Do you a have business risk management plan?

16. Example of Risk Matrix V4

‘The kinds of errors that cause plane crashes are invariably errors of teamwork and communication.

 Malcolm Gladwell – Canadian author and journalist

Being in business is a risk, and it is a challenge for businesses to manage that risk. Risk varies from business to business, from industry to industry and from country to country. Every business will have inherent risks. A business that handles cash, for example, is more susceptible to theft than a quarrying business with stockpiles of raw materials.

What is business risk?

It is an event or situation that has a negative effect on your business. This can range from additional costs caused by the risk to situations that threaten the business itself. Risks can never be completely eliminated. However, they can be managed and controlled.

There are two broad types of risk:

  • internal risks that are primarily related to what happens inside the business
  • external risks where events and actions affect the business from the outside.

As business owners and managers, it is our responsibility to manage business risk. For example, workplace safety is a managerial responsibility and a serious incident can have a substantial negative impact on the business.

How can business risks be identified?

  • The first step is identifying all the risks that could potentially negatively affect the business. Discuss these initially with the management team, dividing them into internal and external risks. For example, in a mining company, external risks could include country or sovereign risk, weather risk, exchange rate risk and economic risk. Internal risks could include operational risk, safety, people, customers, events such as power outages and fire, and reputational risks.
  • The second step, after identifying the risks, is to assess each of the risks. In my experience, the most effective method is to develop a risk matrix where severity or consequence is rated against the likelihood of the event occurring. Effective communication and consultation with the management team and other stakeholders will improve the quality of the risk assessment. For example, involve an expert in IT to help assess the risk of data breaches and system breakdowns.

Risk Management Matrix

  • The third step, after assessing and ranking the risks, is to develop a risk management plan. There is an international standard (IEC/ISO 31010for risk management, which covers identification, analysis, evaluation, monitoring and reviewing risk. This process is very detailed and involves other disciplines such as finance, safety and human resources.

The management of risks falls into four main areas:

  1. Avoidance – eliminate the risk. A good example is decommissioning dangerous machinery.
  2. Reduce – actions that mitigate the risk. In warehousing, where the risks of manual handling injuries are high, place limits on carton weights and have regular ‘toolbox’ safety meetings to reinforce the importance of using equipment safely and reporting heavy or awkward stock items.
  3. Share – transfer, insure or outsource. Some obvious examples include insuring against events such as fire and accidents, and outsourcing transport services to a third party who have managerial expertise in this area.
  4. Retain – accept the risk and have a plan to manage it. In transport, this could include improved selection of drivers, driver training and ensuring vehicles are maintained to the highest standard.

The risk management plan should have the identified risks listed in a risk register. It should include the following:

  1. Responses – actions to mitigate the risk
  2. Contingency plan – plan if mitigation strategy fails
  3. Risk rating – severity, likelihood and residual
  4. Trigger – what is likely to trigger the risk occurring
  5. Owner-manager or person responsible.

Although not all risks can be eliminated – and some risks are inherent in the industry or business – having a plan, monitoring and reviewing the risks regularly, and updating the plan when required is good practice. The collapse of McAleese Transport  is an example of how poor management of mitigating risks can have severe implications on a business and its employees. In conclusion, the risk management plan should include a crisis management plan.

What are the risks in your business?

Can you categorise the risks easily into consequence and likelihood?

Are they in your risk management plan?

A lesson in taking information at face value.

“Get your facts first, then you can distort them as you please”

Mark Twain – American author and humorist

Many years ago we were staying with some distant relatives in the Orkney Islands. Our visit became a lesson in not taking alleged ‘facts’ at face value.

Over a few drinks we were asked: “Have you heard of the island of St Kilda?”

No.

This sparked our interest as at the time we were living in the Melbourne bayside suburb of St Kilda. The local Australian Rules Football club were called ‘the Saints’ with a saint as their emblem.

Was the suburb named after a Christian saint?

No.

St Kilda is a group of wind swept, isolated and now uninhabited islands in the Outer Hebrides of Scotland. The main island of Hirta, until 1930 had been inhabited for hundreds of years and was a breeding ground for millions of seabirds, from gannets, puffins to fulmars.

It appears that the word St Kilda is derived from the Norse or Vikings ‘sunt kelda’ meaning ‘sweet well water’ and was not named after a Christian saint. I could guarantee that very few if any St Kilda Football Club supporters would know that there was never a saint called St Kilda.

Our relatives gave us a book to read about the history of St Kilda. It was a fascinating story about a group of islanders who had a hunter gatherer lifestyle. During the summer and spring months the men gathered sea birds, collecting them for feathers for pillows and bedding, and oil to sell to the occasional passing ship.  They clambered up and down the 300 or more metre cliffs in bare feet – assisted by large prehensile toes allowing them to climb on the cliffs more easily.

Was the suburb of St Kilda named after the islands of St Kilda?

Not exactly.

In the 1840s a trading ship called ‘The Lady of St Kilda’ was anchored in Melbourne for many months. The area was referred to locally as ‘The St Kilda foreshore.’ Legend has it, that the then Governor La Trobe named the new village St Kilda.

Not from a Saint, or an island but a ship.

However, the ship had a link to the islands of St Kilda. The owner of the ship, Sir Thomas Dyke Acland named the ship to commemorate a visit to the island of St Kilda by his wife, Lydia, in 1810. Acland had named the vessel in honour of Lady Grange, the wife of a Jacobite Noblemen, who in 1734 who was about to reveal her husband’s treachery. She was imprisoned on St Kilda for 17 years. It is hard to imagine how the noblewoman endured years of living alone in extremely primitive conditions in a stone dwelling with an earthen floor, amongst a small local population who spoke no English (the islanders spoke Gaelic) in the island’s harsh climate and lifestyle.

What are the management lessons from the St Kilda story?

As managers we should never accept things at face value as what are believed to be ‘facts’ may not be true. This could affect how we effectively manage the many situations that arise in the course of our managerial responsibilities. Furthermore, it is important to be curious, do your homework and ask questions.  Looking back on my career, at times I certainly have been guilty of not heeding this advice.

If you would like read a book about the history of St Kilda (not the Australian Rules Football Club), the book below is recommended.

“Island on the Edge of the World: The Story of St. Kilda,” by Charles Maclean

Are you chasing field mice or antelopes?

Lion anetlope

 

“A lion is fully capable of capturing, killing, and eating a field mouse. But it turns out that the energy required to do so exceeds the caloric content of the mouse itself. So a lion that spent its day hunting and eating field mice would slowly starve to death. A lion can’t live on field mice. A lion needs antelope. Antelope are big animals. They take more speed and strength to capture and kill, and once killed, they provide a feast for the lion and her pride. … So ask yourself at the end of the day, ‘Did I spend today chasing mice or hunting antelope?’”

Newt Gingrich – speaker of US House of Representatives

What is Gingrich’s underlying message?

Certainly, the Pareto Principle or 80/20 rule is implied in this quotation . However, there is another message for managers and business owners here, that is to focus with discipline on the issues that provide the best return for your resources of time, money and expertise. The danger is business failure, as explained by Michael E Gerber in The e-Myth Revisited – Why most small businesses don’t work and what to do about it. This is where a business owner and manager who understands the technical nature of the business but does not understand the business is likely to fail. In summary, they do what they are comfortable in doing and what they know, not what they should be doing.

Jim Collins in his book Good to Great: Why some companies make the leap and others don’t, describes how a ‘culture of discipline’ is evident in successful companies. This begins with disciplined leaders who display empathy, personal humility and intense focus. They do not suffer from ‘I’ strain and rarely appear in the media seeking celebrity. Before purchasing our logistics business, I worked for a privately-owned transport company. In an industry that was known for its larger than life personalities who courted the media, the owner was virtually unknown. He ran a highly successful business which was far more profitable than many of the publicly listed companies in the industry. He was extremely disciplined in strictly adhering to his market niche which enabled higher profits and greater customer service.

In another example of discipline, I managed a large division of a transport business in a large regional centre where the managing director was passionate about truck safety. This involved vehicle journey’s being monitored by on-board computers to prevent speeding, exceeding mandated driving hours and excessive idling as it wastes fuel. If drivers exceeded the speed limit by 5% in a week they were disciplined and if this occurred three times within 12 months the driver was terminated. Like the lion it was targeting the areas that significantly affected the successful operation of the business. Each week the performance of the trucks and drivers was given to me to action. I decided against the advice of my peers to post the results on the drivers‘ notice board.

Did the drivers react negatively to being compared to others as I had been warned would occur?

No.

Instead each week many of the drivers would compare their performance of their vehicles and themselves. Some drivers would personally seek me out to ask if there were problems with their vehicle and why for example their vehicle had appeared to be idling excessively. They became self-disciplined team members who were more accountable and didn’t need to be micro-managed. Fuel economy improved and more importantly our accident record was the best in the business despite having drivers’ company-wide who travelled the most kilometres each week. Within the ‘safety framework’ a culture of freedom and responsibility had developed.

For a business to grow or change in a positive way, the discipline required must be where consistent behaviours align with achieving the organisation’s goals. Note the words – “discipline” and “consistent”. The aim is for consistent productive goal-oriented behaviours to become habits. Habits once formed become entrenched, however they must be right habits and they must align with the organisation’s vision and goals. In the drivers’ example, safety and performance became a habit. With the niche transport company, the discipline was only remaining in its narrow market niche. Both examples required disciplined people acting in a disciplined manner, demonstrating that discipline must start at the top.

Here is another example. I was engaged to undertake a business review by a niche logistics business which had suddenly begun losing money. Determining the prime reason was relatively easy; the business had lost a major customer who had contributed the majority of their previous profits. This was only a symptom of what was wrong. A walk through their numerous warehouses provided some answers. The warehouses were dirty, stock was not in the correct locations and staff were inadequately supervised. Management was focussed on managing day to day crises, were not enforcing operational disciplines, rates had not increased in several years and customer service was inconsistent. Classic chasing field mouse behaviour.

The business review formed the basis of a new business plan. New benchmarks for performance were established and a renewed commitment to improving customer service was implemented. This was underpinned by imposing operational disciplines in the warehouse following consultative meetings with staff. Several managers and supervisors exited the business and a new general manager and senior management team were appointed. In the first year the company made a modest profit. In the second year, profits exceeded expectations, revenue grew through targeted strategic sales in the business’ market niche, prices increased, unprofitable customers were forced from the businesses, a warehouse was closed and new leases with more favourable terms were negotiated. This was a good practical example of what Jim Collins describes in his book, Good to Great: Why some companies make the leap and others don’t; disciplined people – first who; then what, disciplined thought; confronting the brutal facts, and disciplined action; a culture of discipline.

Being a successful business owner, leader and manager requires discipline. Lack of discipline manifests itself physically in examples such as untidy and dirty warehouses, poor telephone manners and uninspiring first impressions.

What are the antelopes you should be hunting in your organisation?

Have you identified the field mice?

Is it clear to others in the business?

Do the antelopes align to your vision, values and goals?

Discipline in the areas of accountability, teamwork, and attention to detail are required. Disciplined leadership is defined by is defined by sound habits, rigour, consistency and routines. A disciplined environment assists in putting both management and employees on their best behaviour leading to improving productivity and profits.

If it’s not written down, it didn’t happen!

“If it is not written down, it does not exist.”

Philippe Kruchten –  Academic and software engineer

If it is not written down it didn’t happen. Now that’s a big statement.

Does this sound absurd?

Is it the truth?

Many years ago, I was listening to a recording of oral family history. It was claimed by a distant cousin that her father (my great grandfather) met the bushranger Thunderbolt (bushrangers were outlaws and highwaymen) as a young boy. Thunderbolt arrived unexpectedly early one morning on his father’s small land holding in the New England district of NSW. The story goes that Thunderbolt joined them for breakfast and while having breakfast he kept looking nervously out the window. Thanking them for their hospitality he gave them a gold sovereign, mounted his horse and rode off. Not long afterwards some mounted police arrived.  Apparently, this occurred in 1864. When I checked the dates, I found that my great grandfather was not born until 1866 and Thunderbolt was in jail in 1864. Although the event probably happened, it did not happen in 1864.

There is business lesson here that should not be under estimated.

My advice is to write down and record the most important things.

If a legal issue arises, the written word is far more reliable than someone’s recollection. It is important particularly with issues of people management and workplace health and safety.

Let me give you an example.

As a young manager in my mid 20s, I was managing a concrete plant in Canberra. The fleet of owner drivers continuously threatened and intimidated me. It was an unusual situation when looked at through today’s eyes. The drivers were independent businessmen, who owned a concrete truck. This was the same for four other ready-mix concrete companies also operating in Canberra. Despite being businessmen, the owner drivers were all members of a trade union. With the union’s assistance they restricted the number of trucks operating, thereby restricting competition and increasing the rates they could charge.

It was a business cartel restricting competition.  It was not a legally or government sanctioned cartel such as taxi plate licences. The construction industry was booming and the capacity to deliver concrete was restricted, adversely affecting the construction industry. The situation deteriorated to a point where driver’s representative in our business tried to tell us when and to who we could deliver concrete.

This was clearly illegal under the Trade Practices Act. Businesses were not allowed to collude and restrict competition and increase prices. This “arrangement” was adversely affecting our customers. On several occasions I was confronted and threatened. Having some knowledge of the law and knowing that this ‘arrangement’ was probably illegal, when threatened I quoted back that what they were doing was illegal. I then noted it in my work diary.

More than three years after I had left the business, I received a call from the company’s lawyer. The new CEO had decided to use Canberra as a test case to initially overturn the “arrangements” and then use it as a precedent in the state of NSW, to break up the arrangements there. Luckily, I had kept my work diaries and when called as a court witness, was able to quote the times, dates and conversations. The company won the court case and the cartel arrangement that had been supported by the union was quashed.

This outcome demonstrates the importance of recording events, as the diary entries were one of main reasons the court case was won. Too often in business, we are busy and fail to record important events only to find out later, that they should have been. The ready-mix drivers’ case was an important learning experience for me.

Employee issues such as performance management and safety requirements are areas which are important, and discussions and events must be recorded. Our memories cannot be relied upon as we cannot remember dates, times and actual conversations.

The Thunderbolt story illustrates the unreliability of oral history and memory. As managers, writing down important things is not optional. Many of us hate paperwork, however it is an essential part of our job.

What should you as a manager be recording?

Where should you file these records?

 

Management lessons from the fall of the Berlin Wall…

“The Wall will be standing in 50 and even in 100 years”

Erich Honecker – East German head of state, January 19th 1989

Almost thirty years ago, the Berlin Wall came down. The Berlin Wall was a guarded concrete barrier that cut off West Berlin from the surrounding Communist State of East Germany. Over 140 kilometres long, it was built in 1961 to prevent East Germans from escaping to West Berlin. From the early 1950s to 1961, nearly 20% of the East German population left the country for West Germany.

On 9th November 1989, with crowds mounting in East Berlin the East German authorities announced the end of travel restrictions and opened up several checkpoints for visits to West Berlin.  Thousands swept through the checkpoints. Soon Berliners from the East and West began dancing on top of the wall and breaking off pieces of the wall. The fall of the Berlin Wall triggered a revolutionary wave that ultimately redrew the map of Europe, bringing down the Iron Curtain and setting millions of people free. Within two years, the Soviet Union and its empire also fell.

For 28 years the wall kept people in, and kept people out, separating and dividing families and friends, dividing Germany and the European continent. Over 5,000 people had escaped over this time and sadly an estimated 200 plus people died trying to escape from East Berlin to West Berlin. No one tried to escape from the West to the East.

My father believed that he would never see the dismantling of the Berlin Wall in his lifetime. I can clearly remember him saying this to us at the family Christmas in 1989. The current thinking at the time was that Communism’s rise was inevitable. Very few ‘experts’ predicted or expected that eventually Communism would collapse, let alone so quickly, and that Russia would lose its status as a world super-power.

What are the three management lessons from the fall of the Berlin Wall?

  1. The power of a vision. On 12th June 1987 US President Ronald Reagan stood at the Brandenburg Gate and demanded “Mr. Gorbachev, tear down this wall.” His words were largely ignored by the international media. Many so-called foreign policy experts dismissed Reagan’s demand as naïve and sensationalist.

There are few things more powerful for a business than having a clear and concise vision. Amazon’s vision is “To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavours to offer its customers the lowest possible prices”. Amazon’s current market penetration and size is testament to their vision.

  1. Things can get better rather than worse. The worst-case scenario may not happen, particularly when people put their minds to achieving positive change. Very often we are subjected to negative media stories. We regularly hear people spreading such sentiments inside organisations.

Never under estimate what positive outcomes can be achieved with great leadership and teamwork. Everyday we are subjected to non-positive messages that make us believe our future is not in our hands. Like the East Berliners in 1989, by believing that we can escape from a prison-like environment, whether physical or mental, we can set ourselves free and make positive change.  The dismantling of the Berlin Wall is a reminder of how the seemingly impossible can became the inevitable and if there is the will to make it happen.

  1. Predicting the future is dangerous. Sadly, we tend to lean on so-called ‘experts’ who advise us and write books predicting the future. However, the fall of the Berlin Wall and the associated collapse of Communism caught almost everyone by surprise. We should be sceptical of people who claim they can predict the future.

In the late 1800s The Times predicted that “In 50 years, every street in London will be buried under nine feet of manure”. This became known as the “Great Horse Manure Crisis of 1894”.  The invention of the motor transport and Henry Ford’s assembly line production of motorcars at affordable prices changed this ‘expert’ prediction. By 1912, less than 20 years after this prediction there were more cars than horses in London. Furthermore, they were cheaper to own and use than a horse.

What are the 3 concluding messages from the fall of the Berlin Wall?

  • Change is evitable.
  • Things do not remain the same.
  • Whatever you are doing today will not be good enough for the future.

Certainly, the failure of Communism to adapt and change assisted in its downfall. This is the same for organisations. Many of the great corporations of times past no longer exist.

So, what is your business doing to recognise the evitability of change?

What should you be changing so your business not only survives but thrives?

Is an annual budget really all that important?

“The budget is not just a collection of numbers, but an expression of our values and aspirations”

Jack Lew – US Secretary of the Treasury

Many small businesses (SMEs) do not have annual budgets. In fact, I have come across some multi-million dollar businesses that do not have budgets, including several of my past clients.

What is a business budget?

A business budget is ‘a financial plan and prediction of future revenue and expenditure’. A budget is a goal for the business over the next 12 months.

Why are budgets important?

They serve a goal, or a plan…with 3 main purposes:

  • To forecast income and expenditure, and by extension profitability; (i.e. where are the costs incurred and where does the revenue come from to make a profit)
  • A tool for decision making that establishes a financial framework for the decision-making process, and assists in determining courses of action that can be either planned or unplanned over the year.
  • To monitor and measure business performance, where the actual business performance is measured against the forecast business performance.

In simple terms, all good businesses MUST have an annual budget, otherwise management and staff will not know what is expected of them, or the business.

How should budgets be compiled?

There are two main ways of compiling a budget; top down or bottom up:

  1. Top down is the less rigorous way of setting budgets and is more suitable for very small businesses. Often last years’ results are reviewed, and a percentage is added to revenue and costs for the following year.
  2. Bottom up entails reviewing costs, customers, revenue, sales and other Profit and Loss (P&L) items at a micro-level and determining what can be and what is likely to be achieved next year.

In my experience based on having my own business and on feedback from my clients, bottom up budgeting is the best method. It is important to invest the time in creating a comprehensive and realistic budget as it will be easier to manage and ultimately more effective than top down budgeting.

What are the suggested steps?

  1. Involve the right people, including financial, sales and operational staff. Their involvement will help gain their commitment to meeting the budget.
  2. Ask them for their estimates on sales, production costs or specific projects based on first principles by referring to each line item and customer in the P&L.
  3. Rigorously question each assumption, get agreement and then a commitment from those team members who are responsible for each part of the business. Ask questions such as:
    • Which customers will increase their purchases next year?
    • Where and how can we increase sales?
    • Will we be able to increase prices?
    • How can we reduce our fixed costs?
    • What staff will get pay increases next year?
  4. Use last year’s figures as a guide only, and do not simply make broad estimates from these figures.
  5. Complete the budget and share it with key staff.

In conclusion, the compiling of the annual budget is an opportunity to review and understand the business more thoroughly. A budget provides structure for the next 12 months, imposes discipline and holds people accountable for the business’ performance. What resources are required? How many staff are required? What customers are the most profitable? Where can we reduce overheads and still increase sales?

Overall budgets must be realistic and achievable and should also be aspirational and not too easy to achieve. A budget should have ‘stretch targets’, to ensure the business grows. In all my years in business, I have never set a budget where revenue or sales were less than the previous year.

Is success a matter of luck?

“Luck is where preparation meets opportunity”

Jack Gibson – legendary Rugby League Coach

Unfortunately, too often these days we hear, that success is due to luck. Whether in the ‘old’ media or social media we hear the same story line – success is a matter of luck.

Is it really the case that success is a matter of luck?

Perhaps all we need to do is visit Zimbabwe and get an appointment with Dr Mulongo , a witch doctor or In’yanga. We could ask that a spell be lifted to initiate number 9 in list of the problems listed above that she claims she can solve, by ‘removing bad lucky’!

As a dare, on a visit to Bulawayo several years ago, I did visit Dr Mulongo and asked her whether she could assist the Wallabies, the Australian Rugby side to win more matches by casting a spell on their opposition. Sadly, since this visit their performance has deteriorated, especially against the All Blacks.

Contrast this approach with the late Jack Gibson, a legendary coach in Australia in Rugby League from the late 1960s to the mid- 1980s. He was known for his economy of words, and his notable and laconic quotes that showed great wisdom and are still referred to today.

Gibson was totally unafraid of relegating ‘big name’ players who did not perform. As the first coach to use computers to evaluate player performance, he introduced new innovations into the sport of Rugby League from other sports, including American football and basketball. He was a great proponent of careful planning and high levels of fitness and effectively changed the game to become more professional. This led to 5 consecutive premierships with 2 clubs.

During my period of over 20 years in business, there were many times where people considered that luck made it successful. However, I do not believe in luck creating success. Like Jack Gibson, I believe that luck is where preparation meets opportunity. You make your own luck through sound leadership, preparation and hard work.

In the early years we were reliant on one of Australia’s largest retailers for over 80% of our business. We worked hard to build a close working relationship with them, focusing on them as a customer and exceeding their expectations. When they changed their distribution model, introduced electronic commerce and forcing suppliers to prepare their merchandise ‘store ready’, that is picked and packed with an electronic invoice for each store, we were ideally positioned to take advantage of this opportunity.

We worked with the retailer converting their suppliers into our customers. Once converted we worked hard at being ‘customer responsive’ and provided high level ‘hands on’ customer service. The business did not look back and many of these customers remained with the business until it was sold over 15 years later.

What are 3 lessons from this story?

  1. You make your own luck. This is done by being prepared, understanding your customers needs and the requirements and changes in the market place. If you are prepared you are in a prime position to take advantages of any opportunities that may arise.

This is how in the above example we were able to take advantage of the change in retailer-supplier relations.

  1. There is no substitute for hard work. As I tell my children, the only place where reward comes before work is in the dictionary Success comes from preparation, working hard, learning from your mistakes and never giving up.

In this example, when 80% of our business was leaving due to the change in the supplier relationship, our hard work with the retailer gave us the opportunity to work with them and convert their suppliers to become our customers.

  1. Focus on the customer. Customers are the lifeblood of any business. Without them you have no business. Focus on their needs, engage with them, meet them regularly, continually seek out their requirements and constantly remind them that you are looking after their interests.

By focusing on the major retailer who was our customer, we developed a constructive working relationship where they were able to recommend our services to their suppliers.

As a business owner or manager, is your style to believe in Dr Mulongo’s witch craft to ‘remove bad lucky’?

Or is your style more like the legendary Rugby League coach Jack Gibson, where careful planning and hard work leads to success?

Management lessons from the Battle of the Somme

“Lions led by donkeys”

Eric Ludendorff – German World War I General

This quote is attributed to World War I General Eric Ludendorff. Although he didn’t actually say this, he was describing the British tactics in the Battle of the Somme in France. The battle lasted for over 4 months in 1916, and resulted in just under 624,000 casualties

146,431 British Commonwealth and French Allies deaths

164,907 German deaths

It became a potent symbol of the futility of war, where the ‘flower of British manhood’ was lost and a byword for incompetent leadership.

The plan in World War I was to the break the German trenches through a week long arterial bombardment. The aim was to destroy the German trench system including the barbed wire protecting the German trenches, its occupants and neutralise the German artillery. The Allied infantry would then advance in waves through ‘no man’s land’ with little or no resistance and take the German positions.

However, the plan failed in its main objectives.

Why?

The German troops were too well dug in and low-level cloud prevented aerial artillery spotting. It had also been confidently assumed that the shells would destroy the German barbed wire in front of their trenches. Unfortunately, it was only partially successful and left ‘no man’s land’ a tangle of barbed wire and craters that made it difficult for the advancing infantry to negotiate. After the bombardment the Germans emerged from there bunkers and met the advancing infantry with well-placed machine guns.

Were there other reasons?

Yes, more importantly many of the artillery rounds were duds. An estimated 30% failed to explode or were the wrong type of projectile. This lead to the barbed wire remaining largely intact. Furthermore, much of the bombardment had been of shrapnel, not high explosive, and it failed to make sufficient impact on blowing away the wire or damaging the deep enemy dugouts.

What caused the high level of dud artillery shells?

World War I was an industrial war. Massive amounts of materiel were required – shells, ammunition, ships, railways and aircraft as well as kitting out millions of combatants. In 1916, after 2 years of war Britain was running short of artillery shells. In order to meet the demand many companies who had no experience in manufacturing munitions began production. While manufacturing shells may not be difficult, it was a different story with fuses. Fuses were technically difficult to manufacture, and quality suffered. Quality controls in the expanded munitions industry were poor. It is also difficult to expand production capability rapidly without quality issues. This was exacerbated by worn gun barrels (1.5m shells were fired in the first week) which contributed to shells not landing fuse first and exploding. The majority of the faulty fuses were tracked to a single manufacturer. Remedial action was quickly taken, and progressively, after the Battle of Somme, the problem was resolved.

What were some of the other reasons?

Although technology was a major factor, it was further exacerbated by incompetent leadership and strict adherence to a flawed and untested strategy. General Haig, the British commander had never visited the front and saw the effects of the bombardment and later the massive loss of life.  A patrol into ‘no man’s land’ the night before the Allied infantry were to advance reported that the barbed wire had not been destroyed. This report was ignored.  Also, low-level cloud prevented aircraft from spotting this problem. Other patrols into ‘no man’s land’ reported hearing the Germans singing in their trenches, indicating the barrage had failed in its objectives, and were also ignored. Other factors were the inexperience and immature state of training of the officers and artillery gunners.

Should Haig and his staff have done something different, once they knew the bombardment had been only partially effective?

Could they have avoided the tens of thousands of casualties of the opening attack?

It is easy in retrospect to believe that they could have.

However, the Commonwealth forces faced an impossible situation. Their major ally the French, were pushing hard for the British to launch an attack to reduce the German forces pitted against them in the Battle of Verdun and prevent the destruction of the French Army. There had also been no opportunity for surprise and with the artillery barrage the Germans knew full well the attack was coming.

What could they have done?

Cancel or delay the attack?

Yes, this was possible.

Fire an even longer bombardment?

This was not practical due to shortage of shells, and dud or incorrect shells. The die was cast.

It is easy to be wise in hindsight.

So, what are the management lessons from the Battle of the Somme?

  1. Do NOT overly rely on technology – – technology is an enabler and not the answer
  2. Quality control and competent supervision is essential in organisations, as demonstrated by poor management in the factories
  3. Incompetent leadership severely impacts on organisations. Over 150,000 Allied deaths could have been prevented if the facts had not been ignored. This was further complicated by not having a Plan B, using an unproven strategy, not having enough equipment and not doing their homework

There are valuable lessons for managers in learning from military blunders.

Can you think of examples in your work life or in your organisation where the over reliance on technology, poor supervision and quality control severely impacted an organisation?

How profits leak in family businesses

 

 

‘‘Forget “blood is thicker than water.” That kind of mentality will send you straight into a financial hole you may never climb out of. Believing that your relatives feel they have as much at stake in the business as you, is a fallacy”

George Cloutier, Author, Profits Aren’t Everything

What are the dangers for profitability with family businesses?

Company profits can be likened to a bucket of water. As a manager or owner, you are responsible for keeping as much water (i.e. profits) in the bucket as possible and plugging the holes where profits are leaking out of the business. Plugging the ‘profit leakage’ is more difficult to eradicate if the business has poor systems of management and governance.

As a former business co-owner, with 3 other partners that employed over 100 people, I was clear about the potential issues with employing family members. Having worked for several family businesses beforehand, you need very clear rules if you decide to employ family members. I had witnessed the corrosive effect on profits of ‘profit leakage’ when family members held significant positions in a business. From the managing director’s brother who was totally incompetent, to a wife who held a significant position and had low people skills which all lead to lower profits.

Here are 5 circumstances where profits leak from family businesses:

  1. Family members have different rules to other employees. I have seen situations where rules are bent or even ignored for family members. Having more than one standard can adversely impact profitability. However, this is rarely acknowledged, particularly the impact these have on employee morale as it effects motivation and productivity. For example, family member who are employed in the business may decide they have different time keeping rules to other employees.
  2. Family members having a sense of entitlement. We constantly hear stories of relatives employed in family businesses having neither the skills, training nor temperament for their roles. It is essential to have clear roles and responsibilities, and everybody including family members must be held accountable for performance, otherwise profits leak through poor sub-optimal performance. Having worked in a business where the owner employed his son, I witnessed the corrosive effect that the son’s poor work ethic and his sense of entitlement had on the business through poor morale and lack of respect for both the owner and the son.
  3. Maintaining the Status Quo. As family members age they often become resistant to change, stifling innovation and new ideas. Furthermore, they can become complacent and often have other agendas. The one certainty about business is change and anything that impedes change will lead to opportunities being missed and profits adversely effected. Business founders and leaders who stay too long in the business, often stifle change where egos rather than sound judgement, can be the basis of their decisions.
  4. High employee turnover, particularly high performing staff. There is no better indication of poor business health than top performing staff leaving. In family businesses, when high performing non-family members are passed over for promotion they leave when they see positions reserved for relatives. There are hidden costs in employee turnover. Profits leak as time and money is spent on recruiting, training, and settling in employees into their new positions whilst non-performing relatives remain in their positions continuing to negatively affect morale. I left a senior managerial position many years ago when I was twice passed over for a promotion, when the position was given to the brother of the managing director who was incompetent and lazy and generated little respect from staff.
  5. Family tensions. Tensions arise in most families and even if they do not have anything to do with the work environment they have a habit of affecting the work situation. This can negatively affect morale and the efficient and effective operation of the business and ‘leak profits’. For example, I have witnessed situations where spouses who worked together were having domestic troubles. This severely impacted the running of the business.

What is the solution?

First of all, recognise that it could be a problem. Put your egos aside and recognise the problems and deal with the issues in a rational and organised way.

Secondly, ensure that there are good systems of management and governance. Clear rules on performance, accountability and behavior are essential.

Finally, make sure that you implement and enforce these rules and management systems are followed. Outside advice using a mentor or advisor, their guidance and assistance can be useful tools to improve company performance.

Family businesses have significant advantages over large bureaucratic organisations, so don’t allow the weaknesses to over-ride the strengths as family businesses can be more nimble, effective and profitable.

So, will you prevent ‘profit leakage’ in your family business?

How do you eat an elephant?

“There is only one way to eat an elephant: a bite at a time.”

Desmond Tutu – Noble Prize laureate, anti-apartheid campaigner

In using this old African proverb, what did Desmond Tutu mean?

How often are we confronted with tasks or challenges that seem insurmountable?

The first action in confronting a major project is to set the goal…………that is, eating the elephant.

However, in order to reach the goal of eating an elephant you need to plan and set incremental time bounded goals. In this case, it’s eating the elephant one bite at a time. Setting goals is an important discipline for business owners and managers. Furthermore, setting goals also helps in creating a meaningful, satisfying, and successful life.

What has eating an elephant got to do with business?

Small goals have several advantages in giving you:

  1. something that is tangible and achievable on which you can focus
  2. the satisfaction of achieving the small goals
  3. the way to achieving your major goal

A junior IT employee I once employed was daunted by the number of tasks he had to complete. He said he felt helpless and was not enjoying his role as he ‘was not getting anywhere’. We devised a simple plan that visibly showed progress. Using a simple exercise book, he listed the jobs to be done, both large and small. When he completed a task, it was crossed off the list and dated. He immediately had a visible and simple method of tracking his progress. This resulted in a significant improvement in his job satisfaction and productivity.

Job satisfaction, like life satisfaction, is higher if you see life or your job as a series of small milestones or goals along the way. Remember life, and this includes your working life is not a destination but a journey.

Whilst the practice of goal setting is important, there are certain ways to set goals that will increase the chance of success, including using the acronym, SMART for setting goals:

Specific – be very clear on what you wish to achieve. It also helps to visualise your goals. Using the elephant analogy, an African elephant weighs around, 5,000 kilograms.

Measurable – set a goal where you can measure your progress toward achieving it. Record the kilograms of the elephant you eat each week. As Peter Drucker, the famous management thinker said, “what gets measured gets done.”

Attainable – your goals need to be reasonable and realistic. You then have a better chance of success. With the elephant example, eating 100 kilograms per week would be unrealistic whereas 10 kilograms is achievable. This moves you towards your final goal, which is eating the elephant. However, at 10 kilograms per week it would take you nearly 10 years to eat the elephant by yourself. This brings us to the next consideration.

Relevant – set a goal that has meaning, whether personal or for your career or business. There is little point in having goals that have no meaning as you are wasting both time and resources. Also, you are unlikely to be motivated when the going gets tough. Due to the time involved in eating the elephant by yourself, it is not relevant or practical, even if you like elephant meat!

Time-Bound by setting a timeline or deadline you are forced to commit. This includes the small goals along the way that lead up the major goal. In meeting both the relevance and time criteria, to eat the elephant before it becomes rotten, you could enlist 100 of your fellow villagers and it would be completed in only 5 weeks!

Note: 10 kgs per person per day multiplied by 100 villagers and 5 weeks equals 5,000 kgs

Often when I sit in front of a client, they are daunted by the task to improve their business’ performance.

How do we solve the apparently daunting task?

By using the ‘eating the elephant, one bite at a time’ approach. We break down the business plan into initially, 3 year goals, then 1 year goals and more importantly 90 day ‘bite size’ goals with actions that add up to complete the business plan.

Goals are dreams with realistic and achievable deadlines.

Motivational coach Zig Ziglar stated that “a goal properly set is halfway reached.” If we remember, setting a goal is just like eating an elephant, bite by bite, and bit by bit, we can reach firstly, our smaller goals before the final goal.

What is going to be your approach when you are confronted with a daunting task?