Tag Archives: Intended Consequences

Why You Should Feel Good About the Economy, and Why That’s Good for the Economy!

Posted on by
1

While I was growing up with my grandfather (who was quite a management whiz) in India, he explained the concept of inflation when I was quite young.  He told me that people were going out and buying necessities and then storing them to protect against rising prices.  India was going through very high inflation in those days.  He went on to explain that what these people didn’t realize was that it was exactly that thinking and behavior that would lead to higher prices.  A self-fulfilling prophecy!  The science of economics has long conceded this point to the behavioral economists.  How people think about the economy and their economic future actually has an impact on their economic future.

For a fascinating discussion on this, you should read this transcript from NPR here. Two very authoritative prognosticators, David Wessel of The Wall Street Journal and Zanny Minton Beddoes of The Economist, have much to say when they read the tea leaves.  Granted that their focus is on the US economy. As you will note, the health of the US economy is very elastic to the global economy, at least in the short term. Some things to note are:

  • Steady decline in unemployment
  • European meltdown averted – for now
  • Manufacturing showing signs of life
  • Interest rates make government borrowing very cheap
  • Mortgage rates are nudging the housing recovery along
  • The so called “asset bust” related to real estate is almost over
  • Stock Markets – need I say anything about this?
  • Actual growth in the number of jobs

They both sound notes of caution that it’s not quite time to start celebrating, but that the light at the end of the tunnel is not a mirage.

  • Europe has only managed to defer the crisis for now. That does buy the global economy and the U.S. economy some extra time to recover without that Damocles’ sword hanging over our head.
  • Gas prices are always volatile and very elastic to world events and speculation.  They are already showing their volatility.
  • The political situation still does not look like it will lead to actual governance in the near future.  The impact of that was clearly felt during the debt ceiling discussions in Washington last year, including the credit downgrade.

But then the discussion turns to what they call the “intangibles,” which is all about how people feel about the economy.  They agree that how people feel about the economy actually drives their economic decisions.  When people feel good about the economy, they generate far more economic activity (spending, investing, borrowing etc. etc.).  They all agree that the intangibles are finally turning positive.  People are starting to feel better about the economy and their economic future.  David Wessel summed it up best when he said, “Larry Summers, the former Treasury Secretary, once said that you know a period of crisis is over when the surprises are consistently on the up side. And we’ve been through a period where for so long, the surprises have been negative. The fact that they’re positive now does kind of breed a self-fulfilling cycle of confidence that could be very important.”

My advice – pour yourself your favorite libation, and start feeling good about the economy.  It’s the least you can do to help the global economy?  N’est ce pas?

Did you like this? Share it:

Hitting a Strategic Sourcing Home Run

Posted on by
1

I’m not a huge baseball fan, but my daughter gave me the book Moneyball (used at many leading business schools) by Michael Lewis and I was eager to see the movie.  Brad Pitt takes a break from his jet-setting life with Angelina Jolie to play Billy Beane, the General Manager of the Oakland Athletics baseball team. Billy Beane is well-known for fundamentally redefining the way baseball teams make decisions and challenging the way teams had been managed for over a century.  He essentially changes the decision criteria used to select players to a much more fact-based model, which focuses on the real value the players bring toward the Intended Consequences (getting a win).  Once he redesigns the consonants (People, Process, Technology), he quickly realizes that getting to the expected results is still far away. It’s not until he focuses on the vowels (Adoption, Execution, Implementation, Optimization and Utilization) that the results start showing up.  The constraints he faces should sound very, very familiar to everyone.  Follow the trail and tell me if you agree that we all need to be a Brad Pitt (no that does not come with Angelina Jolie).

  • Faces resource constraints in terms of total budget available – SIGNIFICANTLY less than the competition
  • Entrenched resistance
    • Scouts who still evaluate talent the way it’s been for decades (decision models and processes)
    • Salaries of players based on old metrics (reward system)
    • Players who define their roles based on those metrics
    • Middle management (Manager) a TOTAL barrier to change
    • Players totally fighting the change
    • An organizational attitude that accepts failure
  • An environment (the entire sport of baseball) that is openly hostile to every move he makes
  • Changing the entire Value Chain and redefining the way value is created(getting on base leads to wins)
  • Dealing with early losses and still getting the organization to stay committed
  • Getting rid of some of the players to set an example
  • Create value from a supply market (players) that has been sourced by the competition already

The parallels continue.  By the way, those of you not familiar with this particular story or baseball in general, a parallel might be what Lionel Messi and Barcelona have done in terms of redefining soccer away from long kicks and passes to short passes and a possession game.  Even though they have clearly proven that it is far superior to the competition, others have been very slow to adopt.  This concept is why you need Next Practices as a way to create an advantage while others chase Best Practices.

The more interesting question is what you do to stay on top while others adopt the same style and strategy.  And if you think I’m stretching the argument, you will find that since a large portion of baseball has adopted Billy Beane’s vision, his old techniques no longer provide the leverage.  In fact, he cannot compete because he does not have the resources that the other teams do.  And since they are sourcing the same pool of players using the same techniques, his leverage (exploiting market inefficiency) is gone.  This is no different than Supply Chain/Sourcing organizations going back into the supplier market using the same techniques that everyone else is using (Best Practices).  In fact, the best model of that are now the Milwaukee Brewers, not the Oakland A’s.  And even they have had to continuously adapt because everyone has adopted the same tools.  And oh by the way, we all assume in the Supply Chain world that the supply market has not adjusted to the techniques that we have been using?  If you think of it as a system that seeks equilibrium, that assumption just does not hold true.  If you would like a more detailed presentation on this, let us know.

Did you like this? Share it:

A “Side-ways” Look at Measurement and Change Management

Posted on by
Reply

Ever notice, that in spite of all the energy and “diligence” we put into selecting the right measures or metrics for business today, and how much measurement detail we wire into our Change Planning, we can still question these measures when change stumbles mid-stream or we find ourselves rationalizing (again) the outcomes upon project completion?  Measurement is certainly one of the facets of change management that can become over-engineered and we can get lost in the complexity we create.

Take for example, the oft cited disappointment with the “failure rate of change”–our OWN scorecard! It is estimated to be as high as 70% in studies by researchers at Harvard and McKinsey.  Just how badly should we feel?  Of course, we are motivated to succeed and are even drawn to the role of Change Leader to take on challenges from which many others would run.  That said, in a classic measurement mind-set error, we are beating ourselves up for this “high” and “unacceptable” failure rate.  Really?…what if the base-rate for failure is 100% and the best we can hope to achieve—the summit (as an average across initiatives and all companies) is 60% failure…now THAT changes your perspective…does it not?  If you only fail 2 of every 10 times, you’d be a genius!

The most frequent Change Measurement error I find, in spite of great diligence placed on defining metrics in many Change Teams, involves the arbitrary nature of the measures chosen.  Why, for example, were you asked to report monthly or define your project milestones relative to the calendar or company’s fiscal year?  Is this the natural cycle of change and the most meaningful definition of milestones and achievement for the transformation you’re leading—I doubt it.

When I was a child, we measured my height on the first day of the new school year, and marked my progress on the door frame to my bedroom.  Now…what if my “growth spurt” occurred during the months of June – October, is any conclusion about which school year included the most growth either accurate or representative?…No.

Take a look at the measures you’ve wired into your Change Initiative?…Do any of those seem to be a bit arbitrary—or moored to the wrong anchor for creating meaning and accurately representing change progress?  Consider, for example:

  • If you are attempting to influence your customer’s business, are your measures defined by the natural cycle of their outcomes…or your own?;
  • Look at the reality of the change you are driving—What are the early signs of progress?…What indicators would tell you that it’s taking hold?…How will you know when it is “complete?”…(my guess is that these have nothing to do with the calendar or your company’s fiscal schedule);
  • Do your measures of sales/revenue growth match the sales cycle?…or your customer’s buying patterns (e.g., their own fiscal year or timing defined by their market)?
  • And most fundamentally…

“If you took away the calendar, is there ANY reason why you’d chop up your transformational, complex endeavor into bits defined by December 31?…Fiscal “quarters?”…Days when it is most convenient (or traditional) for the Management Team to meet?”

Challenge your Change Team to re-examine the “logic” behind your measures or the measures that are important to your stakeholders.  In all likelihood, some of these measures lack meaning because they are not connected to how you are creating value through your initiative—even getting shaped by rather arbitrary factors (if not lazy efforts) like the calendar on the meeting room wall or your businesses monthly reporting cycle for everything from paying taxes to ordering office supplies.  Measurement plays a key role in managing expectations and delivering demonstrable value through change—get this part right and where necessary, lead a revolution to overthrow arbitrary accounting of success.

Did you like this? Share it:

NPX Presentation Highlights Getting Value Into Contracts

Posted on by
Reply

One of the highlights of the Next Practices Exchange (NPX) was a presentation by Brad Peterson, partner at the law firm of Mayer Brown  on “How to Communicate the Value You Create in Negotiating Contract Terms.”   

As organizations seek new levels of value it is necessary to extend the supply chain to involve non-traditional stakeholders.  For those who missed NPX, Brad gave great examples of how the Legal department can partner with and assist the sourcing group.  As a result, many NPX participants now have newfound respect for contracts as competitive weapons in the fight for value.     

One attention-grabbing observation Brad made was that just as there is great value in good contract terms, there’s significant harm in bad contract terms.  Some examples of important contract terms to focus on:  pricing structures, escalators/de-escalators, the ability to change terms, out clauses, performance incentives, and a deep understanding of where and how the supplier will provide the products and services required.

Taken in the context of NPX this presentation was full of many AEIOU messages:

  1. The Legal department should be thought of as a supply partner not a process bottleneck.
  2. Contracts are a vital communication that help safeguard the rights of both parties. 
  3. Companies typically don’t realize the value of contract terms.  Because of this, companies make poor decisions that result in poor outcomes.
  4. Contracts are valuable assets.  Contracts matter and the work you do in securing better contracts create value for all parties.
  5. Contracting should be thought of as an investment with tangible exciting returns.  Investments in contracts and the contracting process can and should be measured.
  6. Involving external stakeholders such as Legal in negotiation and contracting discussions is a critical way of adding legitimacy and value to the sourcing process.
  7. Communicating the value received from properly structured contacts is a vital step towards creating a culture that actively seeks improved contracts terms.

Thanks again to Brad for a fine presentation!

Did you like this? Share it:

The Games People Play

Posted on by
Reply

Sourcing/Procurement and sales professionals both want a solution that will fit the end user’s  needs.  Sourcing/Procurement needs to satisfy its internal customers that it is doing the job right and sales wants to get repeat business – which they will only get if their customer’s customer is happy with the buying experience and its results. However, both sides engage in behavior that is dysfunctional and doesn’t achieve what either party is attempting to do. 

Suppliers complain that customers:

  • Can’t articulate what they need
  • Procrastinate (or seem to)
  • Don’t know what they need
  • Don’t give all of the right information 
  • Are unrealistic about the dollars, time and manpower needed to acquire a particular product or service.

 

When we talk to procurement folks we hear that sales people:

  • Think they know what the customer needs better than they do
  • Make assumptions that don’t reflect reality
  • Don’t listen and understand
  • Try to fit their solution into what they “think” the needs are. 

 

As a result, if you asked most customers, particularly higher level managers (Directors, VP and the “C” level) what their primary issue is with sales people today, most would argue that it is that they are tired of playing the game of Battleship — “C3!  Did I hit anything??”  And, if you asked most sales and marketing leaders what their primary issue is with sourcing / procurement professionals, most would say they are tired of playing the game of 20 Questions — “Do you know what I know??”

The situation where a sales person shows up for a sales call, knowing little or nothing about the account, the responsibilities of the individual they are calling on, or how to marry up their products and solutions with the client’s needs has become painful for both the seller and the buyer.  Most basic sales courses teach the sales person to come into the buyer’s office and “find their pain”. This usually manifests itself by their looking into the buyer’s eyes with a very earnest expression and asking some variant of, “So, what is your business pain?” or, “What keeps you up at night?” or, “Pick from this list of twenty problems and I’ll sell you my solution” (whether it fits or not).

My personal response, when I was in a “C” level position, (and I have received a lot of chuckles of agreement from colleagues of mine that have been in similar positions), was,  “Well right now, YOU’RE MY PAIN, because you’re the ninety-fifth sales person to come in here and ask me that question. It’s not my job to sit here and answer your questions – it’s your job to find out about my business, understand what my business needs are, and then match my needs up with what you sell to present me with ideas and solutions that can address my needs – I don’t have time to play this game with you”. The sales game of “Battleships” has become old and painful for all of us.   So how do we stop playing this game?

Many sales people will represent that, “Oh, I don’t do that, I research the companies I call on and know everything about them”. Unfortunately, when I have questioned those individuals about companies that they are working on, they have lots of isolated facts about the company (name of the CEO, gross revenues, EBITDA, etc.) but can’t use those facts for anything in particular. This is because they have data – not information. In order to have a meaningful conversation with someone in the enterprise that cares and knows about the business, it’s critical that sales people have some way to take all the facts and put them into a framework that can guide their conversations with enterprise managers and show that they can partner and add value to those conversations from the minute they walk in the door. 

On the other side of the desk, it has been interesting to me how many sourcing, procurement and other professionals cannot articulate this same information for their own company.  Far too many companies rely on their suppliers to come up with the best way to meet their needs.  (After all, they’re the experts in their industry!)  And, while everyone recognizes that needs and requirements are rapidly evolving in virtually every industry, sourcing and procurement people are all to willing to accept outdated specifications, poorly articulated requirements, and a whole host of other poorly defined needs as the basis for their RFQs, RFPs, and virtually every other communication with suppliers.

When the sales people don’t come in with the information, and the people they are talking to don’t know it, it’s no wonder that we have disconnects between sourcing and supply. The dysfunction is on all sides. Businesses need to make sure that the supply chain and sourcing groups understand the business and its needs and can articulate it when they go to market. The sales people and the sourcing / procurement people need to do their homework so that they are up-to-speed as much as possible before they get together. This saves everyone time and makes it more likely that the business will get what it needs from their suppliers.

At a high level, one of the ways to implement this as a solution is for both sides to map out the basics mentioned above. We’ve seen that many managers can do this with some initial assistance.  If sourcing / procurement professionals can visualize what the company is trying to achieve (Competitive Strategy, Business Initiatives), how it intends to achieve it (Operating Initiatives), and can then put it paper, they can more readily inform both themselves and their suppliers as to what the company needs.  Doing so avoids the Twenty Questions approach to securing the goods and services an organization needs.( It also insures that projects and programs within their division or departments are aligned with the corporation’s direction and as a result will be funded and ultimately successful.)

Similarly, if sales people can take the initiative to convert the data they have into information and make some educated guesses about where their customers are headed, they can skip playing Battleship and present some options that are on target from the outset.  (At first glance, many sales people (and sales managers) see this as a daunting task –  but, as it turns out, with templates and some guidance, most salespeople can put this kind of information together into a meaningful business map using publically available information.)

If both sides take the time to create this roadmap, understand it, and communicate relationships will rapidly improve, results will be improved for both sides of the relationship, and the value captured in the relationship will be unleashed.  Not a bad outcome!

If I’ve raised any questions or inspired any thoughts, please share them.  I’d be interested in your take on this topic.

Did you like this? Share it: