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I’d like to speak to your manager!

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What can you learn about business from a shoe repair shop? “Not a lot” you might say; but you’d be wrong.

I made that sort of mistake when studying for my MBA. On that course we had high powered executives from various industries and, oh, a guy who worked in a shoe shop. We weren’t unkind to him, but we didn’t give his comments much weight because we thought he didn’t know that much about business; instead we should have paid more attention…

Our MBA strategy project (in 6 teams) was to devise a strategy for the Wm. Low supermarket chain (later bought by Tesco) and present to Wm. Low himself – he would then pick the best ideas and maybe even put them in to practice. We all produced text-book looking strategies except Mr Shoe-Shop’s group. It was really different, if not exciting. Their strategy turned things upside-down and put power in the hands of the store managers and the customer together with dividing the chain into a premium brand and a low-cost brand based on customer demographics. And so it went on. Mr Low hated it (in fact he hated all the presentations but that one especially) and was quite scathing (especially as he was disposing of his separate frozen food business to Bejam) at the time. 18 months later Mr Shoe-Shop’s strategy was applied by Gateway supermarkets and I always wondered if Mr Shoe-Shop ever became a retail guru. Maybe he was behind that strategy: I should have listened to him because he was way ahead of his time.

A few weeks ago I heard John Timpson of Timpsons on the radio extolling the values of upside-down business and that caught my attention because of my previous experience. What some people may find remarkable is that Timpsons have;

  • no large head office (only a bare minimum)
  • no budget for each shop,
  • no marketing department,
  • no epos systems (especially for stock control) in fact, not much IT
  • no centralised pricing (although they have guidelines, shops can decide their own pricing)

Rather than just a platitude, customers really come first at Timpsons and it is the shop managers role to ensure that they are served as well as possible. The shop managers have a lot of autonomy but this concept of serving also relates to the area managers whose main role is to ensure that they have the best people to run the shops and then to serve the shop managers. They don’t have much in the way of middle-management and it doesn’t stop there, John Timpson himself tries to visit each of his stores in person every year at least once. That is amazingly hands-on for a national chain. But then it is a hands-on business and you can’t manage a hands-on business from an ivory tower. It might be something unique to this type of business but apparently Warren Buffet has minimal staff at his HQ and famously no IT in his office. What these businesses have in common is a charismatic leader who likes to talk to his employees and trusts them to do their job.

So, next time you get your shoes repaired or a have a key cut, ask to speak to the manager, you might learn something.

© Gareth Gadd 2014

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Can you take market segmentation too far?

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I have seen this sign hundreds of times on the way to our local town. Eggs; logs; potatoes; why just these three products? Have they uncovered a highly profitable segment or could they afford to diversify? I often wonder if they have just one delighted customer who cooks spanish omelettes on a log fire – or whether there are hundreds of delighted omelette-making customers who travel a large distance because they can conveniently buy all the things they need in one place? Have they arrived at this set of products through some detailed analysis of their market or have they just taken market segmentation too far?

I have seen both good and bad segmentation of markets and the very worst (or at least the most expensive) was based on an interesting approach. My employer decided to segment all its customers into what were essentially five lifestyle categories of buyer behaviour. After spending many millions of dollars on this work to categorise thousands of customers in the US it was going to be rolled out to Europe. At this point I got involved. The segmentation was based on telephone interviews and I spotted a flaw straight away – different branches of the same company were surveyed but answered the questions in a different way and so ended up in a different segment. How could it be that (in this case, it was a bank). How could the customer purchase differently in different branches when policy would probably be set centrally? I started looking at the questionnaire in detail and it was pretty clear that all the survey was doing was gauging the attitude of individuals not that of their company. The research stopped abruptly and I was never told if anything else happened.

Sometimes too much data can be a bad thing because this allows you to narrow your segments to such a level of granularity that you stop talking to some potential customers in favour of others. You can also be a bit too clever in thinking of fancy names for these segments and forget that you have to communicate the segment concepts to other people within your company. Further, you might have discovered an interesting segment but there is no channel capable of exploiting it! Keep it simple.

Another fatal mistake is to assume that markets are static. They aren’t. Sometimes products don’t succeed because they are sold in a way that is not relevant to the prevailing market conditions. There are lots of ways of looking at strategic direction and  although I like the Ansoff model because of its simplicity,  these are not your only options because you can also simplify products (remove features) or concentrate on particular niches. The GE matrix would probably help better with looking at a broad portfolio of options and there are several others.

If you decide to concentrate on what appears to be a profitable niche market, is your segmentation logical and clearly understandable to both you and your customers and, if you subtly change your product through product development, does that segment remain consistent?

The farmer whose sign is in the photo replaced an older one that was simply hand written. They must be doing something right. I suppose the other lesson on segmentation is “if it ain’t broke, don’t fix it”.

© Gareth Gadd 2014

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What is the lifespan of a company?

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Many years ago when at BT I was asked to see if there was a relationship between company longevity and profitability. After a bit of research I found that there was more or less a direct relationship: an inverse one!

The thesis of the person that posed the question was that if a company generates excess profits they will have more money to invest in new ideas and make sustained profits. I didn’t know it at the time but I was replicating some work done by Royal Dutch Shell a decade earlier. Interestingly, I reached the same conclusion, but a conclusion that seemed counter-intuitive to my boss. Using past Fortune 500 lists as my guide (the same as Shell did), I looked at profitability rankings for the top 500 from the 1950’s and found that many of these corporations either died, or either taken-over or broken-up; only a few survived. Some corporations were very long lived but suprisingly most dissapeared within 20-40 years. Companies are not alive, as such, but the shocking thing is if they were compared to people then the vast majority would be dying when they were toddlers!

A couple of  years later I met Arie De Geus (by then ex-Shell)and we talked about the work he did at Shell as one of the authors of the above study. He felt that companies survived because they were:

1. Sensitive to their environment and able to learn and adapt.
2. Cohesive, with a strong sense of identity with strong employee links and that can promote from within.
3. Tolerant of activities on the margin and experimentation. Able to build and sustain relationships within and outside itself.
4. Conservatively financed; not risking their capital easily. They understood that cash reserves gave them flexibility and independence of action.

Profitability and paying dividends to shareholders had nothing to do with longevity but was, in a way, a by-product of a healthy corporation not a predictor. Not everybody wants to grow a multinational company, I have met many execs at SME’s who actually want to grow a company to sell-on and indeed that is their innate skill. But, appearance on a list like the Fortune 500 signifies that you do probably want to create a company with a legacy. If you want it to survive then Aries’ four points are a good benchmark.

© Gareth Gadd 2014

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Made with love

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Nowadays people are obsessed by time and getting things done but not so very long ago it was not just about completing tasks but about creating something worthwhile. It requires a shift in attitude but we can recapture some of that pride in a job well done.

At home we have a chair in our hall which sits by the front door. It is neither stunningly beautiful nor a collectors piece (whatever that means) but it has a certain charm. Apparently it is a spinning chair which you sat at to make wool yarn. Apart from its looks, it’s not a very useful chair (other than for its intended purpose) as it is extremely low to the ground. But I find the chair intriguing as a reminder of a time past where people were not driven by the clock but by a desire to create products that were beautiful and graceful as well as functional. So where did it all go wrong?

A brief history of time

We didn’t always feel that “time is of the essence”. Many historians believe that the concept of time in ancient cultures was cyclical based on the ebb and flow of seasons or regular patterns of the sun and stars. The lunar month was an obvious calendar marker, but this had to be reconciled with the solar year – and clearly the ancients were not stupid  – as achaeologcal discoveries continue to show the sophistication of their observations. At some point the year and the day were divided and 24 and 60 and 360 are useful numbers (btw did you you know you can count to 60 on your fingers?) but I don’t believe they were daily drivers of society, more as markers or reminders to navigate through time. Until the invention of the clock, and especially before the invention of useful artificial light, you worked to the available light of the season.

The time lords

The invention of steam power and the industrial revolution meant fundamental changes to society as well as agriculture, manufacture, transport etc. but even then there was still a craft-based mentality although tasks were already being broken down based on military models. Mechanisation took us a long way from human powered efforts and great profits were made by those that could invest in machinery.

Time became significant in the next wave to increase profits. It started with Henri Fayol (Scientific Management) and Frederick Taylor (Efficiency Movement). Although (at least in English speaking countries) Taylor is often considered to be the father of “scientific management” but it was his relationship with Henry Ford who adopted Taylors principles who probably deserves a lot more credit. Other thinkers built upon these concepts right through to the Business Process Re-engineering movement to present day efficiency-seeking.

A hundred years ago Taylor postulated that scientific management would require a complete mental revolution on the part of both management and workers (it is often conveniently forgotten that he meant everybody!). In its application to management, he suggested the following steps.
First: Develop a science for each operation to replace opinion and rule of thumb.
Second. Determine accurately from the science the correct time and method for each job.
Third: Set up a suitable organisation that takes all responsibility from the workers except that of actual job performance.
Fourth: Select and train the workers
Fifth: Accept that management itself be governed by the science developed for each operation and surrender its arbitrary power over to the workers (i.e. cooperate with them).

In reading about Taylor more closely I think he was a rationalist who meant for increases in efficiency to be driven by a scientific approach but he faced some resistance because he forgot about people. Those that adopted his principles did indeed see productivity rise but at the expense of cooperation and I think that was unforeseen – as job specialisation led task simplification but ultimately boredom. Work with the love taken out of it – if you will.

Love is all you need

So what would a humane understanding lead us towards? Although Ford had a positive goal of affordable cars and by all accounts paid his workers well there was something missing. I believe that it was a feeling that “we are all in this together” and importantly a focus on human needs for significance . Without attending to those needs and just looking at the end product, individual craftsmanship was lost. We can seek ways to improve performance and efficiency but they shouldn’t be at the expense of individuals and craftsmanship.

The way to put the love back in to the product and the company is through ensuring that the work is worthwhile and driven by goals and values that encompass the company and its markets, giving workers autonomy and instilling good two way communications. Further there should be continuous development of products and services (everyones responsibility) and investment in skills. Obsessions with efficiency can yield short term gains and I am not advocating that we ignore efficiency. But what I am advocating is that you can’t forget the people. If you start with the people you will start to create more elegant products and services that have attention to detail built-in as standard.

Made with love.

© Gareth Gadd 2014

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Lets have a National Optimism Day! Today!

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At the start of the year I like to make a New Years Resolution and some year I might keep one beyond the end of that first week. Optimism is a nice warm and fuzzy feeling and great while it lasts. Even recent economic news has been quite optimistic and lets face it, recessions are rubbish! Belt tightening; cooking with economy lard; soup from vegetable peelings…you get the picture. However, for the last few months in the UK we have been subjected to increasingly optimistic forecasts of business and GDP growth after years of misery (unless you work for an investment bank of course). Not everyone shares that optimism – but that’s OK.

Being a typical cyclical Brit any optimistic news makes you ask if this is actually true but, having lived through recessions of the mid 70’s, early 80’s, early 90’s, early 00’s and mid 00’s – you suspect that there is always an end in sight at some point. At what point does optimism take hold though?

Ideas on influence such as the Hawthorne Effect, Orne’s Demand Characteristics (not the marketing one but from psychology) suggest that we modify our behaviour to fit the “experiment”. One side being an experiment in misery the other side being an experiment in happiness and once we have discerned that the experiment is about being happy/miserable then that’s what we will be. At some point soon (the Tipping Point?) we decide to stop being miserable and be happy.  One observation I can make is that people generally think in straight lines; if things are going well then the assumption is that they will always go well and if they are not so good then that is the way things will always be. So, like sitting on a see-saw you are either up or down. And just like a see-saw the transition itself from one state to the other can seem quite fast. The reality is that life is in curves not straight lines, but that is another story….

So, does optimistic news make you feel happier? Probably yes. On the other hand, does “being happy” make you more optimistic? Possibly not. I’ll explain…

The UK Office For National Statistics wellbeing index mapped UK happiness – with a view to making policy decisions (that make us even more happy?) but if the basis is subjective then the policy decisions might be too. This area of policy making was  inspired by the Gross National Happiness Index (first proposed in 1972 by Bhutan’s former king, Jigme Singye Wangchuk) as a focus rather than Gross National Product. In its relative isolation Bhutan has always considered spiritual maters as more important than earthly desires. You may ask “is there a downside to that”? It depends, it depends a lot on what drives your economy and ours is very much driven by the desire for shiny-new-things and probably not spiritual or even family matters. The UK survey suggests that our national level of happiness was greater during the recent recession than before the recession, but that was probably due in part to the Olympic feel-good factor. Hence the point about optimistic news might make you feel happy but being happy doesn’t necessarily make you optimistic.

Thanks to Bhutan’s pioneering efforts World Happiness Day is now celebrated annually on 20th March. You should read up on this as it is quite interesting. The bottom-line for me is that it is optimism and a positive outlook that leads to greater happiness. Having a happiness day will not necessarily make you happier. If you want to be happy in business you have to first start with an optimistic attitude. Its not always easy,  but it is a start.

So lets have a National Optimism Day. Today! Every day! Go on – give it a try.

© Gareth Gadd 2014

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Half of my marketing budget is wasted…and I am beginning to have doubts about the other half too!

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William Lever, 1st Viscount Leverhulme famously made the quote about advertising, “I know half my advertising isn’t working, I just don’t know which half.” but it is often misquoted as “…half my marketing budget…”. But that seems pretty accurate if you have ever worked in marketing. I recently read “Free Prize Inside” by Seth Godin and he seems to think pretty much most of it is wasted. The money should not be going on marketing campaigns but on incremental improvements.

The basic premise is that if you spend all your money on R&D you’ll have perfect products but be unable to sell them as the price set to break-even has to rise to accommodate the sunk costs. Similarly if you spend all your money on media you’ll have lots of awareness for your products but the price to break-even again rises the more you spend. The really clever thing is he puts those ideas on a single chart. Then plots profit against break-even price – the “free prize” is the space between. This is the zone within which innovation is cheap and (hopefully) abundant.

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The shelf lives of products are getting shorter so incremental innovation is ever more important and Godin has some good advice for incremental marketing (finding “edges”) but some of it is contradictory – saying it is counterproductive to spend so much on media and then later talks about Land Rover in the context of an aspirational product. That looks to me to be saying that if you are going to invest – invest very big or not at all. This is Michael Porter strategic territory but Godin says that differentiation is not in itself “remarkable”.  The edges Godin refers to are the potential areas of innovation or value-creating brand attributes – the trick though is not to second guess the market with huge step changes in product but to have lots of incremental innovations – some fail some win. If you change the ones you fail on then you haven’t lost a lot because its incremental. What I like especially about Godin’s book is that he recognises that ideas themselves don’t get implemented without a champion and big ideas don’t get implemented without being championed by someone having a “champion” track-record. How true.

Ultimately, you need a sustainable system. The Toyota Way is a solid treatise on developing not only great products but great companies – the Toyota Way is a framework that can lead to consistently profitable “lean companies” so long as you don’t treat it as a rigid system and as long as you don’t get obsessed with measuring everything. The trick is to have an open company that has respect for the individual (and their ideas) and is by and large single-status. In such an organisation incremental innovation can flourish and you can claim your “free prize” – you may even be able to identify which half of your marketing budget is wasted!

© Gareth Gadd 2013

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