Business Concept 7: The Culture of Excellence

I just attended a 1-day corporate training workshop and here are some lessons that I thought were worth documenting down while still fresh in my mind.

• Creating a culture / environment of high performance / excellence is about teamwork. It begins with 1, but also keep in mind that each and every 1 has a part to play no matter how insignificant 1 might think
• A corporate motto can drive the message throughout the company, but each and everyone has to believe in the message and driven from top-down. Dwelling on this, I came up with the motto "Helping People"
• We all have untapped potential we choose not to maximise. Look at handicapped people: The blind have a heightened senses of smell, touch and hearing. Those who cannot make use of their legs make up for them in their arms to the point that they are stronger than able-bodied people. Complacency and taking things for granted are roadblocks to most people
• The kung fu masters of the old days would teach their disciples 9 out of the 10 steps they knew for fear that their disciples will outperform them in the future. They needed the 1 step to maintain the advantage, but what happens when their disciples take on new disciples? They teach 8 of the 9 steps they know for the same reason and this creates a culture of dwindling ability. Creating a culture of excellence is teaching the disciples all 10 steps so it forces you to learn and create the 11th step
• Continuous improvement is an action, whereby when repeated, can turn into a habit that becomes second nature.

Thanks to Nicholas Choo for creating an interesting learning experience.

Business Concept 5: Humans Vs. Systems

No, I'm not referring to Terminator here... I'm talking about the relationship between humans and systems in a business. Consider this scenario:

The accounts department gets confused by the many pricing structures of a company. There are:

• limited-time price promotions
• free gift with purchase
• quantity discounts

If you asked the accounts department to bill a customer based on his previous invoice, how can you make sure it is not billed based on a promotional price? When a mistake is made who do you blame - The person or the system? There is a difference and it is important for a business owner to understand the difference. The lazy, easy and common way is to give the accounts clerk a good scolding and hope that the mistake doesn't repeat itself. But what happens if the clerk is on leave and another person has to take over the job and makes that mistake?

The alternative to a good scolding, provide intensive training, multi-level checking, etc is to try to improve the system so that we close the loophole to prevent another repeat incident. How about creating a special code for all non standard items? This can be a form of a promotion invoice tag or promotion product code, so when the account clerk is about to price an item, promotional items are clearly marked. This will lead to less confusion, therefore less mistakes in the future.

Do you improve man to compensate for a weak system, or do you improve the system to compensate for the unpredictable man? I believe that humans are too variable and unpredictable to be depended on. Humans are emotional beings and performance can be affected by many outside influences. I also believe than systems should be set up to be run by people rather than people running the system. In order for a business owner to go on a long holiday and not worry about things going wrong while he is away, he will need to set up a foolproof business system. Remember: a self running business is the difference between a self-employed and a business owner as defined in the earlier article, "How to Make Money". If the business system is not foolproof to be run by employees, the owner can never take himself out of the business and his income will be proportionate to the time he puts in the business.

Business Concept 4: Sales Vs. Marketing

Many people cannot distinguish the difference between sales and marketing. We all know that the economy is about supply and demand. So in a nutshell,

Sales is about creating supply, and
Marketing is about creating demand.

In the context of war, the sales team is like army soldiers. They fight in the battlefield and their success depends on their fighting skills. The more skillful they are at their combat ability, the more opponents they can kill. The marketing team is like the army general. He plans the battles, chooses the battlefield, looks at weather conditions, research new weapons, and finds the most effective way to counter the opponent. His skill sets are different from the army soldiers, but his decisions will affect the soldiers. Even when the soldiers are outnumbered or less skilled than their opponents, strategic decisions made by the army general such as fighting in a downwind or downslope direction can make or break the battle.

A great example to illustrate sales and marketing is the (hypothetical) story of the shoe salesman of Africa: There was this shoe company who sent a salesman to an African village to sell their shoes. After spending one month at the village, he came back to the office and told his boss, " I've tried my best, sir. These tribal people are used to being bare-footed. They don't even need shoes to walk on the hot sun baked ground. There just isn't a market for these shoes". Unable to accept this excuse, the boss fired this salesman and sent another one on the same assignment. The second salesman came back one month later with the same excuse. The boss fired the 2nd salesman and sent a 3rd. Half a month later, the 3rd salesman came back to the office and told the boss, " there are 200 people in this village so I'll need 400 pairs of shoes to sell this month. Oh ya, and also pack me 3 boxes of broken glass"

The difference between the 3rd salesman and the 2 before him is his ability to create demand. Some might not agree that sprinkling broken glass just to make a sale is ethical (and I'm not saying it is), but that is not the point of the story. The story above shows that creating supply by sales skills alone is not enough is some cases. Even if there is no demand for the product initially, demand can be created; and this job of creating demand belongs to the marketing team. Sadly, marketing is not widely practiced for a few reasons:

• lack of knowledge and expertise in the marketing field
• lack of budget for marketing programmes

I do not need to elaborate on sales skills because it's quite self explanatory. Most companies only spend money to hire the best salesman that can push their products but think of the marketing team as an expense with no clear return on investment. Business works well when there are push and pull strategies akin to yin and yang. Sales is a push strategy and Marketing is a pull strategy. Understanding the difference will give you an edge in your business because once you start asking yourself "how do I create demand for my products / services" you will have a different viewpoint on the way business is conducted similar to the shoe salesman in the story above.

Let's make up a scenario for an example: You have a new brand of fishing rod to sell to the market. Most businesses would get a salesman to drive around town for all shops that sell fishing equipment and try to convince the boss of that business to try out your new product. This is a straightforward sales strategy (without marketing), and needless to say, you can imagine the results of this plan - Unpredictable, and basically praying for good results

How about this as a different approach: Before I even approach a fishing equipment retailer, I approach the local fishing association and ask if I can take up an advertisement in their monthly flyer / newsletter. I would prepare an advertisement complete with testimonials from satisfied users from overseas. Before they publish the advertisement, I would send out my salesmen to all fishing equipment retailers (where most would happen to be members of the fishing association) and tell them that I would insert their business in the advertisement as so interested buyers who see the advertisement could contact them to buy my product. Wouldn't you agree that this would make it easier for the salesman to push the product because you have in a way created demand on behalf of the retailer? This is an example of how an army general (marketing team) can create an advantage for the soldiers (salesmen) on the battlefield (market) just by applying marketing intelligence (push and pull strategies working together). This example also illustrates how thinking of helping others make money first, will help you make money down the line as discussed in my earlier article, Helping Others Make Money First.

What I Learnt from a Multi-Million Dollar Sales Manager

The following are notes taken from a meeting I had with a sales manager of an international multi-million dollar company. It deals with sales strategy and inventory management:

The 20/80 rule: Business schools teach this, applies in real life – The 20% of your top sellers contribute to 80% of your business revenue. This is the bread and butter of your business. Track your 20% top sellers on a monthly basis in terms of:

• sales revenue – ensure they do not drop and if they do, find out why quickly
• competitors' price and sales volume for the equivalent product / service – find out if you can do anything to increase your market share.
• Your market share compared to your competitors' – this can be a simple estimate by looking at the proportion of your products relative to your competitors' on the shelves.

Your 20% top sellers are your ricebowl and do whatever you can to defend your territory. Ensure they maintain a competitive advantage (see earlier article here). The 20/80 rules also applies in business effieciency i.e. you should be spending 80% of your time and money in the top 20% to ensure the biggest return. Delegate the other 80% to others for maximum effectiveness.

If your competitor launches an attack on your ricebowl a.k.a your 20% top sellers, take urgent action, but be rational about it. For example if they offer a competing product at a discount for a limited period and the market has already been saturated, don't jump in and st on the same item asart a price war when not many left will be buying. Think rationally and take alternative steps such as launching a discount on a diffferent product that happen's to be the competitors' ricebowl.

Inventory Forecast– This is a very simple concept I never eveb thought of until the sales manager showed me. To decide on which products to push for inventory clearance, do the following:

1. Do a monthly average sales of each product by unit
2. Find out how much each product you have in stock
3. Divide the stock level of each product by the average sales figure – this will give u the number of months it will require you to clear the inventory based on historical performance
4. Sort the list by the highest number of months to clear to the lowest.

Now you have a list of items you need to find ways to clear ranked by urgency. An example of this would be a product that has sold 3 units in the past 6 months.

3 units / 6 months = 0.5 units per month
If we have 5 units left in stock, it would take us:
5 units / 0.5 = 10 months to clear

Simple math, simple concept, almost common sense, but seeing 5 units left in your store room does not give you the same urgency as knowing it will sit there for 10 months before it's sold out. It's just a different, but very useful way of looking at things. This method of inventory management also helps you plan sales and financials as you know that you would not need to place an order for this item for, say, another 8 months.

Jack - Straight From the Gut by Jack Welch

A great read from the rise of Jack Welch, CEO of GE, to his retirement of one of America’s most admired companies of all time. There are more management principles in this book than you can shake an MBA stick at. Warren Buffet called this guy “the Tiger Woods of management”. I got this book to learn about his management ideas, so the best parts of this book for me were Sections II and IV. The rest of sections are an autobiography of his rise and endeavours as CEO.

Chapter 8: The Vision Thing

Good businesses needed to be separated from the bad, so there was the No.1 and No.2 concept – only businesses that were in market leaders (or No.2) were to be concentrated on, whereas the rest were to be fixed, closed or sold. The rationale behind this is if a business doesn’t have a long-range competitive solution, it’s just a matter of time before it’s over.

Chapter 11: The People Factory

Passion in an organisation is characterised by the 4 E’s:

• high Energy levels
• ability to Energise others
• having the Edge to make decisions
• ability to Execute promises

Employee passion is the graded on a scale of A, B and C

A’s should get increments 2 to 3 times more than B’s. B’s would get standard increments. C’s get nothing. Losing an A is a sin.

Bottom 10% elimination – 10% of the bottom performers have to go, no matter how highly they are regarded.

Chapter 13: Boundaryless: Taking Ideas to the Bottom Line

GE linked their lighting business with Wal Mart’s cash register system so that they know when they are selling out and prepare their orders before it sells out. Jack also learnt from Wal Mart that regional managers would fly in to visit the stores under them on Mondays and spend the next 4 days going through the inventory as well as visiting the competitor’s stores. They would fly back on Thursday nights and deliver their field reports on Fridays. Problems such as shortage in inventory can be sorted out on the spot.

Redefining markets so that you represent less than 10% of the total market share is a way to expand your mind on your room for growth. Take for example the 63% GE Power systems had on servicing GE products. If you broadened the market to include fuel, power, inventory, asset management, and financial services, that now shrinks into less than 1% but you now view a bigger potential for creating opportunities. It’s all in the mindset whether you perceive your market as saturated, thus do nothing about it; or a huge untapped market with vast opportunities.

Chapter 20: Growing Services

After sales service i.e. the supply of spare parts, servicing and repairing was overlooked in the high tech big equipment business. Putting emphasis in services meant that customers can justify their investment on a longer lifespan, while creating a steady income stream from the existing customer base. Today GE is spending as much time ensuring their installed “sockets” are increasingly productive, as they are on finding new “sockets”,

Chapter 21: Six Sigma and Beyond

Good example to illustrate Variation – the main concept of Six Sigma, is shown in this chapter. You can have a 50% reduction in AVERAGE delivery times and management would think you have done a fantastic job, but if the variation for this data is spread out widely, the customer does not take note of your “fantastic” improvement. The thing the customer notices is whether or not you deliver on the date you promised. Six Sigma is about consistency – delivering on your promises.

Differentiation

Jack discussed differentiation in various parts of the book, starting with Chapter 2, “Getting out of the Pile”. Everyone and everything has to have their point of differentiation or edge to stand out in life. In Chapter 2, Jack showed that even as a technician, he went the extra mile into making comparisons with other products even when not asked to do so. This is how he stood out from the rest and “got out of the pile.” The Six Sigma qualification is another way to stand out from the crowd.

Differentiation as a company was illustrated in Chapter 14, “Deep Dives” when GE wanted to break into the Japanese market. The point of differentiation he used was positioning the company to the “employer of choice for women” in an environment where women were not the preferred hires.

Chapter 24: What this CEO Thing is About

Some points of interest Jack wanted to talk about:

• Integrity – establish it and never waver from it
• The Corporation and the Community – CEO’s role is to assure the financial success of the company. Only a healthy, winning company has the resources and capability to do the right thing
• Setting a Tone – the personal intensity of business leaders determines the organisation’s intensity
• Maximising on Organisation’s Intellect – Take the best ideas and transfer them to others
• People First, Strategy, Second – Getting he right people in the right jobs is a lot more important than developing a strategy
• Informality – Creating an informal atmosphere is a competitive advantage. Passion, chemistry and idea flow from any level at any place are what matters. Everybody’s welcome and expected to go at it
• Self Confidence – courage to be open, welcome change and new ideas regardless of their source
• Passion – intensity covers a lot of sins. If there’s one characteristic all winners share, it’s that they care more than anyone else
• Stretch Targets – rather than get people responsible to deliver the numbers to provide a target (realistic or not), have the team come in with operational plans and discuss what tools they require to improve their performance and how far they can go with these new tools. This will stimulate discussion around new directions and growth.
• Celebrations – make the job fun
• Aligning Rewards with Measurements – make sure what you reward based on correct / proper KPIs.
• Differentiation Develops Great Organisations – chop off the bottom 10% performers on a regular basis
• Owning the People – Give the people their best opportunities to grow within the organisation
• Appraisals All the Time – give it
• Culture Counts – set it from day 1 and resisters have to go
• Strategy – Ask yourself the following:
• What is the detailed global position of your business and that of your competitor: market shares, strengths by product line and by region today?
• What actions have your competitors taken in the past 2 years that have changed the competitive landscape?
• What have you done in the last 2 years to alter that landscape?
• What are you most afraid your competitors might do in the next 2 years to change that landscape?
• What are you going to do in the next 2 years to leapfrog and of their moves?
• Competitors – 2 things to keep in mind:
• If the competitors are seem crazy and are practically giving their product away, it just means they have a better cost position or a strategic rationale for what it did – look into yourself and ask yourself what is wrong with you, not them.
• When you come up with an idea to blow the competition away, don’t assume they will be sitting on their hands doing nothing. They will strike back and maybe harder than you think.
• The Field – Headquarters doesn’t make anything or sell anything. Banging around the field is the best shot at getting some ideas about what was really going on.
• Markets vs. Mind-sets – Change your perspective on market share and you will open your minds to growth opportunities. (Example in Chapter 13)
• Initiatives vs. Tactics – Keep in mind your initiatives (i.e. company strategy), but keep coming up with fresh short term tactics
• The Communicator – There can never be too much repetition over important ideas you want to get through the company
• Employee Surveys – Make it meaningful. The one that GE found a breakthrough were fundamental issues around the theme: “Is the company you read about in the annual report, the company you work for?”
• Upgrading a Function – Whenever a department is not performing up to par, get all the best minds into energizing it.
• The Advertising Manager – Image matters
• Managing Loose, Managing Tight – Know when to meddle, when to let loose. There’s no form of measurement, just gut feeling and instinct.
• Chart Maker – Charts clarify thinking
• Investor Relations – Marketing people sold better stories of GE
• Wallowing – A discussion of people involved in the job regardless of job titles. Focus is on getting the job done better and diving into deeper issues
• Your Back Room is Somebody Else’s Front Room – If one department is not achieving its full potential, consider having it outsourced. The outsourcing company might do a better job and give its best
• Speed – Swift and quick decisions often prevail over regrets over delaying a decision
• Forget the Zeros – Breaking projects into smaller pieces can get greater focus and the entrepreneurial benefits of being small i.e. – agility, speed, and ease of communication