Monday, March 30, 2009

Falling trees. Shaping contingency strategies.

After a short lull (the media even rallied with a few 'green shoots' stories), another cascade of financial awfulness. It seems unlikely that the car makers will all survive without massive subsidy - which governments appear unwilling (probably wisely) to provide.

Detroit's problems are multi-fold. Cars are expensive capital investments, not an appealing idea for worried consumers. And most car purchases in markets such as the UK are really discretionary - product performance means that the old one probably still works (mine just sailed its 7year MOT). On top of that the big 3 made some truly terrible strategic choices, such as too much emphasis on Chelsea Tractors, and being distracted by vanity brand acquisitions (Jaguar, Volvo...) when they should have been more worried about their own failing product development capabilities. Not to mention the lack of stakeholder insight demonstrated by the infamous private jet trip to Washington. (The day which surely sealed Richard Wagoner's fate?)

But not all of their problems are unique. For example, other industries depend on purchase finance loans ('buy now pay later') to close the sale - and these are now both less appealing and less easily provided. It can be little more fun right now selling sofas than it is selling the apartments to put them in.

And there are plenty of other ways consumer spending behaviour is changing - as any fashion retailer will tell.

It is not even necessary to be a failing company. Being a supplier to, or customer of, one may be enough. Zavvi were undone by their dependency on Woolworth's logistics. Bad news for sheet metal suppliers today is bad news for the customers of sheet metal suppliers tomorrow.

It isn't always possible to avoid falling trees. But a little contingency planning could mitigate some risks - such as reducing dependency weaknesses through diversified supply chains. It could even create opportunities. Where might gaps in the canopy open near you? What are your competitors' weaknesses? And how could you exploit them?

Sunday, March 15, 2009

Lessons learnt. The real motivation is personal

I bought my first property - a 2 bedroom flat - in 1997. It didn't take long before I was aware that rampant property price inflation meant it was seemingly earning more than I was - and it was doing it without any effort, and without paying any tax. I found this discovery demotivating - undermining the value of any effort I might put in to my career. (It took me several years to overtake that flat.)

And now, by strange coincidence, the FTSE indicates there's been almost no increase in the value of the economy since... 1997. This too is demotivating. Where, I wonder, is the evidence of all our collective effort? Have other (anonymous) people perfectly counter-acted it with their incompetence, or was it all simply less value-adding than we thought at the time?

There is a lesson here about the root of motivation, and the limit of benchmarks. The last 12 years have seen fortunes made, as well as lost (and I'm still a few paces ahead of that flat). Benchmarks, like economic forecasts, are substantially imperfect. They tell us what may happen (not what will) based on what has happened (not what might have happened).

Accretive objectives and KPIs (+2%, +3%) can only work so far. They need to be complemented by transformational objectives (milestones, category breaks, innovations). On a personal level these kinds of achievements, which cannot be taken away, can be far more motivating and rewarding. And on a business level they are the only true route to successfully serving shareholders - building platforms to capitalise performance as new businesses and markets, not just a little more ephemeral share.

When the only motivation for many is the fear of losing their job, extra thought needs to be given to targets. And when company valuations are based on extreme bearish assumptions about the overall market, there is more need, not less, for bold visions.

Are we brave enough, and bold enough, to have them?