That was week ending 27th April 2012

Well that was a week wasn’t it!  What with the Murdochs at the Leveson Inquiry, a technical double dip recession and the collapse of the Dutch government, it was a week in which business, the economy and politics became inextricably and messily entangled. It’s hard to know where to start, but here goes.

Flat Earth Society

The previous week I sat down with a group of East Midlands’ business people and the regional agent for the Bank of England. “Our best quarter ever” and “optimistic about 2012” were just some of the positive views expressed, significantly more positive than the Bank of England man had expected.

Then we learn that the economy contracted by 0.2% and we are technically in double dip recession. Would this have come as a surprise to those people at that meeting? Well probably not, because what they also all agreed on was that there are and will continue to be winners and losers out there. Therefore the net overall improvement, if any improvement at all, will be small.
So whether the economy is 0.2% up or down makes little real difference. The economy continues broadly flat with nothing significant in prospect to change that any time soon. We have been telling our clients for some time that they should develop their strategy on this basis, but that does not mean that they cannot grow. What it does mean is that without growth in the wider economy they have to win market share and that often requires a different business model, strategy and attitude.

The group at the meeting agreed and that the key difference between the winners and losers was “attitude”. Those who believe the earth (and the economy) is flat are afraid to venture far and try anything new. Those who believe the earth is round know there are opportunities out there, even if they can’t see them yet over the horizon and are prepared to venture out after them.

Yes but …

We do need to get the economy as a whole to grow and a roughly equal balance of winners and losers is not going to do what’s needed. We think there are three key challenges to overcome, where government has a key role to play.

First there are two types of small business with potential to grow, the relatively new business with innovative products and services and the established business that fought its way through recession, often at considerable cost to profits and balance sheet but is now able to grow again. However the financing requirements for both types of business are all about the future, whilst conventional lenders’ criteria are based on past performance and current balance sheets.

These two perspectives are fundamentally incompatible so it should be no surprise that banks are not providing sufficient finance to fuel growth for smaller businesses. “The banks are not lending, there’s no demand” arguments are getting us nowhere and we need new radical thinking with government providing the catalyst.

The second challenge is how to unlock the mountains of cash currently being hoarded by many businesses, both big and small.  This is about “risk” or at least the perception of risk. Psychologically business people need to feel the prospect of reward from investment to be significantly greater than the risk. Right now many can see the risks but not the reward. But just look at the effect the changes to the “patent box” tax regime had on investment intentions at GSK and others. This approach should be used across the business tax spectrum, especially where it would encourage employment.

Third, government should switch on more spending on infrastructure related projects and the OECD now appear to agree. This may need more radical thinking on transferring spending from other areas plus, as the OECD suggest, some easing of the time frame for deficit reduction. Not easy as the transfer would likely come from areas such as welfare and local services. However the boost to the economy and employment would be significant in a relatively short period of time.

If effective strategies were implemented to overcome these three challenges we believe we would see the economy growing within 12 months. Anybody got any better ideas?

Shareholders are revolting

The story on Barclays CEO Bob Diamond’s pay package continued. Nearly a third voted against the remuneration report or abstained. Chairman Marcus Agius appears to think it is all about communication. "Evidently we have not done a good enough job in articulating our case: on some matters we should have communicated earlier and more clearly". However just how you tell shareholders " we are paying ourselves three times a much as your total dividends" without making them think enough is enough is beyond us.

It is too early to say if finally the big institutional shareholders are really going to hold their directors’ feet to the fire and insist reward must reflect performance. However for all the politicians’ huffing and puffing and the sheer exasperation of the rest of us the resolution of over the top reward for mostly mediocre performance was only ever going to come from shareholder pressure. If Barclay’s directors have to buckle maybe this will be the catalyst for change.

Thought for the week

We are grateful to Sally Anderson of Sally Anderson Executive Support Services for this quote from Rosa Parks. On first read it seems a bit “motherpie and applehood” but then it grows on you.  See what you think.

“Stand for something or you will fall for anything.  Today’s mighty oak is yesterday’s nut that held its ground”.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

That was week ending 20th April 2012

When is BIG TOO BIG?

On Wednesday we had the long trailed statement from Tesco’s Chief Executive Philip Clarke confirming reduced profits in their UK operation. He announced a £1bn investment in UK stores focusing on improving staffing levels, smartening up stores and delivering better prices and product ranges. Clarke said this plan would “… put the heart and soul back in to Tesco”.

However commentators have warned that Tesco is now so big that it will be very difficult if not impossible to achieve a turn around fast enough to out pace the competition. So apart from wondering what Tesco have been doing if they have not been “improving staffing levels, smartening up stores and delivering better prices and product ranges” this also made us think about when is BIG just TOO BIG.

There are different types of TOO BIG - too big to manage, too big for stretched financial resources, too big for market demand and so on. However we think the real issue is when a business becomes TOO BIG TO CHANGE. So size doesn’t matter, what really matters is CHANGEABILITY, the personal and organisational ability and capacity for change. If your business has grown beyond your CHANGEABILITY then it is TOO BIG, for you at least.

So think about what might cause you to need to change your business significantly and rapidly and how you would do that, fast and effectively. How good are you right now at implementing changes in your business, fast and effectively? One tip – if you think this is “change management” you are likely to miss the point.

Off their Marks

M&S also announced disappointing sales figures. By way of explanation, they stated how many items of shoes and clothing they did not sell because they did not buy enough stock. We think it is pretty clever of M&S to actually track what they did not sell but are perplexed as to why they were not clever enough to anticipate a cold snap in February.  Have M&S now become so clever with systems that they have lost sight of some the “arts” of retailing?  Tesco also perhaps?

More Women of the Year please

Congratulations to British fashion designer Anya Hindmarch, for winning the Veuve Clicquot Business Woman of the Year Award. The run up to the awards stimulated more debate on women in the boardroom, or rather the lack of them.  There are many different views on why there are still so few women in senior positions in British companies and just as many on what should be done about it.

For us though a fundamental factor in the debate has somehow been lost. It may be considered non PC to say this but …. “women are different from men and men are different from women”. Part of the problem is an unwillingness and lack of skill to manage these differences in ways that can unlock the potential from those differences. It is easier to prefer someone who “will fit in”, “won’t rock the boat”, “will be a team player” in our team and playing the way we think it always has and always should be played.

Show us a board or management group that is largely composed of the same kind of person, male or female and we will show a group of people less productive, innovative and effective than they could be. They may have a nice time together but eventually they will waste away and fail. The “differences” are the reason why we need both women and men at all levels in all organisations.

Women showing how it's done

Finally, CIPD published a labour market analysis which reported that there are 271,000 more women over 50 in the labour market since 2008, an 8pc increase. Of these 172,000 are self-employed, up 16.3%.  By contrast only 3,000 older men are in work.

The report suggest various reason for this. However for us there is a clear message. When the going got tough these older women got going. Now isn’t that the attitude we all want to see in our businesses at all levels?

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

That was week ending 13th April 2012

Politicians tax affairs

This one will probably run for a while but it was certainly around last week. However most of the pressure for publication of politicians' tax affairs seems to be coming from politicians themselves and of course journalists. I am not sure just how interested the rest of us actually are. Politicians appear to want to boast that "my income is smaller than yours" which is a bit perverse when you think about it, whilst journalists are hoping for a juicy story with possibly a ministerial scalp at the end of it for which they can claim the credit.
However if government policy is that everyone should pay their fair share of income tax then if they are to have any credibility at all Ministers at least must show that they are personally paying their fair share. It's called "setting an example" something that has always been an essential element of good leadership. If politicians could remember this then they might just do the right thing, first time, more often.

Facebook - coasting not surfing?

Facebook's acquisition of Instagram raised a few eyebrows. They paid $1bn dollars for a business less than 2 years old and with no revenues. Several commentators have understandably speculated whether this is a sign of another tech bubble. However others have noted that this looks more like Facebook taking out a smaller more innovative competitor whilst it has the financial firepower to do so.

We agree. To us Facebook looks just too comfortable, coasting towards its supposedly record IPO sometime soon. Google continues to produce new services and find innovative ways to exploit its expertise but Facebook just seems to be still, well, just Facebook.  In particular they appear have lost any clear sense of purpose, other than the big IPO. Unless something changes this will catch them out, just look at Yahoo.

So we wouldn't touch Facebook's IPO with a barge pole. In the meantime if you want to make money out of Facebook then come up with a small innovative idea that looks like a threat and you may well find they throw money at you.

Mothercare - into care?

Another week another retail casualty. Mothercare announced more job losses and store closures in its UK business. It will have just 200 stores, less than half the number it had in 1981 when founder Selim Zilkha sold out to Terence Conran's Storehouse (remember them). When Zilkha floated Mothercare he said " we will continue to do what has made us successful, provide everything for mothers-to-be, for their babies and young children".  He did this with a highly effective combination of stores and mail order, the nearest thing at the time to a "clicks and mortar" operation.

So here was a clear sense of purpose and effective system to deliver it. But with Zilkha and his team gone both were soon lost. First in the confusion that was Storehouse and then in the struggle to cope with competition they had allowed to overtake them in almost every respect.  True they had success overseas, but mostly built on joint ventures and franchising.  If the UK business continues to struggle this will affect the confidence of its current and potential overseas partners.

Businesses with a clear sense of purpose find they can make the right decisions to grow and sustain themselves. Those that have lost it or never had it just get lost as Mothercare has been for over 30 years.

More oil & higher prices

Finally, we spotted a report from the International Energy Agency that a combination of increased production from Opec and sluggish demand has resulted in oil supply constraints easing. Current high prices are say both IEA and Opec more to do with perceived than actual shortages. Much of the extra supply has so far been stockpiled on land and at sea and it will be interesting to see how long that situation can be sustained. Whilst we might all be pretty pleased to see some of the speculators involved with their fingers on fire, the pleasure would be short lived and not actually the point.

The situation is finely balanced. Unless we want to endure near recession levels of global economic growth energy costs will continue to rise over the medium to long term. Any business, big or small that does not have as part of its strategic plan the means by which it will significantly reduce its energy consumption year on year will only find out why it needed this when it is too late.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.