information and/or instructions. In the middle of this spectrum is the Mentor, a person that provides knowledge transfer and guidance, advice and enquiry. It is this “Mentor” capability that is now seen as the “next big thing” and is the subject of countless training initiatives, support programmes and training courses. Why? Well, we suspect that the most attractive thing is that is fairly easy to teach people with some experience and/or knowledge how to do it by means of some structured format.

And, my Mr Nasty pixie whispers in my ear, "Is that perhaps all they know how to do?

In our own shorthand, we call this Situational Coaching – it may help someone deal with “a situation”. The potential risk with this approach is immediately obvious – have you selected the “appropriate” coach (or "coaching process") for this situation or is the actual situation not what you thought? The other limitation is that the assistance relates to the situation, once that is resolved, the opportunity for transformation of result may be limited. The step that gets taken is very often only the step that could be seen at the start.

At the Pure Coaching end of the spectrum, we find ourselves delivering “Outcome” Coaching. Our conversations are not directly about the situation but about the consequences of it, the understanding of it, the hitherto unexplored implications of it and its impact on the individual being coached. This is a very different type of conversation. From time to time we may, but only by invitation, take up the Mentoring role briefly to move past a point where specific knowledge is absent. And, in our case, there is always the only agenda we ever have available, helping the coached person to acquire and use these same Pure Coaching Skills to better manage their own work and that of those they work with.

We have been able to have such productive conversations and, using a related Getting Things Done Process, assist substantial Transformations in Performance with electrical engineers, packaging makers, railway contractors, nuclear engineers and scientists, pottery workers, lighting factory workers, car dealers, steel manufacturers, brewery sales people, advanced technology manufacturers and accountants – to name but a sample. It certainly has not been our knowledge that has delivered the value!

What is the Big Difference?

What we have observed with these clients is that when faced with new situations, new challenges, new relationships, they have been able to rely on their core Pure Coaching Skills and the Getting Things Done Process to successfully tackle and surmount all that comes. They have achieved an immediate Transformation of Performance – but worth much more than that, they have acquired the continued capability to Transform their Performance; to be able to master Change. We call this Changeability and Pure Coaching is one of the core elements for this.

And, this is why this blog is here - Changeability is one of the key attributes of those organisations that Exceed Expectations - that demonstrate exceptionally high levels of Competitive Strength - that consistently outperform the average in good times and bad times on a number of financial criteria by up to 50% - that survive in stormy times whilst others perish.

Wow, is it stormy times NOW or what?

It is going to get a whole lot rougher!

So, we urge everyone that can to acquire and use Pure Coaching. It will transform their working relationships, their performance and their potential. It may do the same for all they work with. It will make any one of the specific applications that they may then need to tackle simple and straightforward – whether it be appraisal, persuasion, mentoring, training (even), personal development or investigation. It is not easy to learn, but once learnt well, it does become an embedded behaviour skill.

We say “everyone that can” because learning Pure Coaching is challenging, requires high self discipline, mental rigour, active intelligence, and a lot of sheer hard graft in practice. There will be a few who will not succeed, there will be a minority where some form of Situational Coaching package will match limited capability. But these folk are not the majority – yet sadly, it is the majority that is now being targeted by the Management Fashionistas.

So, ignore all the “Coaching” Products and Programmes – get yourself Pure Coaching Skills. They will make everything much simpler, but they are not easy to acquire. However once you have gained them you will have them for life – your transformed life, and potentially, the transformation of performance for all you work with.

Late Frost Kills Weak Plants

2008-03-20T16:46:00.002Z

That is no surprise to any gardener.

The process of Evolution has, over many centuries (but sometimes faster with some careful selective breeding), sorted the highly adaptable from the less adaptable. The flowers and vegetables we enjoy now are either “Hardy” or not. Some highly exotic breeds are so fragile they can only prosper in a sheltered environment.

So what does the Banking Industry look like right now on Good Friday after the ice storms of the credit crunch? And, with an Easter Weekend weather forecast of frost and snow threatening the health of our gardens, and more economic “accidents” in train, what will the Bankers look like on Easter Tuesday?

The parallels are there for all to see. The “exotics”, the financial engineers, hedge fund adventurers, “leverage” experts and such, are shrivelling in the sudden chill of a simple reality – you cannot lend that which you do not have, you cannot borrow what you cannot repay, you cannot have something for nothing (as Heather Mills has just been told by a High Court Judge).

The High Street Bankers, the daffodils, violets, cabbages and turnips of the Industry, retail and business Bankers, are shivering but look likely to survive. Most of those struggling had fallen into the temptation to try to be “exotic” – to have something for nothing – the most healthy now seem to be those who least yielded to temptation. Even so, they are asking their own “Great Gardener”, the Bank of England, to have the greenhouse warm and ready, just in case.

The Competitive Strength point of view is not surprised to see this happening. It looks for real economic value in companies, not for the gloss that frothy financial reporting, and super-simplistic investment analysis so often delivers. As the next few weeks bring harsh and testing stresses to every corner of the business community, look out for those businesses that are asking for “Special Protective Measures” – they will be the low Competitive Strength organisations we call “Comfortable” and may even include some of the less weak “Excellent” (but too complacent?).

There are two other levels of Competitive Strength condition – what of them? The weakest, we call “Constrained”, will be contracting, laying off staff, selling off anything they can, looking for a buyer, seeking extra finance – or closing down. The strongest, the very few with the Competitive Strength “Free” condition, will not be unaffected, but they will not be blown off course, they will calmly manage the reality of their new situation, and they will seize every new opportunity presented by the collapse of their competitors.

Competitive Strength is made up of two components:

How capable a business is compared with those that want to beat it
and
How capable it is of mitigating the impact of those forces out there that can cause it to be beaten

It is this second component that is the predominate determinant of survivability – and that Competitive Strength Report analysis does not miss out, unlike so many numerical approaches.

We have said for a considerable time that -

“Being a bit Better than Average” is now a strictly TEMPORARY and very PRECARIOUS position

Now this is becoming very very visible.

The Competitive Strength Report Process is a rapid tool that allows a company leadership to understand where they are positioned, in comparison to the very best, where their main threats lie, what the implications are and helps them decide very clearly and collectively what they need to do. There is nothing else as fast, as accessible or as affordable.

If you would like to know more about the Competitive Strength Report & Process, please look at the website – or contact us via the ChangeWORLD website

The Competitive Strength Meaning of Freedom

2008-03-06T08:32:00.003Z

The last few weeks have been peppered with dismal press releases from a very wide variety of Retailers. Their tales of woe have been accompanied by commentaries from financial analysts and other pundits - all telling us what we all know but somehow think will "only affect someone else" - times are hard and getting harder - only the really successful will cope. But the long list of those who are not "coping" include so many names that only last summer were being hailed as exemplars.

Twenty twenty hindsight is not always attractive - even when there are real lessons to be learned. We cannot escape this from time to time. We are frustrated that so many of those that seek to advise and influence the leading investors in our fragile economy, and sit in judgement on our business leaderships, do not seem to learn from the failure of their predictions.

Today, it is reported that
John Lewis, the department store group, is expected to unveil staff bonuses (for their 69,000 partners) of more than £2,000 alongside full-year pre-tax profits that are forecast to climb by about 25 per cent to £400 million.

The Competitive Strength Report identifies objectively and concisely how a business compares with the very best in the world. It reports this in terms of the comparative Competitive Strength level, or condition, of the business. At the highest, above the condition called Excellence, we have the level we call Free. Only a tiny percentage of businesses achieve this condition where they are able to do the things that others cannot - because they can. So John Lewis awarding its staff when all around others are cutting costs and discounting stock as fast as they can go is an excellent example. And we told you so in this blog on 29 August 2007

At the lower end of the Competitive Strength spectrum we find the conditions of Comfortable, where the majority are likely to be found, and below that the Constrained level. Here there is no "freedom", indeed the nature of this latter condition just above the point of failure we call The Abyss, means that there is insufficient perceived resource for anything other than one form or other of survival management, business sale or merger or, sadly now so common*, "financial engineering" to disguise the situation.

* Financial engineering - the most notorious recent example was Enron where complicated "vehicles" were created to "move liabilities off the Balance Sheet". Those financial heroes (well they were celebrated as such for quite some time by the experts) are now in prison. But what hope do we have when our country's financial management, the Chancellor led by the Prime Minister, use exactly the same ethically corrupt strategems to misrepresent the state of the nation's finances?

Today it also reported that Taylor Wimpey reported a pre-tax loss of £19.5m in 2007, against profits of £405.6m a year earlier, after it took a near £300m write-down on land and property. The company does not expect the US to improve significantly in 2008, and while UK profits were up in 2007 it expects tough trading this year.

Again we commented about this business in this blog on November 1 2007, asking what the combination of a Comfortable operation with a Constrained one was likely to be? It looks as though Constrained may be the answer - we have to wonder how close they are to The Abyss?

The Competitive Strength point of view shows that the deep seated managerial and behavioural values and competences of a business are the main differentiator of whether over time they will substantially outperform their competitors and successfully withstand unpleasant surprises.

The Competitive Strength Report Process is a rapid tool that allows a company leadership to understand where they are positioned, in comparison to the very best, where their main threats lie, what the implications are and helps them decide very clearly and collectively what they need to do. There is nothing else as fast, as acessible or as affordable.

If you would like to know more about the Competitive Strength Report and Process, please look at the website – or contact us via the ChangeWORLD website

Stop Wasting Valuable Time – Affordably with the Competitive Strength Report

2008-02-29T15:40:00.005Z

Key ideas from a Harvard Business Review article by Michael C. Mankins

The Idea in Brief
"Most leadership teams spend just three hours per month making strategic decisions. That translates into less than a week per year. Worse, many teams fritter away those precious hours on unfocused, inconclusive discussion rather than rapid, well-informed decision making.
The consequences? Delayed decisions that lead to wasted resources, missed opportunities, and poor long-term investments. One global firm spent more time each year selecting its holiday card than it did debating a vital Africa strategy.
How can your leadership team avoid such pitfalls? Spend your limited time on issues exerting the greatest impact on your company's long-term value. Deal with operations separately from strategy. Put real choices on the table, evaluating at least three viable options for every strategy. Use meeting time for decision making--not just discussion--and agree on what was decided. And move issues off your agenda as quickly as possible.
Your reward? Strategic decisions - made better and faster."

The Idea in Practice
"Apply these practices to make the best use of your leadership team's time:
Deal with Strategy and Operations Separately
Holding separate meetings for each prevents day-to-day operations from dominating your team's agenda and liberates time for substantive strategy debates.
Dutch banking giant ABN AMRO's board used to spend only about an hour per month on strategy, with most of its meeting time devoted to day-to-day operational details. But market changes required a more strategic focus. The board now spends slightly less time together - but devotes much more of that time to strategy, typically about 10 hours per month.
Focus on Decisions, not Discussions
Enhance the quality and pace of your team's decision making, for example by distributing reading materials in advance of meetings. Specify why participants must read them (e.g., for information only? discussion and debate? decision making?) This readies participants to devote precious meeting time to deciding crucial issues.
Measure the Real Value of Every Agenda Item
Prioritize meeting agenda items according to each issue's impact on your company's long-term value. Address high-value issues only, and delegate low-value issues to lower organizational levels.
At Roche, the Swiss drug and diagnostic product maker, CEO Franz Humer created a "decision agenda" comprising the 10 most important opportunities and problems facing the company. Leaders regularly update the agenda by quantifying the value at stake for each issue and spend over half of their meeting time on those ten items. This process has transformed the quality and pace of Roche's strategic decision making.
Get Issues off the Agenda Quickly
Develop clear timetables detailing when and how participants will decide each issue and who will approve final strategy.
At Cardinal Health, a pharmaceutical and medical supply distributor, senior managers continually ask themselves, "When must this decision be made?" and ensure that they reach decisions within a predetermined time. Results? Less over analysis and more rapid decision making.
Put Real Choices on the Table
Evaluate at least three viable alternatives (not just minor variations on one theme) before approving any strategy. This encourages teams to choose the best course of action, not just the most obvious. By debating alternative strategies, British retail bank Lloyds TSB decided to exit international markets, helping to expand its market value 40-fold between 1983 and 2001.
Make Decisions Stick
Explicitly agree on what was decided in the meeting. Then specify the resources (time, talent, and money) required to execute the strategy, as well as the financial results you've committed to deliver."

Our View
So that is what Harvard Business Review is telling us we ought to do. And we agree 100%.
But people are people and “ought” has never yet made a rice pudding – let alone persuaded a Management Team to take time away from the daily battle, priorities and urgencies. We have met so many business leaders who knew what they “ought” to do, but simply could not see how and where to start – and always “didn’t have the time”.
There is an additional and important aspect for which theorists and academics do not make a sufficient allowance. A high proportion of the extraordinary people in leadership positions have won their spurs operating their business – making it work every day. They are “doers” not planners. They have never had any educational or training opportunity to discover what “strategic thinking” is – let alone how to do it. And Michael Mankins’ "three hours per month making strategic decisions" would be unrecognisable to most of them

This is why we developed the Competitive Strength Report and Process specifically so that this critically important decision making is made readily accessible, simple and enormously time effective.

How does the Competitive Strength Report Process address the criteria set out by Michael Mankins?

Deal with Strategy and Operations Separately
The Competitive Strength Report questionnaire process takes 40 minutes for each member of the leadership team (or group) – it is 100% focused on how the organisation thinks about its strategy, however the questions are in the type of language familiar to operational people.

Focus on Decisions, not Discussions
The Competitive Strength Report Decision Process takes 1 working day (or 2 half days, more usually) for the leadership team (or group), provides concise templates to prepare for the meeting and focuses only on what decisions need to be made

Measure the Real Value of Every Agenda Item
The Competitive Strength Report gives an objective measure of how the organisation compares with the very best in the World – and identifies the financial implications.

Get Issues off the Agenda Quickly
The Competitive Strength Report Decision Process is highly structured to focus on directions and not details to ensure that items are addressed rapidly and decisively.

Put Real Choices on the Table
The Competitive Strength Report Decision Process demands that the leadership team (or group) make one of three critical choices – all three are valid options, all three have different outcome implications, the leadership team (or group) is required to make a conscious choice.

Make Decisions Stick
The Competitive Strength Report Process includes an Action Review, typically 3 months later, to ensure that decisions have been sustained and lessons learned and applied.

The Competitive Strength Report Process addresses these Harvard recommendations 100%. Well, that is a pleasant surprise for us. But with 40 years of practical experience in our international authorship team we have learned what does work and what does not.

It is this experience and expertise that has enabled us to design the Competitive Strength Report Process for practical, action centred, business leaders. It is not knee deep in managerial theory, we have tried very hard to avoid business school jargon and to provide simple practical guidelines.

The Competitive Strength Report Process simply says
“This is how your input shows your business compares with the very best in the world. These are the financial implications. These are the threats that you see coming up behind you. This is what they could do to you. Do you need a Transformation of your Performance? You have three choices, which one will you make?”

The Competitive Strength Report Process can deliver this within 3 weeks, with not more than 10 hours from each leadership team member and with a structured outcome that will enable them to sustain their strategic focus with less than one hour a month thereafter.
And, here is the big difference, because the Competitive Strength Report Process is web based and highly automated, it requires the absolute minimum of external assistance which makes it highly affordable.

If you would like to know more about the Competitive Strength Report and Process, please look at the website – or contact us via the ChangeWORLD website

Clean Tech - The Next Big Thing?

2008-02-29T15:25:00.003Z

A couple of weeks ago an article in the Daily Telegraph business section by Tom Stevenson highlighted the growing interest from investors in the “clean tech” sector, notably solar and wind power companies. He quoted New Energy Finance, a supplier of research and data to investors, who reported that more than $117bn was invested worldwide in clean tech last year, a 41% increase on the year before.

He also quotes a number of fund managers who are universally optimistic about prospects for this sector. Here are two examples.

“The scale of the challenge of moving on from fossil fuels makes this an attractive area for long-term investment. This industry could sustain growth rates of over 20pc per annum for more than 20 years”. – Tom Guinness, Guinness Alternative Energy Fund.

“As an investor in 20 years, will you look back and wonder why you did not read the signals? The global market for environmental goods and services is incredibly exciting and we believe that within the climate change funds you may find the Microsoft of the future”. – Mark Haskins, partner at Holden.

However Tom Stevenson also draws some parallels with the dotcom boom, funds queuing up to invest, stock prices driven up to unsustainable levels (he reports p/e ratios of 30 or 40 as being typical), followed by sudden stock price falls of up to two thirds in a few months in certain cases.

So what is going on? Could you trust your money to one of these funds? Would they produce above average returns given the apparent strong prospects for the sector? Or will it all end in tears?

Once again we have to challenge the conventional thinking of so much of the investment community. There will be winners and losers in any market, irrespective of whether it is high growth, mature or even in decline; the trick is to spot who will win and who will lose, before they do one or the other. There is an added problem in high growth markets because for a while some of the losers can look like winners as they ride the temporary and highly precarious advantage high growth sectors can give them.

The difference will be comparative Competitive Strength. Those companies with high Competitive Strength conditions, Excellence or above, or who take advantage of the high growth sector to achieve this, will be the winners. Those who do not will lose and so will those who invest in them.

Tom Stevenson gives an example in his article.

Shares in Renewable Energy Corporation, the world’s biggest producer of the polysilicon used in solar panels, dropped 23% in one day when it warned of delays and cost overruns at a new facility it is building in the US.

If a company does not even have the capability to bring on new capacity to serve a high growth market on time and on budget then it is not demonstrating a level of Competitive Strength that would indicate it is likely to be one of the winners. The market only corrected the share price to take account of this after the bad news appeared.

Applying the Competitive Strength Report process to this company would have indicated the weaknesses that were likely to lead to failures of performance of this kind. So before considering investing in this sector ask the fund manager if they have assessed the Competitive Strength of the companies whose shares form their fund’s portfolio. If they have not and/or don’t know what you are talking about, avoid.

You can find out more about the Competitive Strength Report (CSR) and Process and how this can give you different insights into how to assess company performance by visiting our website. The CSR is the only completely independent organisational self assessment tool that rapidly provides a simple and clear assessment of Competitive Strength compared to the best in the world. Please have a look at the Competitive Strength Report website or contact us via the ChangeWORLD website It may change much of your thinking about your investments.

It’s a Flat Earth. Can Your Business Stand Up?

2008-02-12T11:21:00.000Z

In a world that technology has made flat , where do firms find a competitive edge?
Patrick Foster The Times February 11, 2008

Klaus Kleinfeld, president and chief operating officer of Alcoa, the world's biggest aluminium producer, said that the internet and advanced communications had “made the world flat” and had led to such a free flow of information that the only way that companies could get ahead of competitors now was by having a better workforce.
It actually holds true for most industries that ... they have changed in such a way that the only sustainable competitive advantage, probably, is the type of people you have and the way they work together.”
He added: “If that is so, the biggest question becomes: how can you attract the best and brightest around the world? Coming from the pockets of excellence, how do you make yourself, your company an interesting company, the one that they'd love to continue to work at?”

Here we have an all too rare example of a business leader who really understands that the key to Competitive Advantage is Excellence. Indeed, if you look at the dominant position of Alcoa, and if you have heard some of the stories (over 20 years or more) about their extraordinary internal performance improvement culture, it is not too surprising. Klaus Kleinfeld is telling us that the modern communications environment is removing the “Our Knowledge is Our Capital” intellectual property differentiator and that therefore something else is needed. Interestingly, if you spot it, he takes “excellence” as a given; he is looking beyond excellence. The very fact that he is raising this question signals a company with exceptional Competitive Strength.

Our Competitive Strength Analysis suggests that Alcoa may be in the highest level, which we call Free – and that is above Excellent. Typically, they are thinking ahead creatively, looking for further ways to sustain their Competitive Advantage. Alcoa will be well aware that their current Comparative Competitive Strength is open to threat – not least from the energetic Chinese.

How high is the Competitive Strength of your organisation, or your Suppliers or your Customers? Will you still be in business if they weaken? What other threats are out there? How resilient are you and your people, really? How far ahead are you thinking? How much time can you afford to think about these things?

Not much, if you are typical, there is too much else to do and no one is making that situation any easier, especially with such a micro-management obsessed bureaucratic Government continuously dipping its nosy teaspoon in your cup of tea.

The Competitive Strength Report Process with its web based survey and 60 page Report will provide you with a completely objective and independent assessment of your Comparative Competitive Strength and the financial implications of that result. It will enable you to work your way through all the key issues that influence your future. It is highly affordable, will take very little of the valuable time of your management team and can be completed in 3 weeks.

To find out more about the Competitive Strength Report, please see the website

More like a Turkey?

2008-01-10T15:51:00.000Z

From The Times January 10, 2008
Taylor Wimpey cuts payments to subcontractors in ‘urgent action’
Christine Buckley, Industrial Editor

Contractors working for Taylor Wimpey have been told they will be paid 5 per cent less than previously agreed as the housebuilder tries to cut costs.

A letter to contractors working for the Bryant Homes division of the business states: “We need to take urgent action to manage down our cost base. We are reviewing our overheads, house designs and build processes to drive out inefficiencies, but also need subcontractors to play their part. We are therefore introducing a 5 per cent reduction in price on all outstanding works on existing orders as well as all future orders placed after January 2, 2008, and will be looking for an equivalent reduction in future tenders.”

A subcontractor told Construction News that the housebuilder, which has sent the letters from its South East operation, was using bullying tactics to reduce its costs. The subcontractor said: “I don’t remember getting a letter when the market was booming saying: ‘Here, we’re doing so well we’re going to increase your rates.’ This is just bullying tactics. They’re still selling houses and it’s nothing like a recession – it’s a slowdown, at best.”

This is not the behaviour of a company that the Competitive Strength Report would report as Excellent – nor even as Comfortable. It is the pattern that is to be expected from a Constrained operation – just one step ahead of The Abyss.

At the beginning of November 2007 we posted our views about the combination of Taylor Woodrow with Wimpey under the headline

“Two Swallows do not a Summer Make – more like a Gulp”.

We could not believe that these “two swallows” would so soon look like a Turkey.

We warned then that, viewed through the penetrating lens of the Competitive Strength point of view, that the prospects for this merger looked bad.

To quote directly from our November post -

With no evidence of extremely rapid internal transformation, the most probable outcome is a larger “Constrained” business rather than a “better business”. Even if at the outset Wimpey might have rated a Competitive Strength of “Excellent” and assumed that they could absorb a “Constrained” company and remain “Excellent”, this was unlikely to be the outcome. The lower common denominator tends to prevail, as we have seen in so many previous mergers, which is why their success rate is barely 50%.

The Competitive Strength Report could have predicted this outcome.

Please look at the Competitive Strength web site to learn more about the only really objective measure of Comparative Competitive Strength.

Will DSG Spin or Nose Dive?

2008-01-08T09:08:00.000Z

From Times Online January 4, 2008
Tempus: John Lewis has stolen DSG's thunder

John Lewis reveals record trading in Clearance Sale in further sign of pressure on the rest of the high-street
Steve Hawkes

The figures from John Lewis today show that its post-Christmas clearance sale is generating record volumes, with more than £20 million taken at the tills on December 27, up 8.7 per cent on a year ago.
Critically, electricals continues to be one of the major growth areas. The department store group sold one 50” Samsung plasma TV every six minutes on December 27. That is the equivalent of more than a mile of plasma TVs in a day.

This follows a blistering December, where again the most consistent sales growth came in areas such as MP3 players, cameras and digital-photo frames. With John Lewis aiming to double in size over the next decade, its effect on the rest of the high-street is only likely to grow.

What more can we say? Please see our previous post.

The relative Competitive Strength of these two is demonstrated yet again, within days!
If DSG cannot win the race in "The Sales" against a competitor that is rarely the lowest price seller, what is left for them?

At what point does a downward spiral become an uncontrollable spin or a terminal nose dive? A Competitive Strength analysis can foretell this - if it is not already too late.
Is it already too late for DSG?

DSG – Predictable Train Crash? Competitive Strength foresaw this 2 years ago!

2008-01-05T11:20:00.000Z

From The Times January 4, 2008
DSG hits 12-year low after profit warning sends shivers through the high street
Steve Hawkes and Siobhan Kennedy

John Browett, the new chief executive of DSG International, said yesterday it could take years to revive the Currys-to-PC World business as he issued a stark profit warning that sent a shudder through the high street.
Shares in DSG plummeted 27 per cent to a 12-year low of 78p, wiping £520 million from the embattled retailer’s value, as it became the first major casualty of the Christmas spending slowdown.
DSG said a 10 per cent slide in like-for-like sales at PC World since October meant it could miss full-year profit forecasts by £50 million.

And

Tony Shiret, the Credit Suisse retail analyst, said: “I think it’s a predictable train crash.”

But – the Analysts did not predict it – they could not predict it, at least not more than a few months ahead – they hardly ever do. Why? Because they remain focused on external factors such as Brands, Competition and Markets rather than the internal competencies of the companies upon which they pontificate.

Strong Markets provide an easy ride – that is so obvious it seems hardly worth saying.

What is less obvious and so often overlooked, is that within any such rising market some companies prosper relatively much more than others. How those relatively prosperous companies then make use of their relative financial strength has enormous influence on what happens when, inevitably, the Market weakens. We see three stereotypical behaviour types, Growers, Grabbers and Builders.

Growers are companies that choose to invest their profits on Organic Expansion in the belief that size and market share deliver strength. They do not invest heavily in internal change because “they are doing very well already”. They point to the ever expanding numbers in balance sheet as proof of their success. Financial Analysts regularly applaud such behaviours.

Grabbers are companies that choose to focus their profits plus any funds they can lever into Acquisitions in the belief that variety and/or spread deliver strength. They do not invest heavily in internal change because “they are doing very well already” and they need the P&L leverage for the borrowing that enables purchases. They point to the exploding numbers in balance sheet as proof of their success. Financial Analysts so often become lyrical in their praise of such behaviours.

Builders are companies that choose to invest heavily, as a normal business expense, in internal performance improvement, strengthening their core capabilities and achieving high levels of customer care. In the short term this may result in slower profit growth, but in the medium to long term they significantly outperform the other types of companies. However the short term slower growth (coupled with the tendency of these types of company not to splash money around the city – they don’t need to) often causes the analysts to attack them for lack of enterprise or ambition. It appears that they simply cannot see nor do they understand the connection between the investment in internal performance improvement and the highly positive outcomes this produces for future profit growth.

When the Market weakens the chickens come home to roost.

The Growers find that they very rapidly become unprofitable. They have no latent ability to change. They typically have relied on low pricing to gain sales but find that they can no longer afford these. Their customers’ “loyalty” has only ever been to price, so they go elsewhere.

The Grabbers find that their core business rapidly becomes a heavy drag on the other sectors and then they seek to unload it, or become vulnerable as another sector weakens. They have no internal ability to change rapidly. Often they also may have relied too heavily on pricing to win sales and lose customers fast.

The Builders find that their time won internal efficiencies, cost effectiveness and superior customer retention allow them to trade successfully and to grow market share while others are losing. They adapt rapidly and appropriately to different situations and keep their customers with them.

Which sort of company do you think DSG has been?
What sort of company do you think that John Lewis and Tesco, to name two examples, might be?
And, thinking about Builders, what sorts of companies has Warren Buffett selected over the years?

The Competitive Strength point of view foresaw this – 2 years ago when one of our clients was subjected to one of the worst customer service experience from PC World Business we have ever witnessed. It was clear their internal processes were incapable of delivering their promise to customers. Their response to complaints demonstrated that they neither understood nor cared about this. Financial commentators and analysts finally began to notice in August and September 2007 Links here - 29th August - 19th September.

We pointed out then that John Lewis was showing all the signs of having superior Competitive Strength – and that their competitors were not. John Lewis and Tesco show signs of having the level of Competitive Strength that we call Free. They can afford to make strategic choices even when times are hard – and both can be seen to be doing so as we write.

Stop Press - This morning's Telegraph reports-
John Lewis sales up 8% over the Christmas trading period including Christmas and the early NewYear sales period. Sales rose to £70.2m boosted by electricals and home technology, which had the most consistent growth. (Our emphasis)

DSG has exhibited for some considerable time* all the signs of the Competitive Strength level we call Constrained – just one step away from The Abyss, failure. They have few choices left.
* This information has been available, published customer comments being a critical indicator.
* Did the Financial Analysts attach proper weight to this? Do they have any dimension that enables them to assess this? We do not think so.

A Competitive Strength analysis would show the leadership of any business totally objectively their level of Comparative Competitive Strength and what their future potential might be. For example, for DSG it could show them where their salvation might lie, what their immediate choices are, and identify the key transformational steps they would need to take to achieve first Excellence and then move on to Free.

The Competitive Strength Report is the only independent measure that will enable a business leadership to rapidly and objectively assess how they compare with the Free. Within days they can establish what their business’ position is – and more importantly, decide what to do about it.

We say, please look at the Competitive Strength web site. Please see the spectacular difference in both financial strength and business resilience there is between the Constrained and the Excellent. You will also see, as the Analysts so often fail to do, just how deeply temporary and precarious is the position of the Constrained business and how traditional methods of analysis usually fail to spot this until it is too late.

This the time of year when the financial commentators and analysts give their share tips for the New Year.

Here are ours:

If you read the following in a company report: “We received over 2,000 suggestions for improvement from our employees this year and implemented over 65% of them”.
Then BUY!

However if you read: “Our people are of course our most valuable asset”.
Then SELL!

P.S. The Headline says “DSG hits 12-year low after profit warning sends shivers through the high street”
Why should DSG’s profit warning do that?
Do the journalists and the analysts think that all or most other retailers are as inefficient, customer indifferent and operationally incompetent as DSG, or very nearly so?
Is that why they think they should be afraid? We can understand it if they do.
However, we know of several retailers who remain confident in their ability to weather a downturn; their Excellence, (changeability, flexibility, agility, operational competence and exceptional customer care) will ensure they prosper while others writhe in Constrained agonies or the death throes of The Abyss.

Uncertainty is the Only Sure Thing

2007-11-28T14:45:00.000Z

Some SCARY Geophysical facts

We live in the thinnest smear of gas on a congealed veneer of minerals, also thin, on the surface of a great big ball of molten rock surrounding a supercritical nuclear mass. This whole, totally improbable, shebang is whizzing around a huge and ongoing nuclear explosion ( a star), called the Sun. All of this is zooming along on some incomprehensible trajectory in the huge collection of other stars we call out galaxy. Other galaxies are also out there speeding about - there is no Highway Code in the Cosmos - they can and do collide.

The thinnest smear of gas we live in? How thin is thinnest? Imagine a large steel ball bearing - say 50 mm diameter. Now spray this with a fine lubricant, such as WD40, wait a while for any drips to go. The surface will look the same - with such a thin layer of oil it is barely visible. That oil will be several times thicker in proportion to the size of the ball bearing than our atmosphere compared to the Earth.

The congealed veneer of minerals? Well, some brave (or lunatic) scientists are busy drilling a hole into it to sample the molten contents. It is that thin.

Our life within this smear of gas is subject to enormous variables - we call the result of these "our Climate". Our thin smear of gas is enormously unstable, affected by its own contents, thermal variations (including "leaks" through the surface veneer) and radiation from the Sun. Sadly, so much of the current debate about Climate Change chooses to ignore the effects of Solar Radiation because it does not serve one or other sectional interest's argument.

The Sun is also enormously unstable - just have a look at this frightening video (Click Arrow twice to make it run)

This massive "blip", if it were pointing in our direction, could be good for a typhoon or tornado or two.

So, we are living in conditions of enormous improbability - maybe Douglas Adams was right?

The only certainty we have is that we are surrounded by uncertainty.

Therefore to equip and skill ourselves in any expectation of stability and surety is foolishness. But this is what so much traditional management thinking tries to do - and what so many financial analysts create as expectations for their projections. The Reality is completely the opposite.

The only wise thing we can do is to be ready for change - to have high levels of what we call personal and organisational Changeability. Organisations that do this tend to massively outperform the average - the research shows by up to 44% greater rate of sales growth. And they can withstand bad times infinitely better than their peers. They have much greater Competitive Strength.

Any business can assess its comparative Competitive Strength rapidly and inexpensively with the Competitive Strength Report and then decide what to do about it. They will get an immediate insight into their own organisational Changeability and the opportunity to understand what the potential consequences might be for them.

Please visit the Competitive Strength Report web site to see how you can find out whether the unforeseeable consequences of the next Sun Spot is more likely to threaten your future, or create opportunities to beat your competition.

Times are getting hard and the weak are about to get weaker

2007-11-28T14:32:00.000Z

From The Times November 28, 2007
Major retailers lose sparkle as figures slump ahead of year’s biggest spree
Steve Hawkes and Miles Costello

Fears over the fallout of the global credit crunch grew yesterday as Signet, the jewellery retailer, and Pendragon, Britain’s biggest car dealer, blamed growing economic uncertainty for stark profit warnings.

John Stevenson, an analyst at Shore Capital, said it was now clear that there would be a marked divergence between winners and losers on the high street over Christmas.
He added that a spate of price cuts and Christmas sales by Debenhams, WH Smith, Gap, Burtons and Dorothy Perkins reflected the fact that stores were already having to use incentives to attract customers. “No doubt Christmas will be late and, with the next weekend representing the ‘payday’ watershed, retailers will be looking for signs of improvement as we move into December,” Mr Stevenson said.

Here we go again – it is the same brutal message of comparative Competitive Strength.
Times are getting hard and the weak are about to get weaker. So what’s new about that?

If we apply a Competitive Strength perspective then we can deduce something different. The key question is not who is or is not cutting prices and bringing forward Sales but whether the stores named were “having to use incentives” or whether they are choosing to do so.

Businesses that enjoy the high Competitive Strength level, better than Excellent, we call Free. For a retailer this means they can choose to discount where and how they want, using this as a tool to create greater competitive advantage. An obvious example of this is Tesco who are regularly and skilfully use the price cut weapon to make life difficult for their competitors.

Companies that are in the low Competitive Strength condition we call Constrained cannot "choose" to discount. They feel compelled to do so in order to chase the sales volumes they cannot otherwise generate, because this is all they can do. A business leadership in a Constrained retailer who states they have “chosen” to have an early sale is attempting either to disguise their weaknesses or, if they believe it, fooling themselves. Hoping it will be "all right in the morning" is not a strategy – it is Denial.

We say, please look at the Competitive Strength web site. Please see the frightening difference in both financial strength and business resilience there is between the Constrained and the Excellent. Please see just how deeply temporary and precarious is the position of the Constrained business.

The Competitive Strength Report is the only independent measure that will enable a business leadership to rapidly and objectively assess how they compare with the Free. Within days they can establish what their business’ position is – and more importantly, decide what to do about it.

Two Swallows do not a Summer make – more like a Gulp!

2007-11-01T16:56:00.000Z

From The Times, November 1, 2007
Foundations look just too shaky at Taylor Wimpey
Nick Hasell: Tempus

A writedown on the value of a company’s overseas operations and a gloomy outlook on trading at home would not appear the best formula for one of the biggest rises in the FTSE 100.
But this is housebuilding, or more specifically, Taylor Wimpey, the worst performer this year in what has been one of the stock market’s worst-performing sectors. So with the shares down 55 per cent over the past six months, yesterday’s 6 per cent gain can be read as no more than the covering of short positions and relief that its tidings were not any worse.
Not that all was gloom. Perhaps the biggest surprise was that Taylor Wimpey, now Britain’s largest housebuilder, repeated its confidence that it can achieve operating margins of 14 per cent in the current year. Given that improving Taylor Woodrow’s historically below-par margins was one of the key reasons behind the merger with Wimpey, that affirmation is encouraging.

The Competitive Strength perspective demonstrates why Merger & Acquisition strategies need to take into account the underlying operational cultures and competences of the companies involved. There is an enormous difference between the potential capability of an "Excellent" Competitive Strength organisation to deliver performance improvement compared to that of a "Comfortable" one.

As we have commented before, the ability to deliver an improved outcome will be substantially influenced by the degree of match or mismatch of Competitive Strength level and the Changeability of each outfit. If they do not match, or if they are not vigorously and competently addressed, then nothing will change.

According to this article, the jury is out. Will Taylor Wimpey be greater or less than the sum of its parts? If we disregard the initial share price lift that appears now to be attributable to extensive financial engineering rather than performance, the outlook does not look good. When we apply a Competitive Strength perspective, it looks bad.

Using Competitive Strength criteria, we can reasonably suggest that this may have been a “Comfortable” company merging with a marginally “Constrained” business in the expectation that something stronger would emerge. With no evidence of extremely rapid internal transformation, the most probable outcome is a larger “Constrained” business rather than a “better business”. Even if at the outset Wimpey might have rated a Competitive Strength of “Excellent” and assumed that they could absorb a “Constrained” company and remain “Excellent”, this was unlikely to be the outcome. The lower common denominator tends to prevail, as we have seen in so many previous mergers, which is why their success rate is barely 50%.

We believe therefore that there were questions that were not considered much less answered. What is alarming is that the architects of this merger almost certainly did not know that these questions existed and that they needed to be answered. They applied conventional thinking and got conventional answers and it now looks like this will produce the same disappointing results as at least 50% of mergers. We believe that the Competitive Strength perspective would have highlighted the other questions that needed answers.

You may like to know more about the Competitive Strength Report and Process, the only completely independent organisational self assessment tool that rapidly provides a simple and clear health check, and helps you decide what to do about your results. Please have a look at the Competitive Strength Report web site.

Knight Vinke vs HSBC - damn nuisance or good point?

2007-10-20T09:49:00.000+01:00

Last week Eric Knight, the founder of Knight Vinke renewed his assault on HSBC. He unveiled a 75 page report that he argues provides irrefutable evidence that HSBC has underperformed its peers in the global banking industry. His central argument is that HSBC’s current strategy of diversifying into more and more countries and joining up the pieces would produce only an extra 3 per cent of value for shareholders. By contrast, a strategy of building big positions in a few countries and withdrawing from others would deliver a 50 to 75 per cent gain.

“Some kind of radical restructuring is required,” Mr Knight said. “No matter what HSBC says, there are some real issues here.”

Right now it appears the argument centres on which strategy will deliver the best return to shareholders, the current strategy being pursued by HSBC or that proposed by Knight Vinke. We have applied a Competitive Strength perspective to the situation and find there is really more to it than that.

First we agree with Mr. Knight that there are “some real issues here”. However we also find there is a significant factor that has not been considered that indicates that the strategy Mr Knight proposes may NOT of itself deliver the results he claims.

Applying the Competitive Strength perspective suggests that HSBC is in a condition we describe as Comfortable. At this level the Competitive Strength research base shows that the company could have an improvement potential of more than 50%.

However if Knight Vinke’s analysis actually points to deeper weaknesses, as it might, then HSBC could be classified as in Constrained condition. The overall picture, and the response tactics of HSBC, seems to have many of the characteristics of an organisation that is nearer to Constrained than to Comfortable. In this case HSBC might have an increased shareholder potential growth value of up to 84% greater than its current performance, even higher than Knight Vinke’s assessment of 50% to 75% improvement.

What we can say with certainty is that if HSBC were operating in a Competitive Strength condition above Excellent, then the questions that are being asked would not exist. Excellent rated companies deliver the level of shareholder value that Knight Vinke is calling for from HSBC. What is more in order to keep on doing so they constantly and rapidly review, re-visit and re-adapt their strategies as circumstances and markets change.

Knight Vinke’s alternative strategy proposals for HSBC may appear attractive, even logical. Building strong positions and scale with the emphasis on markets with the greatest growth potential can be a recipe for success. However it is also the product of conventional thinking and does not take account of the Competitive Strength factor, the ability to implement the strategy effectively.

We can say, with confidence, that Knight Vinke’s alternative strategy proposals are unlikely to deliver anywhere near the full potential suggested. This is because a Comfortable organisation like HSBC has a low potential to change itself; it does not know how to do it. Indeed HSBC's current strategy reflects this as it is very much "more of the same". A “better strategy” might deliver a marginally better result for a time but without a complete transformation of the culture of the business from top to bottom the full potential will not be realised. Indeed the organisation may become fatally damaged in the attempt to implement the strategy. To succeed HSBC will have to become better than Excellent. In a leviathan with their scale, complication and history that will be a massive challenge.

In an internationally competitive banking and finance marketplace, being average, or just below average, is a temporary and precarious position. Is that where HSBC stands? Is that what Knight Vinke have spotted? Almost certainly they have a “good point” and appear determined to go on being a “damn nuisance” to get their arguments heard. If their proposals also spark the level of change throughout HSBC that we believe would be needed then they may well deliver. If not you really have to ask - why bother?

To find out more about the Competitive Strength perspective go to the Competitive Strength Report website.

Don’t say nobody told you!

2007-10-16T11:28:00.000+01:00

The Times
October 16, 2007
Oil price hits record of $86 as commodity rises intensify inflation fears
Carl Mortished and Steve Hawkes
The price of crude oil rose to a record of $86 a barrel yesterday amid fears that a surge in the price of traded commodities is storing up a winter squeeze on consumer wallets and new risks of inflation for the global economy. . . . .
Economists gave warning that soaring energy costs could delay any further reduction in interest rates by the Bank of England. George Buckley, the chief UK economist for Deutsche Bank, suggested that economic growth could be hit if oil continued to rise.

Back in August we wrote

Four years ago Mervyn King issued a warning, “Will the next ten years be as nice? That is unlikely”.

Tough talk by the usually super-diplomatic Governor of the Bank of England. Since then oil prices have doubled, raw material costs soared, interest rates keep climbing and at the end of July this year the “credit crunch” has hit the world’s financial markets. It has definitely not been “nice”.

How is this affecting you and your business? Are you worrying about your pension fund, contracting sales, customer failures, supplier weakness, deferring prized expansion plans, unpredictable cost of finance or the increased risk of opportunities? Nearly everybody we know is.

It could get worse; one authoritative source has predicted a “supply crunch” by 2012 resulting in an oil price of $150 dollars a barrel. What would that do to your business? And there is global warming, globalisation and more economic uncertainty from the European Constitution. It is nasty now, it could become really horrid.

We are all heading into very uncertain territory. The only certainty is that something unwelcome will happen – and then something else. Is there any basis for hope for any of us?

Yes, there is a solid basis for hope. There are a few businesses that seem to be able to ride out these rough seas of uncertainty – they appear to be able to surf the economic breakers and emerge stronger and fitter than before. What do they know that everyone else doesn’t? What do they do that makes such a difference?

A massive research project by Dr Vinod Singhal in the USA has found the answer. He has proved that, providing that you do it effectively, “Excellence” doubles your financial competitiveness.

Using this research base we have developed a powerful web based business diagnostic tool called the Competitive Strength Report. It is the only tool available from anyone, anywhere that provides an objective assessment of a business' Competitive Strength compared to the very best in the world - not just in a particular sector but the best at anything.

The Competitive Strength way of looking at the world delivers exceptional insights - why don't you find out more about it at the Competitive Strength website?

There must be a better way

2007-10-05T09:46:00.000+01:00

Which frequently used business strategy is guaranteed to create big rewards for accountants, lawyers and bankers yet at best has only a 50% chance of creating value for the businesses deploying the strategy?

Answer - Mergers and Acquisitions.

Susan Cartwright is Professor of Organisational Psychology at the Manchester Business School and her research interests and publications are in the area of occupational stress and organisational change, particularly in the context of mergers, acquisitions and joint ventures. In an article in the Daily Telegraph Business Summer School she writes:
“US sources place merger failure rates as high as 80%. UK evidence indicates that around half of mergers fail to meet financial expectations. A much cited McKinsey study suggests that most organisations would have received a better return on their investment if they had banked their money instead of buying another company".

So with a failure rate of between 50% and 80% why has the trend for this apparently high risk strategy grown significantly in pace and volume in the last decade?

Undoubtedly the persuasive powers (and the powerful incentives) of the M&A financiers and their associated service providers/advisors are a significant factor – however a key driver of mergers and acquisitions is change. Change is happening so fast, so frequently and on such a large scale that businesses find themselves needing to change shape, focus, size and capability, and often believe that they must do this rapidly and on a large scale. M&A offers an immediate and attractive approach that can be a logical means of achieving this. When it is executed effectively, it can deliver the desired outcomes. But, when it is not done well, the results can be a massive disappointment, as Susan Cartwright and others report. So it looks like we need to use it, but at this rate of failure can we afford to keep on doing it the way we always have? Is there a better way to ensure that M&A’s deliver more predictable outcomes?

Susan Cartwright goes on to say:
“To make mergers and acquisitions work senior managements must focus on integrating the cultures of the companies brought together…One lesson to be learned is that deals work best when the cultures of combining companies are similar … A related lesson is that due diligence in advance of deals should extend to evaluating the degree of the cultural fit between companies. Executives involved in mergers and acquisitions need to understand the cultural values and strengths and weaknesses of their prospective partners”.

This makes sense but why might this be effective and how could you do it anyway? Applying a Competitive Strength perspective to M&A provides some answers.

The Competitive Strength Report enables a business to rapidly and objectively assess its Competitive Strength expressed as one of four Competitive Strength Conditions – Constrained – Comfortable – Excellent – Free. Each condition, expressed across 15 dimensions of measure, is a product of how an organisation thinks and behaves and so they are also concise assessments of the organisational culture. It is therefore possible to compare the different cultures and assess the potential consequences of combining these, the potential risks of complete failure, and how to ensure you get the result you want from M&A as opposed to just what turns up!

An example of just what “turns up” are when a Comfortable organization acquires a Constrained one, often a temptation because of the apparently low price for which the Constrained business might be acquired for. A Comfortable business has a relatively low potential for change and a Constrained business an even lower one. The chances are the combined businesses will both become Constrained and value will be lost – a donkey and a mule are unlikely to perform like a thoroughbred – a sickly donkey and a mercy call to the Vet is a much more likely result! Is the BAA situation an illustration of this, we wonder?

When a Comfortable business acquires or merges with an Excellent business they will most probably pay a high price for it (it will have strong financial performance) and yet the Excellence can be so quickly lost. We know first hand of one example where it took just 8 months for the acquirer to turn an excellent business from being highly profitable to loss making and for it to disappear completely in under two years.

Even an Excellent business acquiring or merging with a Comfortable or Constrained business can find its Excellence diluted, especially if it is not fully aware of why it has achieved its Excellent Competitive Strength Condition and how to maintain it. A merger situation where it might not be as dominant a partner as it expected is a particular risk. Have recent results at Virgin Media illustrated this type of “what turns up”?

What about Comfortable with Comfortable or Constrained with Constrained? Well they are likely to get on well but the chances of adding value are slim. The “synergy” is likely to be 1 problem + 1 problem = 3 problems.

Explore the Competitive Strength website, apply the ideas to what you know and have experienced of M&A and decide for yourself if this might produce a better way.