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Posts from the ‘Business’ Category

Mind-maps: Structuring Idea Generation

Achievements mind-mapped using Mindomo software

Inspiration can be found in unexpected places. Personally, I think I have some of my best ideas in whilst out running. I once heard that Richard Branson finds inspiration whilst taking a bath containing the secret ingredient of Badedas “Horse Chestnut” bubble bath.

Unfortunately, if we were to go for a quick jog or worse still, undress and take a bubble bath at the office, our colleagues might be a little shocked! Besides which, we might like to take a more structured approach towards idea generation which we could incorporate with the rest of our team. One approach we can use is called a mind-map.

This is a fun process and works particularly well with teams. Get out a large sheet of paper (A4 will do) and some pens. At the centre write your inspiration word or words. From this central “thought point” you write down your ideas and connect them to the centre point with a line. You then write-down subsequent ideas, which stem from your previous idea. Your diagram grows organically with each new idea out from the centre. Pictured below is a hand-drawn mind-map. I drew this to structure my thoughts around my successes in my last job. I used “Achievements” as my starting point.

A mind-map drawn the old fashioned way with pen and paper

Working with pen and paper is fine, but not so great when presenting to the board or for a report. The mind-map at the start of the article is an updated version written using the Mindomo software. It’s free and easy to use. Give it a go.

In conclusion, Mind-maps are a visual way of mapping your thoughts and also a neat way of presenting a holistic view of a given topic.

References:

http://www.mindomo.com/

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Demographics: Defining Your Ideal Customer

I’ve recently returned from the Channel Islands. They are famous for being centres of offshore finance, but also beautiful places for a holiday. I visited the islands to help present 3 concepts by Inaperfectworld for the re-design of a hotel restaurant. I’m not a designer but I am keenly aware that an investment such as this needs to fit the overall strategy for the hotel, be customer focused and provide a return on investment for the sponsor. The hotel owners told us their aim for the new restaurant was to increase revenue by 51%, roughly £5 per head.

Inaperfectworld designers Rob Wilson and Emma Sjorgren in Guernsey

So, lets take a look at the steps we took to build a business case for our re-design.

Step 1: Scanning the business environment (looking for themes and trends)

We began our research by scanning the business environment; looking at successful hotels and restaurants around the world. This was good for generating ideas for the design team. Here we not only looked for inspiration in designs that we liked, but also in emerging themes, for instance, what are the public and industry professionals (e.g. restaurant critics) talking about? A good first step is searching the web and scanning social media. We were specifically looking for trends both at a local and at an international level. An interesting emerging theme we found was “eating ingredients sourced within the restaurant postcode”.

Step 2: Analyze the competition and look for feedback

Next, we drew up a list of the restaurants that were the natural competitors to “our” restaurant and analyzed their client offering. These were predominantly hotel restaurants and restaurants on the island; the choice of eatery on offer to the local population. We were particularly keen to appeal to this customer group as the local populace are key customers of the hotel in the “shoulder months” or quiet months between holiday seasons. We asked ourselves what did these do well and why were they popular. At this stage too, we started to look internally at the restaurant’s current offering. Unfortunately, we weren’t given permission to interview the staff in the hotel or to get feedback from existing customers -a great free source of information. However, now you can find reviews online and so we scanned Tripadvisor/Booking.com and local media. If you get the chance to interview staff, you’re in luck as the opinions of the staff in any organisation are particularly valuable. Staff get feedback from the customers every day and importantly too, they will have to work in the new space. A nice bonus is that by interviewing them and asking for their feedback you are already working on getting their buy-in to your project.

Step 3: Pricing Strategy

An important point in any strategy is focusing on pricing. In this example we looked at the restaurant’s pricing on food and wine compared to our list of local competitors. It offered a £25, three course menu which compared well with the competition. Overall however, the prices, particularly the A La Carte menu were high. Consequently we felt that trying to increase revenues through raising the prices of the food in the restaurant or by reducing overheads were likely to be self-defeating strategies.

Step 4: Define who is the current customer and who is your preferred customer?

By this stage you are starting to build up a good picture of the external and internal environment. Now comes the most important point. Ask yourself, who is the current restaurant customer and who is the preferred customer? Unfortunately again we couldn’t source this information. However, we made an estimate of the restaurant’s current demographic as being roughly 60% corporate and 40% leisure split 50/50 local and international. As our analysis had revealed little scope for movement on the pricing of the food, we thought we would take a look at the area of drinks and how we might be able to increase the spend for this customer base. Moreover, perhaps within our defined customer base there was a lucrative niche.

Step 5: Collating & Analyzing Data

To find out more about the spending habits of our UK and local customers we looked at some government statistics. Governments collect all kinds of data and mostly it is available on-line for free. In the UK this data is provided by the Office of National Statistics and in Guernsey by the Commerce and Employment Department. We found three surveys of particular interest: the first was the “household expenditure survey” for the UK, a similar survey for Guernsey and a third National Health Service (NHS) survey on drinking habits in the UK.

The UK and Guernsey governments’ “household expenditure survey” shows the spending habits of the population broken down into categories such as age, sex, earnings, marital status etc. From this data you can start to construct a clearer picture of your preferred customer from within your existing customer base, in other words; who are your most most valuable customers!

The first point that we noticed about Guernsey from the data compared to the UK was that household incomes exhibit a positive skew towards high earning households. In other words, a higher proportion of the population have a larger disposable income than the average UK household.

Income Distributions exhibit positive skew

Drilling down into the data and combining these household surveys with the NHS data, you form a picture of specific alcohol consumption too. Here we found out that the average Guernseyman had a 57% higher weekly spend on alcohol compared to a person in the UK. Even more interesting was that the surveys segmented spending on alcohol into different categories, of wine, beer, liquors and fortified wines. The spend per head was broken down by income group and by age.

Income Distributions by Quintile (GSY Household Survey, 2006)

An interesting fact to emerge was that the higher earning the household, the more they spent on “wine out with a meal” and they also spent more on alcohol in general. Check out the much larger red coloured bars, denoting wines drunk out, in Quintiles 4 and 5 in the diagram below.

GSY data “wine consumption out with a meal” (GSY Household Survey, 2006)

Weekly Expenditure on Alcohol by Income Quintiles (Guernsey Household Survey, 2006)

Step 6: Build the Ideal Customer Profile

By slowly going through the data and analyzing it, a picture starts to emerge of the most valuable customer to the new restaurant. The facts that seemed most relevant were: spend by age identified that the age group 35 to 64 and earning over £1,000 per week were most likely to spend the most on wine. Men and women aged over 45 (equally m/f), who were professional, and cohabiting/married drank the most wine.

With this information to hand, could there be a case for selling more expensive wine to the current customer base? Our analysis suggested that wine, as well as having a long-term growth trend in consumption, had a great following among a specific high spending demographic. By focusing on selling premium wine and enhancing this experience, we could increase the numbers of our target demographic. This strategy seemed to have a chance of reaching the management’s £5 target increase in spend per customer.

Wine Consumption UK: Long-term growth trend

Step 7: Present and sell your business case framed in the client view
Closing the deal, this deserves an entire blog in its own right! A sound tip is to sell a solution which is not alien to your client. An advantage of this concept was that the restaurant had a good wine list and promoted a monthly wine club to showcase its fine wines and attract new diners to its restaurant. As the management itself had already chosen to differentiate the restaurant on the basis of wine and therefore this added extra support to our idea of presenting a wine themed re-design. When presenting any new idea it stands more chance of success if your solution already falls within the frame of your client’s mindset.

We will have to wait and see if any of our 3 concepts are chosen by the hotel. However, by following this 7 step process a business case can be built. To summarize:

Step 1: Scanning the business environment (looking for themes and trends)

Step 2: Analyze the competition and look for feedback

Step 3: Pricing Strategy

Step 4: Define who is the current customer and who is your preferred customer?

Step 5: Collating & Analyzing Data

Step 6: Build the Ideal Customer Profile

Step 7: Present and sell your business case framed in the client view

Appendix:

Here are Inaperfectworld’s theme, space and interior boards by Rob Wilson and Emma Sjogren for the wine concept.

Space_Board Wine Concept copyright Inaperfectworld

Interior_Concept Wine Copyright Inaperfectworld

Wine Theme copyright Inaperfectworld

References:

NHS Information Centre (2009) Lifestyle Statistics “Statistics on Alcohol” Department of Health: England.

States of Guernsey (2007) Household Expenditure Survey 2005-2006. www.gov.gg/pru

ONS (2008) General Household Survey 2006, Office For National Statistics.

Surfing the Kondratieff wave of business

Long-term business cycles: The Kondratieff Wave (kondratieffwinter.com, 2012)

We all have to be reminded every so often that business is cyclical. It is nice when things are going well, it makes us feel good, and makes us feel that we have taken all the right decisions.

I remember chatting to a client in the depths of the stock market crash of December 2008 and him saying, “Will, we’re going to look back on this moment as the best buying opportunity ever!” He was right, it was a good time to buy and I only wish that I had had more cash available to buy at that time. However, I have little doubt that there will be further great buying opportunities in the future!

Some of you may have read Benjamin Graham’s book “The Strategic Investor”, first published back in 1949 and widely credited as being the book on which Warren Buffett bases his investment philosophy. Graham talks about the length of bull markets lasting between 3 & 5 years, the difficulty of course is identifying when you are actually in a bull market and not in a false rally. Still, if your stocks have been going up over the past 3 years it might be worth taking a closer look at the market for signs of increased turbulence, the bull market may be ending.

Business cycles are of different durations, in amongst the market noise there are longer economic cycles which can be identified. The most famous long-term analysis of business was done by Kondratieff. This shows the very long-term cycles in the business environment. He described the cycles in terms the seasons with inflation (spring), stagflation (summer), beneficial deflation (autumn) and deflation (winter).

According to the blog Kondratieff winter, we are now entering a long deflationary cycle.

Reading:

Kondratieffwinter.com (2012) http://kondratieffwinter.com/blog/k-wave/kondratieff-summary/

Graham, B. (1973), The Intelligent Investor, Harper Collins Publishers, New York, New York, USA.

Succession Planning: The King is dead, long live the King!


“The most useful piece of business advice I have been given is to start planning for my successor on day 1”. These are not my words but those of a CEO interviewed on BBC Radio 4.

Succession planning can be difficult but it is a vital issue for any business. Royal families across the world adopted a simple policy that the first-born son would succeed to the throne. Many family companies still follow a similar policy (Fiat, News Corp etc). This is a nice clear-cut system that everyone understands. Of course, I am not saying that this is necessarily the best system.

Sometimes in a company there is no “heir apparent”. Queen Elizabeth I “the virgin Queen” had no heir and chose not to nominate one for fear that it would diminish her power. The problem is that if no succession planning is apparent people get worried. Remember the falls in Apple’s share price whenever questions were raised about Steve Jobs health?

Elizabeth I of England

Succession planning is not just a case of addressing our own mortality or the chance that we might have an accident; it is true for everyday projects. Management Consultants are often criticized for advising a company for a couple of weeks on a change, making a change and then leaving. Unfortunately, if the right measures are not in place, the changes are less likely to “stick”.

One of the lessons that I, and the team learned in Kenya was to start planning our departure and transmission of roles from day 1. We had left our planning too late and so, on leaving, our Kenyan team were unsure of their roles. Despite our best endeavours our local team was only 90% sure of the procedures and roles that they had to fulfill. Had we started planning from day 1, that 10% confusion might have been avoided.

When is the right price not the right price?

Sometimes things really are too good to be true. Often, if the price of something is too low, it is too low for a reason.

Many times while working in investment management my then boss would tell me “it may be a bargain William, but that price is telling you something”. Often he was right; the depressed price was a signal that there was an underlying problem with the company of which we were unaware.

Most recently, this happened to me in Kenya. I was getting stuck into my second week of the CBSM primary school build. We had established a good network of suppliers and barring a few minor problems with undersize foundation stones, things were going well.

Foundation stones being delivered of varying quality

However, money was tight (donations are most welcome by the way) and we were keen to save costs. Interestingly, in Kenya the cost base for a build is inverted to what you would find in Europe. There, labour is cheap and materials are incredibly expensive. For instance, our unskilled labourers were earning 250KSH per day –roughly €2.50 a day. A bag of concrete costs in the region of KSH800 or €8.00.

The foundations require vast quantities of aggregate (stone chips) and these arrived at site in 30 tonne loads. Initially, we had negotiated a price of KSH2,500 per tonne with our supplier Joseph, he always delivered on time, kept us in touch if there was a problem, and the goods were always to the right quality. By this time however, the build was attracting lots of local (unwanted) interest. People in shirts (as opposed to t-shirts) were turning up to the site. An unusual spectacle in this poor area, these turned out to be local suppliers who brazenly informed me that it was my “duty” to give them some business as it was a “community project”. I was reluctant to change suppliers as we had already established a simple functioning supply chain, with good stock control and I didn’t like their attitude. However, I am always interested to know the market price for goods so I asked for quotes for aggregate from two of the “shirts”. Kebaba bid KSH2,300 per tonne and Joshua bid KSH2,400.

Chatting to Masika the construction manager (white shirt) while a local supplier looks on

At first glance, here was a considerable saving to be made. Potentially we could save KSH6,000 per load. I was still unwilling to change suppliers. Besides, the local Kenyan team didn’t know these two locals. I decided to have a meeting with our trusted existing supplier Joseph. I decided to adopt an open book policy and presented him with the two quotes and asked if him for his thoughts. He looked at the paper, paused for a while and then reduced his price by KSH100 per tonne. He complained that the lowest bid was too low, there was simply no profit in that deal for the supplier after transport and other costs were added. Now, better understanding his supply chain, I could make a balanced decision. I therefore accepted Joseph’s bid of KSH2,400 told the other suppliers that our books were closed and asked them to leave the site.

Part of the CBSM build supply chain

The next day there was an uproar! Whilst I was procuring steel from Bungoma, the police had arrived and finding Kebaba (the low bidder) at the gates to the site, arrested him. Allegedly, he had been stealing aggregate (diverting lorries) from a government site. Had we taken Kebaba’s offer, there could have been serious repercussions not only for the build but also for the charity.

When dealing with suppliers it is important to understand their costs and know their business. Japanese companies such as Toyota are well known for taking a long-term view on business relationships and for the high transparency of the bidding process. For instance they often build-in an accepted profit margin into a deal. Moreover, if they then ask for further cost savings they will work with the supplier to ensure that these can be met and not at a price which damages the long term future of the supplier. After all, we want to ensure that suppliers can deliver in the long-term on cost, quality, time and also invest in their businesses. Ultimately this will be to our benefit too. The diagram below shows an “open book” 2 way communication strategy which can be used when dealing with suppliers as suggested by Lamming (1996).

2 way flow of information between supplier and purchaser

Sako (1992) in his analysis of UK and Japanese firms found that 3 types of trust are needed for good buyer-supplier relationships:

1. Contractual trust – the adherence to formal, legal promises
2. Competence trust – that either side is capable of delivering what has been prominsed.
3. Goodwill trust – which borders on “ethics”, trusting that appropriate behaviour will ensue.

Joseph is such a supplier. He delivers on time, on cost and to the required quality. I trust him and we communicate well; both giving and receiving information on the build. I also noticed that his trucks were in good condition and his employees were well looked after. Here is a man who is building his company for the future. Hopefully next time I receive a low bid from a supplier it will act as a warning light and I will be on my guard. In finance we have a term “KYC” for Know Your Customer, I think my experience in Kenya has taught me that the acronym “KYS” Know Your Supplier is equally valid.

Further reading:

Sako, M. (1992) Prices, Quality and Trust: Inter-firm relations in Britain and Japan. Cambridge. Cambridge University Press.

Brown, S, Lamming, R, Bessant, J and Jones, P. (2006) Strategic Operations Management, 2nd Edition, Elsevier Butterworth-Heineman. Oxford. UK

Next: Succession planning: The King is dead, long live the King!

The Anchoring Heuristic and the Mzungo effect.

I’ve just returned from Kenya. Hopefully, I’ve successfully defeated the flourishing Amoebas in my intestine. I thought you might like to hear about my recent experience with the anchoring heuristic whilst building a primary school for the children’s charity CBSM Kimilili, in western Kenya.

Some of the 250+ pupils at CBSM School Kimilili enjoying lunch

I find it both exciting and challenging working with cultures different to my own but often such differences can lead to mistakes being made; for instance our lack of knowledge of the environment means that we are working with incomplete information. In such situations we are likely to draw on our previous experience, which may have little bearing or relevance to the current problem. These subjective judgements are called heuristics.

Heuristics are “a method of solving problems by finding practical ways of dealing with them, learning from past experience” (Oxford Advanced Learner’s Dictionary). Heuristics are often good; they help us make decisions quicker. However, by being aware of when we may be using them we can hopefully make better, more balanced decisions.One such heuristic is the “anchoring and adjustment” heuristic. Research has found that individuals tend to anchor their subsequent answers around a given starting point (Johnson, 2011).

Let’s take a look at buying cement, an expensive commodity in any country. On the school build we needed to purchase and have delivered 150 bags of 32.5N Bamburi cement for blinding the foundations. Lacking transport, we had to source the cement from hardware shops in town rather than buy from the wholesalers in Bungoma. I was sincerely advised at this point that I would be subject to the Mzungo (white man) effect and it would be impossible for me to get a fair price.

Mixing the cement and aggregate used in the blinding

Loving a challenge, I suggested that Masika, the construction manager and I work separately; we would each take a different side of the town, meet in the middle and the winner with the lowest price would win of a bottle of (cold!) Tusker beer. Well, I won the beer, having found a price of 5KSH lower than Masika!

Masika the Construction Manager, Agnes Kuhne and Dominik Klimmek at site

It was during the cement negotiations that I realised I had succumbed to the anchoring heuristic. We roughly knew the price of cement direct from the factory; add on a margin for the wholesalers and then for the retailers and we therefore assumed that the very best price (BATNA) might be KSH850.

Checking the quality of the cement before accepting the delivery

Sure enough, each hardware shop was quoting around the KSH860/870 mark, give or take KSH10. I therefore based my negotiations around this figure. That was until I came to Highway Hardware towards the end of Kimilili’s main street. Here, the owner opened the bidding with a price of KSH835 for the 100 bags! I realised my mistake that I’d been anchoring my bids at the KSH850 level. Now my negotiations would start from this lower price. In the end, I managed to knock a further KSH5 off the price and settle at KSH830 for 150 bags including delivery.

The 150 bags of cement arrive at the school

I think this experience is a good example of the anchoring heuristic; it also shows us that the colour of our skin doesn’t necessarily mean we can’t get the best price.

First price anchored at the higher level, Highway price much, much lower.

Overcoming the Resistance to Change. Step 1: Find Yourself A Burning Platform. Step 2: Jump!

World Speed Climbing Championship Wall, Chamonix, France. (I wasn't on this one)

Step 1: Find Yourself A Burning Platform. Step 2: Jump!

I’m afraid of heights. In fact I’m terrified of heights. Yet 2 days ago I found myself climbing a sheer wall 10m above the hard ground, my fingers clinging grimly to a pathetic handhold and my toes digging into a thin ledge. My straining muscles ached, I was sweating profusely and my strength was draining away. Even worse, I couldn’t find the next handhold, my feet were in the wrong position and I dared not look down. I knew I was going to fall.

2nd attempt: bouldering at the Kletterzentrum, Zurich (Schlieren), Switzerland.

Business Analogy: “Find Yourself A Burning Platform”

I don’t know if you’ve ever heard of the phrase “find yourself a burning platform”. It comes from the 1988 Piper Alpha tragedy in the North Sea when a drilling rig exploded resulting in the loss of many lives. Survivors described how they jumped from the burning rig into the sea. The choice: certain death from the flames of the exploding rig, or the slim chance of surviving the massive jump and then the possibility of staying alive in the freezing North Sea. This phrase is now used to describe an action in business where you are forced to act because the alternative is worse.

Our Resistance To Change

The burning platform metaphor alludes to the fact that people tend to resist change; they don’t like it and only change when there is a crisis. In other words we tend to stick to our comfort zone. Often it is only an external pressure that forces us to act differently. Ideally, a business should try and build flexibility and adaptability into its workforce and procedures so that it can change before it reaches a state of crisis and has to jump.

Relief

As for me, the moment passed, I found the next handhold. I got my feet in a better position. I made it to the top of the wall. Relief and exhilaration surged through me. I’d done it.

Compelling Reasons For Change

How did I get myself in this ridiculous situation? Well, you may well laugh and rightly so; a beautiful Brazilian girl invited me to go climbing. How could I possibly refuse? After some expert tuition she challenged me to climb to the top of the high wall. In that moment, my fear of failure surpassed my fear of heights. I resolved that I would climb the wall and I would reach the top. The alternative of not impressing the girl was infinitely worse. So in that moment I found my own burning platform and jumped.

After completing the via ferrata on the Mer-de-Glace, Chamonix

Further Reading:

Ellis, W. (2011) “What Is Our Emotional Response To Change” (online) Available: http://wp.me/p1RUDq-E

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