Do you have an Integrated Communications Strategy?

A couple of weeks ago, I watched a BBC4 documentary on the history of the electric guitar and effects pedals in rock music.  Included in the programme was a short interview with Uli Jon Roth, the former lead guitarist with the German heavy rock band, Scorpions.

Two of Roth’s comments in the interview stood out.  The first was that he felt restricted with the five note pentatonic scale often used in rock music.  He wanted to use the seven note chromatic scale more often seen in classical music. He wanted to spread licks over two or more octaves rather than one.

Secondly Roth commented that he saw musical notes as colours. he experiences aural synaesthesia.

Roth is known as the ‘King of Shred’.  The man who created a monster that would dominate rock music in the 1980s; shredding.  Roth, like Baron Frankenstein despaired of his creation.  He feels that guitar solos became an exercise in technical proficiency and fitting as many notes in a stave as possible.  Rock music began to forget melody and metre.

So what has an interview with a Euro-rock guitarist got to do with Marketing Strategy?

Let’s take the second point.  Roth’s synaesthesia is a clear indication that people process information in different ways and they react differently to communication triggers.  Some people prefer and will react to visual stimuli, others to aural stimuli.  Some people prioritise touch, others prefer smell.  So if you are limiting your communications triggers to one of the ‘five’ senses, your message may not be getting through to those consumers who prioritise the other senses.  Much of the internet is a visual medium; like this blog; therefore when designing marketing communications, consider the other senses, use sound, smell and touch to get your message into media.

Well, Roth has a point about limiting your options.  Why limit your marketing and communications activities to a few expected promotional channels when there is a wider palette of channels available?

I see lots of tweets on social media praising the use of digital promotional channels as a panacea; a magic pill to all your promotional needs; it is nothing of the sort.

I regularly get criticised that I don’t understand how digital marketing works.  Well I do.  I just believe that digital is one channel amongst many and by restricting yourself to that channel you are ignoring communications options which may provide better return on investment to your business.

Clearly it would be unwise to totally ignore digital marketing channels and social media in your promotional mix.  However, these channels must be used with a strategic purpose which matches the expectations of your target market.  Clearly, if you are selling high street fashion to teenagers, you will need to have digital as a prominent part of your promotional mix.  However, what if you are selling mobility scooters to pensioners? Wouldn’t more traditional promotional channels make more sense?

Digital channels are not a cheap option.  To get equivalent returns to that of traditional media, you may have to spend more on digital.  Before choosing communication channels you need to carefully examine costs and press providers to the level of return on the potential investment.

For SMEs operating locally, it may well be the case that traditional communications channels are a more effective way to get your message across.

Marketing academics are still not convinced of social media as a sales promotion channel.  However, they do see it as useful for customer retention and developing ‘electronic word of mouth’.  It is also good for developing advocacy.

When it comes to digital, you also have to remember Zipf’s law; P(x)≈1/x.  You can optimise your position on search engines to your heart’s content but if you’re not within the top four links on a page your chances of picking up significant numbers of clicks are dramatically reduced.  Firms like Amazon can put huge resources into securing the top links on a search engine page, irrespective of the alterations ISPs make to search engine algorithms to compete head on against those resources may a highly inefficient use of promotional budgets.

So when developing a promotional mix do not put all your eggs into one basket. Don’t do what is ‘expected’ in your chosen segment; do something different to your competitors.

Marketing as a science is a fairly young discipline.  Academic rigour only began to be applied to it in the 1950s.  It is a developing field where theory and models are continually evolving.

For many years the presumption was that different promotional channels had to be dealt with by separate professional consultants.  You went to a direct marketing agency for printed matter, you went to an advertising agency for TV and radio advertising (in fact there were/are specific agencies for radio advertising).  If you wanted press attention, you used a PR agency and exhibitions were often the remit of your sales department.

In the 1980s, academics began to promote integrated marketing communications.  This was the delivery of a single consistent group of messages across media channels.  Prior to IMC, different communications media were used to deliver different parts of the promotional mnemonic DRIP.  Advertising was used differentiate your products from those of competitors; sales promotion was used to persuade customers to purchase.  PR was used to remind customers of your existence and print media was used to inform customers of your products attributes.

Under IMC, a single message was used to deliver all the aspects of DRIP.

IMC was seen as having significant drivers:

  • it increased the efficiency of promotional activities
  • it increased the accountability of marketing managers
  • it promoted the need for ‘cross-border’ marketing and changing communications structures
  • It coordinated brand development and the creation of competitive advantage
  • it allowed for more efficient use of management time
  • It provided direction and a sense of purpose for employees
  • It anticipated greater levels of audience communication literacy
  • It foresaw media and audience fragmentation
  • It allowed for stakeholders increasing needs for diversity of information
  • it reduced message clutter and allowed for media cost inflation
  • It accounted for competitor activity and low levels of brand diversification
  • It allowed for the creation of relationship marketing as opposed to transactional marketing
  • It allowed for network development, collaborative marketing and the creation of alliances
  • It allowed for technological advances and new communication channels e.g. social media.
  • It aimed to increase message effectiveness through consistency and the enforcement of core messages
  • It allowed for the development of more effective consumer triggers and recall of both messages and the brand identity
  • It aimed to develop consistent and less confusing brand images
  • It developed a need to build brand reputations and to provide clear identity cues.

IMC sounds wonderful doesn’t it.  Most importantly it was seen as a way to create a customer-centred promotional strategy.

IMC was seen as having the following advantages:

  • Efficient use of promotional budgets
  • A synergy to communications
  • Competitive advantage through clear positioning
  • Coordinated brand development
  • Employee participation and motivation
  • It allows for the review of communications activities
  • fewer agencies were needed to support a brand.

However, there were some downsides to the creation of integrated marketing communications strategies:

  1. It was a strategy that promoted centralisation of activities and the development of bureaucracy.
  2. It promoted the uniformity of a single message (difficult if your aim to target two or more distinct market segments)
  3. It leads to ‘Mediocrity’ as all communications activities are in the hands of a single agency.

So like Uli Jon Roth’s approach to the rock solo, IMC became a bit of a monster.  Some marketing academics felt that it lost the ‘melody and metre’ of promotional activities.

Today, most marketing academics promote a nuanced form of IMC.  Yes messages should be used to promote all aspects of DRIP and promotion is a role for all the stakeholders in an organisation, not just the advertising department.

Today it is advocated that promotional strategies is the creation of a promotional mix using tools which best fit the expectations of your target customers.

 

Establishing Organisational Capabilities

It is an essential part of developing a sustainable marketing strategy that you establish and assess your organisational capabilities.  It is key to identify where your organisation is superior to its competitors and potential competitors.

All organisations are made up of specific assets and competencies.  Do you know what they are in your organisation?

It is also true that no organisation is good at everything.  There will be things you do better than other parts of your business process.  There will be areas which need improvement or which need additional investment.  You may be spending too much on other processes.

The following is a list of the type of assets which make up an organisation:

  1.  Sales Advantage:  Market Share; Relative and Absolute Media Weight; Leverage over Suppliers; International Presence; Sales, Distribution and Service Coverage; Specialist Skills due to Scale.
  2. Production Processes:  Level of Contemporary Practice; Flexibility; Economies of Scale; Capacity Utilisation; Patents; Unique Processes and Services.
  3. Working Capital:  Quantity; Access to; Location of; Access to Credit.
  4. Sales/Distribution/Service Network:  Coverage; Relationships; Size; Quantity.
  5. Relationship with Others;  Suppliers; Financial Institutions; Joint Ventures; Joint Exploitation of Assets e.g. Technology.
  6. Property:  Type; Location; Ability to Expand; Quality.

So Muller Dairies have a significant asset in owning the patent to the corner yoghurt pot.  House of Fraser once had an asset in its store portfolio but, with changes to the retail sector, that asset turned into a liability as stores were often of Victorian construction, difficult to maintain, and unsuitable for modern technology installation.

However, you organisations assets must not be viewed in isolation.  You also need to establish your organisational capabilities.

A tool which can be used to ascertain your organisational capabilities is value chain analysis.  This is more normally used to discover where your target customers see value in your organisational processes so that scarce resources can be targeted on those which offer the most value to customers.  Areas where customers do not see value can have their costs minimised.

In value chain analysis, there are two categories of process: Primary activities such as manufacturing processes and product distribution and Support activities such as human resources management and procurement.

But key competencies can be classed as either primary or support activities.  Davidson (1997) split key competencies into three areas:

  1.  Marketing:  New Product Development; Business Analysis; Category Management; Brand Extension; Brand Equity Management; Unique Market Research Techniques; Planning Skills; Database Management; Advertising Development; Customer Targeting; Design Testing.
  2. Selling:  Supply Chain Management; Account Management; Relationship Development; Customer Service;  Building partnerships; Motivation and Control; Planning; New Account Development; Merchandising; Presentations Skills; Space Management; Negotiation Skills; Pricing and Promotion; Trade Marketing.
  3. Operation:  Motivation and Control, Process Engineering, Industrial Relations, Inventory Control, Cost Management, Productivity Improvement, Planning, Health and Safety; new Facility Development, Management Training and Development;  Speed of Response; Flexibility;  Total Quality Management; Purchasing; Payment Systems, Capacity Utilisation; Product commercialisation; Supplier Engagement; Property Skills; Global Operation.

I don’t quite agree with the content of Davidson’s key competency groups.  Some items classed in Selling or Operations are more obviously marketing functions and vice versa, but his point stands; You must strategically align you organisation’s assets with your competencies.

It is then possible to use them to build a low-cost, a differentiated or a niche position in the marketplace.

Jobber (1995) believes managers should ask four key questions when attempting to match organisational assets with business competencies:

  1.  Marketing Assets:  Does your current market segment allow you to take advantage of current market strengths?
  2. Cost Advantage:  Can you enter price sensitive segments consistent with an organisation that has a low-cost base?
  3. Technological Strengths:  Do you have superior technology that can be used to your competitive advantage?
  4. Managerial Capabilities and Commitment:  Do you have the managerial and technical skills to succeed in your chosen segment?

Most importantly of all, is entering a particular market segment compatible with your organisations long-term aims and objectives?  If not, you may only be diverting time and scarce resources away from the common goals of your enterprise.

This is where tools like the Shell Directional Policy Matrix can be used.  By using weighted criteria, you can assess potential target markets based on segment attractiveness and the strength of your organisational assets and competencies.

A farewell to the CE mark

Over the past week, I spent some time looking at the UK government’s draft amendments to legislation as a result of Brexit.  I also have had a look at the latest missives from the EU published in preparation for Brexit.  If you are in business, particularly businesses which involve the export and import of goods to and from the EU, this is a necessary process and I would urge you to take time to carry out such research.

There are eight weeks until the UK leaves the EU.  Suffice to say, everything is completely chaotic.  Not least the fact that the UK is way behind in its preparations for Brexit and parliament has reams of legislation to pass before we leave.

The parliamentary half term recess has been cancelled but even with that additional time (eight sitting days), it is unlikely that parliament can get all the necessary law in place before 29 March.  Seven acts of parliament and thousands of statutory instruments need to be passed before the UK leaves the EU for the law to operate.  It is highly unlikely that parliament can achieve that task in the time remaining.

The Department for Business, Energy and Industrial Strategy has taken a novel approach to the necessary amendments.  They have placed them all in a single set of regulations which runs to 619 pages.  This document covers the law of weights and measures, environmental law, product safety and some matters of food law.  Normally such amending legislation would be separate documents classed by subject matter.

The effect of this draft law is to remove all references to the European Union from existing UK law.  It is very much placing a sticking plaster on an amputated limb.  it is a temporary measure and it is unlikely that the amended law will stand for long after Brexit.

One result of the draft legislation is that the CE mark will be removed from UK goods.  The BBC reported on Friday that the UK will replace the CE mark with a new UK Certified Approved mark, UKCA.  This new mark has yet to be published, so with eight weeks to go, manufacturers have no idea as to the certification marks they will need to put on products made for the UK market.

The proposed UKCA mark also appears to be a complete misunderstanding of the purpose of CE marking.  The appear to believe it is a quality mark similar to the old BSI kitemark.  It isn’t.

The old BSI kitemark was a quality mark that told consumers that a product complied with a particular BS standard e.g. double glazing.

The CE mark is a declaration that certain categories of products comply with EU law (regulations and directives).  It shows that the product complies with the general product safety requirement of a particular EU law e.g. You test to the general safety requirement of the Toy Safety Directive, you do not test only to the terms of EN71 the EU safety standard.  Most toys designed for infants are tested to EN71 but also to the baby’s dummy bite test from the UK safety standard.

The CE mark applies to what are called ‘new approach directives’.  There is plenty of EU product safety law where the CE mark is not used e.g. The General Product Safety Directive.

New approach directives allow for type approval.  This means an example of the product is tested for compliance.  The manufacturer also has an approved quality assurance system which ensures that all further production of the product is identical to the tested example.  This removes the need for external batch testing of production and thus reduced costs.

So the CE mark is a compliance mark, but it goes further.  It is also a passport mark.  It allows goods to cross internal state borders within the EEA with no further need for certification or inspection.  So a French manufacturer can have his products certified in France and sell them in Germany.

It is clear that the new UK certification mark will not act as a cross border certification passport.  One must ask why this new mark is necessary as it is a criminal offence to sell unsafe and uncertified goods even if they are not marked.  If the mark is not a compliance passport, it simply reverts to the status of a quality mark like the old kitemark.  The main purpose of the CE mark is lost.

The CE mark was extended to metrological equipment when the market in weights and measures technology was opened.  It allowed manufacturers of weighing and measuring equipment to have them approved in one member state and to sell them across the EU.  This is why the old crown mark disappeared from pint glasses to be replaced by the CE mark.  There is no indication as to what will replace the CE mark on UK manufactured metrological equipment.  I suspect we will go back to the old crown verification mark.

On 1 February, the EU published a question and answer document relating to ‘industrial goods’ exported into the EU after Brexit.  This clearly states that UK producers will no longer be able to apply the CE mark, but it goes further.

It clearly states that UKAS, the United Kingdom Accreditation Service will lose its permission to award notified body status to test laboratories.  UKAS had been campaigning for a continuation of this permission but the EU is clear that it will be removed.  The EU document states that there will be little or no change to existing notified body approvals.

This means that UK test laboratories will no longer be able to issue CE mark type approval permissions to UK businesses.  This affect a wide range of products from toys to industrial machinery.  New models of these products will have to be certified in an EU state before the will be allowed into the EEA.

EU law is clear that responsibility for product safety compliance lies with the responsible person within the EU.  Currently that would be a UK-based manufacturer.  However for goods from ‘third countries, responsibility switches to the manufacturer’s agent within the EU or the person who first imports the goods into the community.  What this means is that UK manufactures wanting to export to the EU will have to arrange for an EU-based agent or to allow the customer importing their goods to the EU to act on their behalf with regard to the safety compliance of their goods.  This adds costs.

There is also a duplication of product testing and certification costs.  Firms will have to have test certificates for both the new UK certification mark and the CE mark.  Their quality assurance systems will have to be certified by an EU certified body and the new UK certification body (likely the British Standards Institute).  This is potentially a massive increase in costs.

Major manufacturers based outside the EU, such as Dyson with his vacuum cleaners (made in Malaysia) will have to consider where they will get products certified. For example, do they achieve type approval for an EU market of 550m potential customers; or do they spend the same amount to achieve certification in the UK, a market of 65 million potential customers.  I suspect many firms will prioritise EU certification over UK certification.

The other big news story this weekend was the rumour that Nissan was changing its decision to produce the new Xtrail 4X4 at its Sunderland plant.  This is not a surprise.  80% of Sunderland’s production goes to the EU.  There are major concerns regarding the application of tariffs and on rules of origin being applied to this EU export production as it will substantially increase the cost of production. Eighty percent of the Sunderland production is sent into the EU.  The EU/Japan free trade agreement, removing tariffs and allowing for regulatory equivalence, went into operation on 1 February.

However, there are other concerns.  All EU type approvals for UK produced vehicles lapse in March.  Nissan and other car producers will have to have all their models type approved in another EU state.  There will be no EU approved body for vehicle certification in the UK.  Again this increased costs.

Nissan is one-third owned by Renault.  So it clearly makes sense to locate production of new models within the EU and not in a ‘third country’.

This is the rubber hitting the road of Brexit.  The removal of CE marking and the loss of UKAS as an approval body for EU notified body status signal large increases in cost and restrictions in the ability to move goods across borders.

It is worth noting that the UK government preparation papers for no deal state that businesses reliant on, or with exposure to, EU markets should move their company registration to an EU state in preparation for Brexit so as to ensure continuity.  Such a move would take businesses out of UK corporation tax jurisdiction.

There has been much talk regarding tariffs in the politics of Brexit.  The removal of the CE mark from the UK is a clear signal as to new, non-tariff barriers, which will hobble UK manufacturing.

Dealing with Crises

In the past week, UK retail has seen the collapse, for the second time, of the music retailer HMV and, following a significant corporate fraud, the collapse of the café chain, Patisserie Valerie.

Both of these businesses could be considered as being in crisis for a significant period of time.

In the last blog entry we discussed economists views of risk and the variety of risk attitudes businesses and individuals may have.  Whatever, the risk profile, it is likely that at some time in its lifespan, a business will face a crisis.

Currently the UK is approaching the deadline for Brexit.  If your business is not making contingency plans for the various potential outcomes of the Brexit process, you may be facing a potential crisis.  In fact it is highly likely that the UK will face some form of national crisis, particularly if a withdrawal agreement cannot be reached.  The UK government preparation papers give some idea to the level of crisis the nation may experience.  For example, the Department for the Environment, Food and rural affairs, it is rumoured, is planning a mass slaughter of one-third of the UK’s sheep in the event of a no deal Brexit as a measure to maintain stock prices.

Mintzberg et al. in The Strategy Process: Concepts, Contexts and Cases (Prentice Hall International, 1988) described organisations in crisis as like ‘living in collapsing palaces’.

These palaces are built of tightly interlocking beams and stone blocks.  They are filled with fine and elegant components.  But these palaces are built atop crumbling mountains.

The rigid, cohesive structure of the palaces look completely rational to those existing inside them.  Indeed they look beautiful.  However viewed from the outside, the palace has foundations that are rapidly eroding away.

Such a position is shown by the collapse of HMV.  For decades, HMV was the model of how to sell music.  It easily survived the movement of music sales from vinyl to compact disc.  It easily coped with the shift in physical technology.  It was an elegant palace.  However, it didn’t foresee the arrival of digital downloads and the rise of streaming services.  The movement to digital music files eroded the foundations of HMV’s palace.

The management of HMV continued to shore up their elegant palace despite clear warnings.  it was obvious to those outside that HMV was operating a declining business model.  Some competitors, such as Our Price Music and Tower Records went bankrupt.  HMV’s main competitor, Richard Branson’s Virgin Megastore was sold off as Branson divested much of his music empire shifting his business into areas such as airlines and train services.

Often the more elegant the palace, the less able it is to cope with a crisis.  Its rigid components mesh together so tightly that it cannot react appropriately. The organisation’s perceptions, goals, capabilities and methods of working are beams and blocks tightly aligned and preventing flexibility.  The elegant palace is rigid, solid, stuck and unable to flex.  Such movement is necessary to cope with the shifting foundations.

However in many crisis, despite flexibility, the foundations fail and the organisation begins to crack:

  • Top managers are viewed as making faulty predictions
  • Doubts arise as to the ability of managers to make crisis decisions
  • Managers as a result are seen as incompetent liars
  • Idealism and commitment to goals fade
  • Cynicism and opportunism thrives
  • Cuts and reorganisation lead to power games and empire-building.  Cooperation is undermined
  • The processes of disintegration feedback on themselves and are reinforced.

An organisation’s ability to achieve often depends on the expectations of its stakeholders.  If stakeholders expect failure, failures become more likely and other expectations of failure multiply.  The organisation enters a downward spiral of failed expectations

Achievement often relies on ability and effort.  If people expect failure, they leave, and they take their ability, expertise and effort with them.  As a result the level of ability in the organisation falls.  This is particularly the case if potential candidates outside the organisation see it as failing and therefore do not consider joining it.

As a result, job performance falls as staff take on unfamiliar roles.  Staff begin to receive proportionally less reward for their efforts.  Job satisfaction slides.

Conflicts and power struggles develop between managers and teams. Some in the organisation become cynical opportunists.  They make unreasonable demands which elicit exhortations from senior management.  This may result in these manages, in turn being seen as opportunistic cynics.

Such conflicts could be seen across UK industry in the 1970s as nationalised industries suffered crises and unions made increasingly exaggerated claims for pay rises.  It got to the stage where the most minor of disputes ended with all out strikes which hobbled productivity.

Such power struggles often ended with the centralisation of power and responsibility.  In the nationalised industries this meant the appointment of figurehead senior managers who micro-managed.  Senior managers often grabbed powers even though they had little knowledge of how to use them.

In such positions, for an organisation to move forward, it must allow the disintegration to take place.  Take HMV as an example.  When the firm first collapsed, there was an opportunity for its new owners to change its business model; to move into downloads, internet sales and music streaming.  However, the new owners retained the old business model whilst taking significant levels of cash out of the organisation.

In retaining the old business systems the ‘rescuers’ of HMV failed to learn the lessons of the original administration process and it once again failed.

So how do you avoid crises:

  1.  Avoid excesses:  Excessively sticking to processes and prescriptions for management.  This is the ‘computer says no’ response.  It often leads to contingency plans being ignored and issues being oversimplified.  Crises caused by environmental change can be exacerbated.  Such excesses can result in complacency i.e. plans become annual events not continually evolving processes and documents.  To avoid such excesses, employ critical friends, carry out both marketing and market research, benchmark, allow dissenters to speak out, don’t become an organisation of ‘Yes Men’.  Plan to employ strategic strengths and eliminate strategic weaknesses through developing SWOT strategies. Have a Plan A, and a Plan B, and a Plan C,…….
  2. Consider Replacing Top Managers:  Often this is a move needed to end or avoid a crisis.  However competent the existing top management, they can build up an existing ‘group think’.  replacing them gets rid of personal enmities and old assumptions.
  3. Reject Implicit Assumptions:  which underlie existing managerial perceptions and behaviours.
  4. Experiment with Portfolios:  Invest in new products, enter new markets, develop new technologies, develop new operational models and employ new people.  Look at Ansoff’s methods of business growth, market expansion, new product development, brand extension and diversification.
  5. Managing Ideology:  Top management are often seen as the villains of a crisis.  They can exacerbate a crisis by delaying action.  They can steer their organisations into crises.  See Fred Goodwin at RBS or the board of Carillion.  However, if they successfully drive the organisation through the crisis, they can become the organisation’s heroes, for example, Steve Jobs at Apple.  By managing organisational ideology, managers can define their status. Crisis are times of danger but they are also times of opportunity.  Shaping ideology can nurture enthusiasm amongst stakeholders.  Let the language and actions of senior managers mould the organisational ideology.  Let managers become the heroes of surviving the crisis.

 

Risk

Business is, like life, about taking, managing and coping with risk.

Economists categorise a risky activity as having two characteristics:

  1.  The likely outcome, for example the return on an investment; and
  2. The degree of variation in all possible outcomes.

So, a ‘fair gamble’ is one where, on average you will achieve zero monetary profit.  For example, for your investment you have a 50% chance of gaining £100 but you also have a 50% chance of losing £100. On average you do not gain.

An ‘unfair gamble’ means you will have only 30% chance of making that £100 but you have a 70% chance of losing that sum.  On average you will lose by accepting such a gamble.  This is how most casinos operate where the chance of winning always lies on the side of the house.

You also have ‘favourable gambles’.  This is where you have, say, a 70% chance of winning and a 30% chance of losing.  Such situations are referred to as profitable.  Success in business is about seeking out ‘favourable gambles’.

There are also different levels of risk.  So, for your initial stake you have the chance of winning £200, not £100, with the same percentage odds, your bet will be ‘riskier’.

Bear in mind, for most marketing campaigns, you should be looking for a return on investment many times that of your initial stake; your marketing budget.  It is not unusual to expect a return on marketing investment of between 500% and 1000%.  So you are looking at a ‘bet’, not of 100:30 but of between 1:5 or 1:10.

Businesses, like people, will have different risk profiles.  Economists classify such attitudes into these groups:

  • Risk averse
  • Risk neutral
  • Risk-loving

A risk neutral business will only invest when the outcome is likely to be profitable (on average.  They are only interested in fair gambles or better.

A risk averse business will refuse a fair gamble and will only invest when the odds are sufficiently favourable and the potential monetary profit will overcome their inherent dislike of risk.

A risk-loving business will take on an investment even if the strict mathematical calculation of the risk describes the investment as unfavourable.

Think of Richer Sounds, the hi-fi and electronics retailer.  The business has been in operation for over forty years and on average has opened one shop  every couple of years.  The slow careful growth of the firm could easily be described as, at best, risk neutral, and potentially risk averse.

Compare that position to the actions of Fred Goodwin at Royal Bank of Scotland.  One of the accusations made of Goodwin on the banks collapse was that he was pursuing rapid growth at all costs.  He was making investment and purchase decisions whilst ignoring the normal due diligence analyses carried out by the bank’s staff.  This resulted in the disastrous purchase of ABN Ambro, the Dutch bank.  In fact that purchase was not of all of ABN Ambro.  The profitable retail arm of the bank was purchased by Santander.  What Goodwin had purchased for RBS was ABN Ambros’ investment banking arm, which was stuffed full of American sub-prime mortgage debt.

Fred Goodwin was clearly a risk-lover.

Insurance is the opposite of risk.

Insurance is the payment of a small sum to cover unlikely events.  So you are willing to invest £300 a year to insure your car which is worth £15,000 (despite the fact that it is a legal requirement).

However in business, often the cost of insurance is ignored.  There was much anger that, after the disastrous fire, Glasgow School of Art was not insured.  But it is likely that the Charles Rennie MacIntosh designed building was uninsurable as the cost of a policy would exceed the cost of repair or rebuilding the school.  So, a business decision was made not to insure the building.

In such circumstances both a risk neutral manager and a risk loving manager would reject the cost of the insurance offer.

So if you cannot buy an insurance product to cover a business investment, how do you protect your investment?

In traditional gambling, a ‘punter’ will spread his bets.  He will make a small bet on a horse with long odds and a larger bet on the favourite.  If the favourite comes in, he takes his winnings, but if the outsider comes in, he covers his initial stake.

Some professional gamblers tactically ‘bet to lose’.  They make smaller bets against favourites.  Think how often horses listed as favourite fail to win races.

In the financial markets, investment brokers use hedge funds.  They hedge their bets.  So if they buy shares or derivatives with the intention of selling at a particular rise in price, they will cover the risk of that growth in value not occurring by laying a ‘hedge’ with a hedge fund to cover their investment.

For most small businesses, there is little opportunity to hedge or to insure investments in things like product development and market entry. So how do you protect your investment.

Well, that is where Philmus Consulting comes in.

Philmus Consulting can help your business develop robust due diligence systems with respect to food standards, metrology and trading standards.  We can help you with product safety risk assessment and product recall plans.  If you know the risk in a particular regulatory area, you can reduce the chance of the risk occurring and mitigate its effects.

In marketing, risk is reduced through market analysis and marketing research.  You reduce risk by using such information to set realistic business goals.  You reduce risk by creating strategic marketing plans and by defining alternative opportunities.  This can be achieved through the use of tools such as the GE matrix and the Shell Directional policy framework.  You reduce and insure against risk by researching your target market and developing products to meet the needs of that target market. This is by far a more preferable route to product development than that of creating a product and then trying to find a market for it.

 

Brexit – A Project Management Perspective

I have tended to shy away from Brexit in this blog and have concentrated on Marketing and Business Strategy.  However, with ten weeks until the UK leaves the EU, I think it is worth looking at the way government has handled Brexit over the last two years.  To do this, I am taking a project management approach.  As anyone who has read some of the articles I have written about Brexit, or indeed anyone who follows my twitter feed, you will understand that I am no fan of the policy.  I see Brexit as a self-inflicted wound on the UK economy.  Indeed, all economic projections on Brexit see it as doing significant harm to the UK economy.  It is estimated that a Brexit deal, as negotiated by Theresa May in the draft withdrawal agreement, will cause a 5% drag effect on the UK.  A no deal Brexit is calculated as causing a 9% drag.  Brexit is the UK economy hobbling itself.  HMS Britain is about to drop a heavy drag anchor which will slow growth and hinder international competitiveness; all for the nebulous concept of ‘sovereignty’.

I say nebulous because those who shouted loudest about parliamentary sovereignty are now the first to shout foul when that parliamentary sovereignty is exhibited.

But this blog entry isn’t about political views or whether there is support for Brexit.  It asks whether the project is being appropriately managed.

Dennis Lock defines the stages of a project in his book, Project Management, the standard text for all business students on that subject.  Perhaps by listing those stages and factors for success and failure given by Lock, we get an idea of how the Brexit project is proceeding and its likely outcome.

The stages of a project listed by Lock are:

  1.  Project Definition
  2. Preparation and Planning
  3. Project Design
  4. Purchasing
  5. Fulfilment
  6. Completion and handover

It is utterly clear that the Brexit project is badly defined.  The referendum question asked one question; whether the UK should remain a member of the EU or Leave the EU.  The result, narrow as it was, was that the UK should leave.  But that answer didn’t provide a single possible outcome.  There was a range of options available and those on the Leave side of the argument didn’t present a single solution.  Britain could leave in a ‘hard Brexit’ or no deal.  Britain could retain close ties with the EU, the EEA model as shown by Norway; or Britain could decide to have a limited relationship: The Swiss model.  It seems that no one in government can decide and cabinet ministers to this day still present different potential outcomes.

Nor was there space left for compromise in the negotiation process, as Mrs May’s ‘red lines’ severely limited the options available.  Clearly Brexit was a poorly defined project.

Lock then describes success and failure factors in project definition:

  1.  Project Scope needs to be clearly stated and understood
  2. Technical requirements are not vague
  3. Estimates of timescale, costs and benefits are not over-optimistic.
  4. Risk Assessments are not incomplete of flawed
  5. The intended project strategy is inappropriate.
  6. Insufficient regard is given to cash flows and the provision of funds required to complete the project
  7. The interests and concerns of stakeholders are not taken into account.
  8. Undue regard is given to the motivation and behaviour of the people who will execute the project
  9. Insufficient regard is given to how those affected by the project will adapt to change
  10. Approval of the project plan is given for political, personal or intuitive reasons without due consideration to the business plan.

Where to start with this list in respect of Brexit!

As stated above, the project scope was vaguely defined.

Technical requirements as a result were vague.  If a soft Brexit was chosen, the technical requirements were completely different to those of a no deal Brexit.

The two year timescale is wholly insufficient to achieve Brexit.  The officials who drafted the Article 50 clause admit this.  But given the short timescale of the article 50 process, it was wholly inappropriate for the government to trigger that clause with absolutely no contingency planning in place.  A better proposal would have to been to do the contingency planning, then trigger Article 50 for the negotiations.  At least with contingency plans in place, the government’s position would be informed and appropriate red lines set.

The government’s Brexit plans completely fail to stand up to any interrogation based on the above list.

With only weeks to go until the Brexit deadline, arguments are still ongoing about factors in the above list.  We should have moved on to the delivery aspects of the Brexit plan by now: project fulfilment.

Lock lists the success and failure factors at the project fulfilment stage:

  1.  Good definition of the project and a sound business case
  2. An appropriate choice of project strategy
  3. Strong support for the project amongst management, in particular those managers responsible for managing the plan
  4. Firm control of changes to the project
  5. Technical competence
  6. Strong quality culture
  7. Appropriate regard for health and safety of all those affected by the plan
  8. Good project communication
  9. Well-motivated staff
  10. Quick and fair resolution of conflict.

Again, where do you start with this list!

The Brexit project has been poorly defined and there is no sound business case for it.  We are actually in a position of a government with a solemn duty to do the best for the country and its people is actively engaged on a mission which does nothing but harm to those interests.

The choice of project strategy, particularly the choice to trigger Article 50 prematurely has been appalling.

Those put in charge of driving May’s Brexit plan have been hard Brexiteers wholly opposed to it.

Fulfilment has been technically incompetent.  We have had ferry contracts awarded to a company with no ships and a port lacking the necessary infrastructure for HGVs.  We have had a trial at an airport designed to hold 5000 HGVs where only 87 HGVs turned up.  It appears we have a government which cannot plan a traffic jam.

Project communication has been appalling.  No deal preparation papers were short, vague and lacking necessary detail.  Risk assessments were incompetently produced and their content was held as secret.  Even when MPs demanded access to them, there was no appetite to share their content.

Staff motivation is clearly absent.  DExEU has the highest staff turnover of any government department.  It is seen by many as the death knell of a civil service career.  Currently the department is advertising for staff who ‘don’t panic’ in the face of pressure.

It is clear that the government, in particular ministers, put in charge of fulfilling the Brexit project simply aren’t up to the task.

Lock explains that in project management there is a direct relationship between cost, time and performance.

It is estimated that Brexit is already costing the UK government around £600 million per week.

The performance and quality of project delivery has been appallingly poor.

Most critical is the time objective.  A project not started in time can hardly be expected to finish on time.  To paraphrase Napoleon, “There is one kind of robber whom the law does not strike at and who steals that which is precious; time”.

It is utterly clear that the Brexit project has been managed horrendously and that it has run out of time.  In such circumstances the best option is probably to abandon the project entirely.

 

The Importance of Relationship Marketing

The traditional view of marketing is activities designed to promote transactional activity: the physical act of selling goods and services.  Little thought was applied other than to creating transactions.

In recent years however, the focus of marketing has shifted from transaction marketing to building relationships.  Increasingly marketing is about developing customer loyalty and creating the most effective long-term relationships with customers.

This makes sense in mature economies where the number of new customers is limited and additional market share is obtained by taking it from competitors.

Transactional marketing:

  • Has a focus on single sales
  • Has a short timeframe
  • Makes little effort to retain customers
  • Has limited customer commitment
  • Has moderate customer contact
  • Quality is the concern of production managers and no-one else.

Relationship marketing:

  • Has a focus on customer retention and building customer loyalty.
  • Has an emphasis on product benefits meaningful to target customer groups.
  • Focuses on the long-term: You accept high costs in the short-term because they lead to larger long-term profits.
  • The emphasis is on high service standards; often tailored to individual customers
  • Has high customer commitment
  • Has high customer contact (to gain information not just building relationships).
  • Product quality is a concern for all stakeholders in an organisation.  The attitude is that minor mistakes can lead to major problems.

In mature markets the costs of obtaining new customers can be far greater than the costs of servicing existing customers.  Relationship marketing and long-term relationships offers greater opportunities for cross-selling, up-selling, strategic partnerships and other alliances.  The focus is on creating significant customer lifetime value.  Relationship marketing can allow the ability to charge price premiums.  Relationship marketing is also a way to develop word of mouth and create customer referrals.  There can be lower marketing costs over the longer term with relationship marketing tactics and greater value can be created from higher order volumes.

To develop a relationship marketing strategy you need to focus on four steps:

  1.  Focus on the between target and existing behaviour
  2. Identify steps to close any gaps between these behaviours
  3. Formulate a programme of benefits that satisfy the core needs of target customers
  4. Formulate a communications plan which aims to modify the behaviour of target customer groups.

Before taking these four steps you need to:

  • Identify key customers where the most profitable long-term relationships can be developed.
  • determine what customers want from a relationship.  Some customers will only want a transaction.
  • categorise customers in terms of current and future potential
  • Tailor goods and services offered to those potentials
  • Examine the expectations of each market segment from both sides, customer and seller.
  • Identify how these two sides can work together in a cost-effective and profitable way.
  • Appoint relationship managers whilst changing operational processes on both sides of the relationship so cooperation is easier.  For example, a logistics firm may offer bespoke computer software which ties customers to their systems.
  • Develop small wins in the first instance and gradually strengthen the relationship.
  • recognise from the outset that different customers will have different expectations that will need to be satisfied if a relationship is to develop.