Economics & Research Blog
Don't Tweak, Pre-build Instead
One of the dangers of having too much information is that you eventually think that information flow is responsible for creating value rather than knowing that there were decisions and actions that created the information.
By Dr. Joe Webb
Published: August 19, 2009
One of the dangers of having too much information is that you eventually think that information flow is responsible for creating value rather than knowing that there were decisions and actions that created the information. Bureaucracy workers start to think that what they do is the mission of the business rather than the ideas that created the goods that support their positions. We all knew that GM was in trouble years ago when the company lost sight of things and it started to be called “a bank that makes cars.”
In times of economic pressure, it is easy to fall into making decisions based on spreadsheets or various accounting reports. The trap that awaits managers there is that by shuffling some numbers around they can tweak the business into a better balance. If it's not measured, it is said, it can't be managed. But what if “it” is something no longer as valuable or appropriate to the marketplace? Doing the wrong things well is a hallmark of an organization that has strict management controls.
I use spreadsheets constantly, and I even build some business models in them. I have seen financial models of printing companies where you can make a change here and a change there and see how they affect the bottom line. Back in graduate school (the first time) we were split into teams to run a business simulation. It was just an exercise in moving numbers around. I know our team lost. One has to ask if it's really worth it.
Nowhere is modeling more common than in the investment business. A recent Wall Street Journal article focused on overuse of data mining. One analyst, the article states, “got so frustrated by 'irresponsible' data mining that he decided to satirize it... After casting about to find a statistic so absurd that no sensible person could possibly believe it could forecast U.S. stock prices, Mr. Leinweber settled on annual butter production in Bangladesh. Over an 13-year period, he found, this statistic "explained" 75% of the variation in the annual returns of the Standard & Poor's 500-stock index... By tossing in U.S. cheese production and the total population of sheep in both Bangladesh and the U.S., Mr. Leinweber was able to "predict" past U.S. stock returns with 99% accuracy.” The analyst really worried when some investors started to take it seriously and asked when the new data were coming out. We did our own here at WhatTheyThink, when in our April Fools' edition, we found that printing shipments had an incredibly better statistical relationship with the home runs hit in major league baseball than with GDP, made even funnier because it was right. See, banning steroids makes printing shipments go down. It's that simple.
I worry when I hear about companies cutting back in some supposed surgical way when things get tough, because I just know that they are making sub-optimal decisions. I can almost hear the clickity-clack of keyboards and see the Excel spreadsheets being updated, with comments like "all we have to do is..." I choose “sub-optimal” carefully, from the time when I was actually teaching quantitative analysis (please don't ask me to do it again). Getting by with less is fine, but only perpetuates the same things, just less of them, with no real jumping off point to do something quite different.
It's a System, Not a Spreadsheet
When you look at organizations as a system, things can be different. The definition of a system is a group of interrelated parts working toward a common objective. The task of management is to keep that system working in a marketplace that is constantly changing, nudging or reinventing those parts to work in different relationships as the system adapts to that marketplace. Systems theory and management was popular for a while, and I found it valuable from a conceptual standpoint. The analogy of "when you sqeeze one part of a tube of toothpaste another part bulges" was often just as good, however.
One of the concepts we learned quantitative modeling however, is that one part of a system can work to optimize itself, and ends up ruining the system, making it run suboptimally. (If any of you out there remember learning linear programming, you know this part well).
The best example I have is from personal experience. A manufacturing department was rewarded for producing more of its work within a specified range. By careful analysis, they set the range of acceptability, and were able to convince management that the range had to be a bit wider because the manufacturing facility was not really adequate. They ended up with an easy target, met their objectives and got a bonus. The tech support department, however, ended up fielding a higher than acceptable level of customer problem calls because product that was unacceptable to the market was being approved as good in manufacturing. Manufacturing had less waste, tech support costs increased because they couldn't get their regular work done either, with the net result being less profit for the whole company.
All of the number crunching tools that we have today are great, but they have to be viewed in perspective, and of course, used properly. No spreadsheet can capture all of the connections that a business has inside it. There are structural and defined aspects to all organizations, but there is an informal internal culture that cannot always be quantified, and there are the actions of constant interaction with customers and competitors that cannot always be quantifiably understood. That informal organization is what makes companies work well and gives them a culture and a personality.
All cost cutting has to be viewed in perspective. One can defer spending so that it does not appear in a particular time period's report, but some spending can only be deferred for so long, such as investment or maintenance. Cost cutting has a quantitative effect, but also effects that cannot be plainly seen. Cost cutting for the sake of tweaking operations is eseentially useless.
Organic Change with an Eye to the Future
What is necessary is to create truly organic change. Difficult economic times are perfect for restructuring and recreating businesses. When things are going well, there is an general acceptance that minor changes are necessary here and there to accommodate market changes, such as new customers or changes in the needs of clients.
When good times sour, customer budgets are in question, their plans are in flux, and contacts at client companies are gone, that is the perfect time to step back and look at the purpose of the printing business and what it does for customers, from scratch.
Don't ask your customers where they're going and prepare to go there: they don't know.
What you need to do is talk about their markets, their products, their target audiences, and their problems. Find out how they stay in touch with their customers, and how they find and attract prospects. Get into the nature of their sales cycle, and what their sales people do. Start thinking about how some aspect of communications can change that for them. This is especially important for understanding their problems. They may have staffing, space, shipping, transportation, management, or a host of other issues. Review what you find with your management and with key freelance resources who can be trusted to work with you. Start to look for patterns with other businesses. Within a few weeks, you will have a sense of the viability of your current businesses and capital base, and have some ideas about what your new business might look like. Keep refining and testing the ideas, and gradually start to act on the program. It is clear: former ways of doing business have to yield to different ways, and anything that relied on print as a primary communications method must fall by the wayside, to be joined with other acts of value creation important to the marketplace. This is not easy. There's still lots of equipment around that may not be suited to client demands, and becomes less appropriate every day. This might be the biggest problem of transitioning printing businesses these next few years.
In slow economic times, you're not hunkering down, you building a business that will be prepared for the client needs as they emerge. Stay ahead of the clients, just not too far ahead. It's called leadership.
In Monday's Column
On Monday, I'll take a new look at the benefits of print as they have been traditionally delineated. There's been quite a change in the last three years or so. There is increased penetration of broadband, more handheld devices, faster and more ubiquitous connectivity, and the rise of social media. The benefits of print need to be in a vastly different context. Remember: consumer time on line has passed business time, and just three years ago, social media was nowhere, and now it's an average of 10 minutes of every hour spent online. If your company had a five year plan written in 2006, there was no way that the rise of social media, and an effect on print communications, could have been foreseen. For that reason alone, our understanding print's benefits need to be under constant review and scrutiny, and viewed from the communicator's perspective.