AlastairThomson.com

Before we go any further, a fungible isn’t something hippies munch away on in their vintage VW Campervans at a music festival.

Although fungibles can be quite addictive.

Or, more accurately, how most people think about fungibles can be addictive.

And, like most addictions, what starts off as a misjudged right-of-passage experience, quickly gets you hooked. In no time at all, you’re sleeping in a skip and eating out of restaurant bins in back alleys in the wee small hours.

Not literally, perhaps. But intellectually, for sure.

What’s a fungible?

I first heard the expression “fungible” in my accounting exams. (Valuation of fungible assets, anyone…? Fond memories…!)

A fungible asset is one where the units are fundamentally interchangeable with identical units of the same asset class.

One-ounce bars of 24-carat gold are fungible. Every one-ounce bar of 24-carat gold is identical in weight and purity to every other gold bar.

If someone else comes along and wants to swap one of their one-ounce bars of 24-carat gold with one of yours, subject to some quality and provenance checks, you wouldn’t care. Every bar is identical in all its physical properties to every other bar, and they are all worth exactly the same.

Also gold bars last for ever. Archaeologists still find gold bars in the tombs of kings from thousands of years ago. They never go off. And an ounce of 24-carat gold mined 5,000 years ago is worth exactly the same as an ounce of 24-carat gold mined yesterday.

Contrast that with a tray of baked beans on a supermarket shelf. They are kind of fungible in the sense that one tin of Heinz beans (don’t buy any others) is the same as every other tin…at least in the short-term.

But if I offered to swap a tin of beans I bought 10 years ago with the tin of beans you bought yesterday, you might not see those two products as identical.

What if the 10-year old beans have gone off and give you food poisoning? At the very least they’re probably not going to be as flavoursome as the beans your friend bought yesterday.

Although tins of baked beans have a long shelf-life, there’s a reason supermarkets pull the open trays of baked beans to the front of the shelf and put the most recently-delivered tray of baked beans behind it. That ensures the oldest (and presumably freshest) stock goes first.

So baked beans are fungible-ish, but although they are identical in the short-term, over a 10 year period they might not be fungible at all…even leaving aside the possibility of botulism.

And of course, that effect is magnified with short shelf-life products like salad and dairy. A year-old pint of milk is not remotely fungible with a pint of milk that just arrived in the supermarket, fresh from the diary.

But enough about your weekly shopping habits.

Why does this matter for your bottom line (whether or not you run a supermarket)…?

So what?

In a normal business setting, away from our supermarket analogy, the biggest problem with fungibles is that everyone thinks just about everything in a business is fungible, when the reality is – with very rare exceptions – that’s completely untrue.

Whether or not they use that technical expression, too many business people assume that every unit of everything is identical to every other unit of the same thing. Even though that’s almost never the case.

Imagine you’re due in court tomorrow, accused of a serious crime you didn’t commit.

Clearly, you need one unit of “lawyer” to defend you.

But lawyers are not fungible products.

Just for starters, if you’re ever accused of murder, I don’t recommend taking the lawyer who does your tax planning to defend you. That’s still one unit of “lawyer”, but if you think that’s a good answer, I suggest you pack an overnight bag and say farewell to your loved ones, as it’s very unlikely you’ll be seeing them much for the next couple of decades.

And I know you think that’s clearly a ridiculous thing to do. But I’m just exaggerating to make a point.

Ask yourself, could you possibly find one unit of “criminal defence attorney”?

Well, almost certainly yes.

But if you’re a business leader accused of murder, are you going to choose the unit of “criminal defence attorney” who qualified last week, or the unit with 25 years’ experience?

Those two units of “criminal defence attorney” are not the same. They’re not fungible.

Even if you go a step further, and you decide what you really want is one unit of “criminal defence attorney with 25 years’ experience”, might there be a difference between someone with 25 years’ experience who has won every case and someone with the same experience who has lost every case?

I know which one I’m more likely to want defending me.

So now we want one unit of “criminal defence attorney with 25 years’ experience who has never lost a case”.

Except that is likely to mean just one single person. If you’re lucky. Off-hand I don’t know any lawyer who could make that claim and, over the years, I’ve met a lot of lawyers.

At the start of the process, you think you’re procuring one unit of “lawyer”.

But that’s a completely inaccurate perception of what you need.

What’s more, what you really want might not even exist…or if they do, odds are they’re not sitting at home just waiting for you to call. They are at the top of their profession, and they’ll already have a jam-packed diary full of high-paying clients.

It’s very unlikely you’ll get a look-in.

It’s not just lawyers

And it’s not just lawyers.

People who think their business can be reduced down to units of production are addicted to simplicity.

That’s a level simplicity which doesn’t really exist. But if you become addicted to that view of the world, I guarantee you’ll end up with higher costs and lower revenues…the exact opposite of what you are hoping to do.

If you think one unit of “customer service operative” is infinitely exchangeable with every other unit of “customer service operative” that’s just as bad as selecting the newly-qualified lawyer to defend you on murder charges.

A warm, friendly, helpful person responding to a call and getting a positive outcome for the customer brings enormous value to your business.

Outsource it to someone halfway around the world who learned English via ChatGPT, and has very little idea of what it means to book a car into a main dealer for a service, and you’re more likely to be destroying value than creating it.

This doesn’t just apply to people, or service-based roles.

When I worked in the printing industry, there were a number of places we could buy paper from.

The paper was identical, whoever we bought it from.

It was about as close to being a fungible product as you are likely to get.

So who did we buy it from?

The paper merchant who gave us the best service. The one who would respond to rush orders. The one who would accommodate special requests without making a fuss. The one who took extra care to make sure our deliveries arrived on time.

The paper itself might have been a fungible product. But the process of buying the paper wasn’t.

Dumb cost cutters

What often happens in organisations is that, for some reason or another along the way, there’s a need to cut costs or drive up profits.

That’s when the dumb cost cutters get drafted in.

Or, if you already employ a few people naturally inclined in this way, it’s when you let them out of their cage to run their efficiency slide rule over the business after years of listening to them moaning about the extra cost of buying PG Tips for the staff canteen when Tesco Value Teabags would do just as well.

They’re the sort of geniuses who would make you hire a newly-qualified lawyer to defend you on a murder charge, purely because their hourly rate is a fraction of the rate someone who knows what they’re doing would charge.

They also think that as long as someone answers the phone, and they don’t cost too much, that’s a tick in the box for customer service. Even though that’s almost certainly destroying customer goodwill and reducing their future repurchase intent along the way, thereby reducing the value of your business.

They also put out a tender for the million sheets of paper you bought last year and choose the cheapest price, without pausing to consider that a printing press stopped for more than 20 seconds because of a late paper delivery from a supplier costs vastly more in press time than the tenner they so cleverly thought they had saved.

(They have probably also increased the costs for express deliveries, overtime costs, credits which need to go to the client for late deliveries, and 101 other things too. But those never go on the spreadsheet they use to show the boss what a good job they’ve done.)

To run your business at the lowest possible cost, what you need to do in a production sense is organise your supply chain and manufacturing process to be completely calm from start to finish. You need everyone working in a steady rhythm like the proverbial well-oiled machine.

Regular crises with late deliveries or wrong deliveries scupper all of that. Drama is always negative to your bottom line.

Quals vs quants

The fundamental problem in many businesses is that they think they live in a quantitative world, when the reality is we live in a qualitative world.

Too many people think it’s all about the numbers, when the reality is the numbers come second.

Over the years, I’ve found that if you get the qualitative elements right, the quantitative elements largely look after themselves.

I instinctively push against anyone who thinks we need one unit of “lawyer” or one unit of “customer service operative” or one unit of “a certain number of sheets of paper”.

But I’ve met plenty of people addicted to that fungibility myth over the years. People who believe any business can be reduced to numbers on a spreadsheet.

Like a street-corner dealer who gets high on their own supply, they make plenty of bad life choices.

They’re so busy having fun with fungibles, imagining that everything apart from their own genius is infinitely replaceable with identical other units of something that’s superficially similar, that they forget almost nothing in life is a fungible product.

If they were managing a warehouse full of gold bars, that might be OK because those really are a fungible product.

For almost everything else in your business, fungibility is a myth.

So why run a business on an assumption that it’s true?

Very few businesses run their logistics on the assumption the Earth is flat. So why would anyone run their business on the assumption that one unit of “lawyer” and one unit of “customer service operative” and one unit of “paper” are all fungible products when that clearly isn’t the case at all.

Start to think about problems and opportunities in your business more broadly. Lift your eyes above your spreadsheet where everything looks the same. Go and talk to your staff, your suppliers and your customers.

You’ll find that every unit of “customer” is not the same as every other unit of “customer”. Neither is every unit of supplier, or employee, or baked beans.

And once you get your head around that, you’ll make much better decisions for your bottom line.

One thing I’ve noticed throughout my career is that a formula which delivers great results in Company A is not guaranteed to work in Company B…often for reasons nobody can quite put their finger on (more on that in a minute).

Yet plenty of people think they can just “copy the secrets” of another business, or apply what they did in a previous role by rote in their new role, and still see the same results.

All my experience is that is almost never true.

A cookie cutter approach works well enough when you’re spawning large multiples of identical units, like a McDonalds store. Every one of those is pretty much like every other one. And, to be fair to McDonalds, it generally works.

On a McDonalds-like scale, even though I’d probably still argue a cookie-cutter approach under-achieves against its potential, there are undoubtedly massive economies of scales when you’re running 40,000+ outlets around the world. So, if there is any potential underachievement, in bottom line terms, that’s probably more than compensated for by the economies of scale they can generate.

However, if you’re reading this, you’re probably not running McDonalds Corporation, or anything approaching it in size. So, even if there are potential economies of scale, you’re probably not going to generate much of it by going from two outlets to three, for example.

You need to think differently about what you’re doing if you want to build your bottom line.

The cost of conformity

I get it – there is a superficial attraction to everything being identical, neatly lined up in tidy rows, just like the burgers at McDonalds.

But unless you have massive, McDonalds-level economies of scale to pursue, there is a cost to conformity which has a significant negative impact on your bottom line.

On a sub-McDonalds scale, you’re unlikely to generate enough economies of scale to offset those additional costs.

To give a concrete example, I used to work for a business where a manager looked after 12 other members of staff, on average. More recently, I worked with a business where people broke out in a sweat if they had more than 6 people to line-manage.

Ironically, the people in the second business were paid, on average 20-25% more than the people in the first business for doing a broadly similar job.

Here’s some illustrative numbers for two teams of a dozen people:

Company A: 12 people x £40k = £480k, plus a manager on £50k. Total cost = £530k

Company B: 12 people x £50k = £600k, plus two managers on £60k each. Total cost = £720k

To save you doing the maths in your head, Company A ran with a cost base about 26% lower than company B.

The main difference between the two companies?

A manager’s job in the second business was taken up with a plethora of report-writing, analysis, team meetings, 1:1 meetings, monthly performance reviews, meetings with their boss, meetings with their boss’s boss, cross-company meetings with all the other people at their level, meetings with HR, Finance, Operations and goodness knows who else to make sure all the processes and procedures were followed to the letter.

There’s no question the managers in Company B worked hard. But when it comes to managing your bottom line, you don’t get extra points for working hard.

All your bottom line cares about is whether your costs were lower than your revenues or not.

The stark differences in the cost base between Company A and Company B were largely the result of their respective organisational philosophies.

Company A was focused on the outcomes, and accepted that there were many different ways to get there. Company A believed that the best approach was to flex their delivery style to get as close as possible to whatever their customer wanted.

Company B believed that they should set the agenda with customers, and customers should do what Company B thought was best – they had rigid systems and procedures, multiple authority levels to approve decisions, and rarely stepped outside their standard operating model.

Ironically, Company B did this because they believed this was the way to drive efficiency and thereby lower cost.

They believed that making everything and everyone in their business as identical as possible was good management. They even occasionally referred to their decisions as “running our business like a McDonalds, where everything is the same wherever you go”.

They saw that as one of their company’s great strengths.

Yet, while I can intellectually understand the argument, “running a business more efficiently” doesn’t seem entirely compatible with running a business with a cost base 26% higher than it needs to be.

Like a lot of other organisations, Company B lost sight of the fact that they should be maximising their bottom line return, preferring instead to remain largely locked inside a world of their own making, where everything ran smoothly and everyone knew what they were supposed to be doing.

Polar opposites

Company A and Company B had two diametrically opposing philosophies.

For Company A, a good outcome was what really mattered. In their view, there was more than one way of getting that, and provided a good outcome was achieved, there was a lot of latitude for their people to do whatever made the most sense in each individual situation.

For Company B, the outcome was an afterthought – the only thing that mattered was the process. Their theory was that a tightly-controlled process would automatically, inexorably lead to good outcomes.

Now, there is something in both of those approaches of course. Neither are completely crazy. However you do have to pick a lane – you can’t follow both of those philosophies simultaneously. It’s one or the other.

That said, the objective of every business should be good outcomes. And Company B’s assumption that a good process would deliver a perfect outcome was somewhat naïve.

That’s because humans are involved.

If you’re assembling a car in a factory, a slavish adherence to process is vital. You’re bolting together lumps of inanimate metal to make something which adheres to a number of legal standards for roadworthiness. So putting on the wrong wheels or forgetting about the roof would not be considered good outcomes.

However, pretty much anything outside a tightly-controlled manufacturing environment, like a car assembly line, is a lot more messy than people who think process matters more than outcomes generally believe it is.

How something is done – in most, perhaps many, walks of life – is at least as important as what is getting done.

We’ve all encountered aggressive salespeople trying to force us into buying something we don’t really want. Or conversations that boil down to “computer says no”. Or where a parcel gets slung over our garden fence instead of being placed carefully by the front door.

In all those situations, we are unlikely to buy from that organisation again, even if, for some reason, we complete that particular purchase and don’t make a fuss – first among those reasons being that us Brits generally don’t like to make a fuss in public.

From a salesperson’s perspective, if they’ve made a sale and there’s been no fuss, that sounds like a victory, doesn’t it?

If that customer never buys from you again, however, it was really a defeat, not a victory.

The Company Bs of the world would see that outcome as a victory (hurrah – they made a sale!).

Company As would see that as a failure (the customer never bought from them again).

The irony

The irony in most of these situations is that it was the processes and structures – popularly imagined in Company B-type organisations to ensure quality of outcomes – which actually ensured the worst possible outcomes.

Of course, sometimes, you just have a rogue employee or two. There but for the grace of God, those hiring decisions can be made by us all.

But that’s rare. I almost always find that people are trying to do the very best they know how for their employers. Which doesn’t mean they always get it right, but when it goes wrong it’s not because the employee doesn’t care – it tends to be a moment of inattention, or a training need, or a misunderstanding about the instructions they were given.

However employees’ behaviour is shaped by company processes and procedures, especially when they are rigorously enforced like Company B’s.

The overly-aggressive salesperson tends to be the product of an aggressively policed weekly sales target. The policing was intended to ensure the company met its revenue goals – and some level of policing is, of course, essential. But when the pressure from managers to frontline staff become too great, frontline staff will cut whatever corners they need to cut to get their manager off their backs and keep their jobs.

When someone has a difficult or unusual set of needs and the Company B people give them a “computer says no” response, that can be deeply upsetting, or even humiliating, to a customer. Very few people are going to buy again from someone who refused to help them in their time of need, especially if they were humiliated in the process.

And the delivery people who lob parcels over garden fences tend to be the same people who have a tightly-timed and rigorously-policed 3.57 second window to get the parcel in the hands of the customer before driving off for their next delivery, whether that delivery is to a 17th floor flat or a suburban semi.

Either way, that customer probably isn’t buying any more bone china from your company if the last lot shattered the moment it landed on their front porch after being lobbed there from the other end of the garden.

What’s more, that is just the immediate impact.

What about the lifetime value of your customer?

It’s not just about one sale, one service request, or one parcel.

Companies which obsess over outcomes tend to value the long-term outcomes considerably more than companies which obsess over processes.

In fact, the Company Bs of the world are largely blind to the knock-on consequences of decisions to prioritise internal company processes over getting good outcomes for their customers.

They must be. No rational organisation would take the decisions Company B-type organisations take if they thought about the long-term for even a moment.

Compounding

Of course, there’s a compounding effect to all this.

Companies which have an obsession about process tend to have much higher operating costs than companies which obsess about getting the right outcome. They all carry an increased cost of management, compliance, reporting and supervision.

And because Company B-type organisations also tend to get poorer outcomes (in anything other than the short-term) that’s a double-whammy.

A higher cost base than necessary, combined with a less loyal customer base than your competitors, is a recipe for trouble in any sector.

And there’s the reputational damage. Whilst British customers might not make a fuss to your face, you can guarantee they’ll tell their neighbours, friends, family, and random people they bump into down the pub all about what a terrible business Company B was to deal with.

Put that all together, and it always mystifies me why so many organisations imagine they have such a complete view of what “good” looks like that they can design perfect processes which unfailingly deliver exactly the right answer in every conceivable situation.

Unless it’s your job to deliver, for example, gold at a 99.999% purity – in which case you should absolutely design your processes to deliver exactly that – the world is a more variable place than a lot of people seem to think it is.

I’ve never seen prioritising the delivery of good outcomes get poorer results than obsessing about process to the exclusion of getting good outcomes does.

In the short-run, a Company A-type organisation doesn’t have to factor the extra costs of management and administration into their cost base.

In the longer run, they have a bunch of loyal clients who keep buying from them at a sales and marketing cost of almost £0 because people come back to them time and time again, without needing to be re-sold the benefits of dealing with their organisation.

If I’m trying to run a business which maximises its bottom line returns, in the short, medium and long term, I know which strategy I’m choosing.

One of my regular daily tasks is going through my email inbox and adding another 20-30 email addresses to my spam filter (over and above the dozens of emails the spam filter has already picked up, that is…).

At one level, I get it. If you don’t ask, you don’t get.

If you’re in a competitive market, there’s an argument that you don’t want to leave any stone unturned in the search for a sale. And if you have a lead (we’ll come back to this topic in a moment) you don’t want to let it go for as long as there’s any hope, however small, of making a sale.

That’s natural. And, to some extent, understandable.

But like most things carried to extremes – including eating ice cream, apparently, according to my doctor – there comes a point where you’re doing more harm than good and you should probably stop.

Except this is usually where several dozen people a day play a script in their head that goes something like “well, it costs nothing to send another email, so why don’t we just keep sending emails on the off-chance he buys at some point in the future?”

There’s an old saying in sales that the money is in the following-up. And you’ve probably heard the old rule of thumb that you need to contact a prospect seven times before you make a sale.

So continuing to follow up seems smart, doesn’t it?

There’s zero cost, and there’s still a chance, however small, that I might buy from you at some point in the future.

Well, it sounds smart.

But it’s almost certainly dumb.

My list

I’m not normally a vindictive person.

But after the 10th or 20th “Hey Alastair, I see you haven’t responded to my last follow-up. Are you available on Thursday at 10am or 2pm for a call?” email from the same person, I can guarantee you the last thing on earth I’m ever going to do is buy anything from your business.

At this point, you’re not being smart. You’re actively damaging your brand in my eyes.

That goes up at least a couple of orders of magnitude if you’re selling a product I’m really unlikely to want anyway, and yet you still won’t get out my emails.

You might think that I should just unsubscribe…or my personal pet hate, take them up on their offer to “Just reply ‘No thanks’ to opt out of future emails”

There are many reasons I don’t do this, but one of the main reasons is that the minute I unsubscribe or respond, the spam merchants know they’ve got a “live” email address and, for the less scrupulous among them, that’s a sign to amp up the intensity of their email campaigns, and to sell my details to other people just like them who will do the same.

I know that’s totally against GDPR and every data protection law on the planet, but given that I never signed up for, or expressed an interest in their products in the first place, I have zero confidence that the people who email me daily with invitations to jump on a call are not con artists.

So I consciously trade a few minutes a day to add the new spammers to my block list, because if I didn’t, and actually unsubscribed or responded, I’d get a tsunami of even more irrelevant emails.

However this is a useful exercise in other ways, because I now have a list of businesses I have such a poor opinion of that I’ll never do business with them. I’m not saying they’re all unethical scammers – I’m sure one or two of them are just over-enthusiastic amateurs – but I try not to do business with either amateurs or crooks if I can help it.

They can send me a bazillion emails. I’m still not responding.

Turn your thinking on its head

Honestly, buying a crappy list from somewhere and using a spam email outfit to send out millions of emails every day to pester potential clients isn’t a good strategy – even if, in the short-term, you might make a sale or two.

I know somebody somewhere is delighted that my email address is one of the thousands of business email addresses on their email prospect list. But that misses the point.

The part of the process which seems to have escaped these organisations is that I’m not a prospect for what they’re selling at all.

They think the length of their prospect list is all that matters, because the more prospects they have, the greater the likelihood of making a sale, right?

But I’m prepared to bet that 95%+ of the “prospect list” of those organisations aren’t prospects at all. Worse than that, they are people without the slightest interest in your product and a growing animosity towards your brand.

If you haven’t done even the slightest bit of qualification of those “prospects”, you’re kidding yourself if you think another 1,000 email addresses acquired the same way are going to help.

For me, the measure of a really good sales and marketing process is how well potential clients are qualified out early in the process.

I know the people emailing me every day don’t do this (because if they did, I wouldn’t keep getting their blasted emails) but pruning your prospect list really hard right at the start of the sales process is how you get the space and time to give genuine prospects the attention they need to make a sale.

If you’re relying on 0.0001% of people responding to the 1000s of emails you diligently send out every day to make a living, I can guarantee you’re not qualifying your prospects nearly hard enough – especially in B2B (there’s a slightly better argument in favour of playing the numbers game in B2C…not a great argument, but a slightly better one).

At best, you’re wasting your time. At worst, you’re actively damaging your brand by irritating your potential customers.

Why it’s not the great idea you think it is

I understand the arguments about persistence, not wanting to let a lead go, and making sure you get multiple contact points with your potential clients.

The problem with all that is – like a lot of things that have been going on perfectly well for years before the tech crowd got involved – those rules were all developed pre-tech and have been badly translated into tech-speak by tech folk who want to sell you something.

Take the seven touch points rule, for example.

In the old days, you might meet someone at a business exhibition and get their business card.

You might send them a brochure afterwards. You might call in to see them next time you’re in their part of the world.

You might have a chat about all sorts of things, beyond their business, over a coffee. You might run through some of the Mackay 66 (a reference for the boomers there…).

You got to know and understand the people you were dealing with, and some appreciation of the business they ran and the challenges they faced.

You might notice an article in a business magazine, which you’d clip out, and stick in an envelope together with a handwritten note, because you thought they might be interested. Or one of their kids, who they mentioned in your last conversation over coffee, might be interested in.

This would continue for a while and, as it did, the relationship would deepen. A degree of mutual trust would be established. And next time this person needed the sort of products or services your company sells, they are probably going to ask you to take a look and give them a price.

Now, contrast that process with buying my email contact details from some shady list broker, then sending me an email, followed by 100s of “Alastair, I haven’t heard from you yet – can we have a chat on Thursday at 10am or 2pm?” email follow-ups.

Even if you send me 10x as many emails as the number of contact points I would have had in an “old school” sales process, you’re probably not at 1% of the likelihood of making a sale.

And the crucial thing here is that if you send me another 10x, and then another 10x, you’ll still never be any closer to making a sale.

That’s because all an email does is maintain the relationship with your prospect at the same level (to the extent it doesn’t cheese them off completely).

By the time you’ve had 7 in-person meetings with a salesperson, in a range of different settings (their office, the coffee house, the football game, and so on) you’ve deepened the relationship. You are now vastly more likely to make a sale than you were at the start of the process.

Or…after your prospect has turned down three or four suggestions in a row that you catch up for a coffee…you take the hint, and realise this isn’t going anywhere any time soon. So you stop asking, and take them off your prospect list so you have the time to reinvest in someone who might be more interested.

You’re getting feedback through this process which is worth a lot more than the billionth “Hey, Alastair. Are you free Thursday at 10am or 2pm? I’d love to tell you more about our company” email.

And what you really want in a sales process is feedback. That helps calibrate whether or not you’ve got a live prospect or not.

The indifference you get from 100,000 identical daily emails that nobody responds to gives you pretty much zero useful information of any kind.

Here’s the trick

So here’s the trick.

Remember we’re all about the bottom line around here.

And not just at the superficial (and incredibly stupid) level of “sending emails is free, so it’s cheaper than employing a salesperson”.

(Which often isn’t true, by the way. Firing three salespeople because “they’re too expensive”, but replacing them with 20 people in your marketing department to manage your email traffic is unlikely to be a smart decision.)

Of course, you don’t want to spend more than you have to. But your objective in a sales process is to make sales.

It isn’t to send out more identical emails today than you sent out yesterday. Nor is it to “save money” by firing all your salespeople and replacing them with AI-generated daily emails.

Neither of those things are going to make you sales.

But what you can do very easily is to pretend things cost you money, even if they don’t.

Let’s imagine that it costs you £10 to send every email – still a bargain relative to an in-person sales call, right?

Just elevating your process from “completely free” to having a cost of just a tenner means all sorts of other considerations kick in.

Now how many identical emails that nobody responds to are you going to send?

Still some, perhaps. But not many.

After a while, you’ll take people who don’t respond off your mailing list because it’s costing you a tenner every time. Only a lunatic keeps throwing £10 notes at a potential client on a daily basis when the prospect shows no sign of buying.

When you think about a sales process beyond a purely superficial level – even if you force yourself to think that way by pretending it costs a tenner a time to send an email – pretty quickly, the size of your mailing list isn’t your biggest concern any more.

Now you need a mailing list that generates an RoI because you need to bring in an extra £10k a day in additional profits to cover the cost of sending out a thousand emails a day at a tenner a time.

And if you have a choice between a mailing list that’s met with a wall of indifference every day, and one that’s responsive, which one would you rather have?

Well, it’s a no brainer. The responsive list.

Even if that’s only 100 responsive names instead of 1,000 indifferent names.

The prospect perspective

The other important perspective here is your prospect’s.

It might have been different 20 years ago, but nowadays you’re fooling nobody.

We know the amount of time, effort, and money you spend each day to load up a fresh “Haven’t heard from you yet, Alastair. Are you free on Thursday at 10am or 2pm?” emails is effectively zero.

So we know you don’t care about us, as your prospects, in the slightest.

Pre-email prospecting, we knew it took time and effort to get in your car and drive 50 miles to buy me a coffee.

We knew it was a hassle to clip an article from a magazine, find a stamp and an envelope, and post it on to us.

We knew you might well have better things to do than host us at some event or other.

But we also knew you were putting the effort in.

You were investing in that relationship. If grew to trust the salesperson and thought they offered a decent product, I’d return the favour by giving them a chance to quote for some business.

But I did that because they had invested your time and energy in the relationship between our two companies. And I knew that would have been at a not-insubstantial cost to them in terms of money, time, and effort.

In those settings, the law of reciprocity kicks in and, all things being equal, I would be likely to give you a chance to quote sooner or later.

And if you didn’t, after a while, you’d stop inviting me out for coffee when you were in the neighbourhood, or at least those invitations would become less frequent. Which would be cool too – after all, I know you’ve got a business to run so I can’t expect you to invest time, effort, and money indefinitely without a return.

Sending the same outreach email every day…or worse the “are you free Thursday at 10am or 2pm?” follow-ups…doesn’t activate any of those processes. They don’t deepen relationships. They don’t move you closer to a sale.

No. You’re somewhere on a spectrum between me being indifferent to your messages to me being actively hostile to your business because you’ve turned into a monumental pain in the you-know-where.

There is where managing your bottom line is at least as much art as science.

The science says if we have a cost of £X now, but we can reduce that to 10% of £X by firing all our salespeople and sending out daily emails instead, then we’ve increased our bottom line.

The art says, what really matters is maximising the amount of sales vs the existing cost base – so an “expensive” sales team which makes more sales is better than a cheap or non-existent sales team which doesn’t.

Balancing those two considerations can be tricky. And not always obvious if you operate purely in the realms of science, with cost as your only consideration, without considering the wider processes of making a sale.

However an easy way to get most of the benefit to your bottom line is to pretend things cost you real money, even if they don’t. That forces you to think about the RoI in a way that “it doesn’t cost us anything, so we might as well send today’s batch of 100,000 emails” doesn’t.

Do that, and I can guarantee you’ll make some very different decisions about how to run your business.

And, almost certainly, boost your bottom line in the process.

I’m getting increasingly fed up with the number of people who think the route to making an organisation more cost-efficient is to make a series of catastrophically stupid decisions.

Of course, that’s not what they think they’re doing.

They imagine they’re some swashbuckling commercial genius. However all they’re really doing is hastening the demise of their organisation – often in a pretty spectacular manner.

The cumulative effect of a series of short-term, penny-wise pound-foolish decisions over even a fairly short period of time can be catastrophic.

If you doubt me, look at just about any decision a politician has ever made. Ideologically-driven, short-term decision making is a politician’s best friend. It lies at the very heart of political life.

But it seems to be catching.

Nowadays large organisations pay millions of dollars to fancy consultants to help them make penny-wise, pound-foolish decisions.

Billionaire social media owners are getting into the game with their own unique take on how to help governments save money – which mostly have the opposite effect.

And any business who proudly tells you they are going “AI-first” and intends to replace all their humans with robots is almost certainly making exactly the same mistake.

In every case, they brandish numbers and spreadsheets above their heads like weapons. But without really understanding what the numbers mean.

It shouldn’t be a surprise, perhaps, but the seemingly-endless ability of people to pull randomly at a bank of “cost saving levers” without understanding the consequences of what they’re doing is more than a little dispiriting.

So, if your bottom line is under pressure and you think the time has come to launch an organisation-wide cost cutting plan…or in the unlikely event that you’re a politician capable of reading beyond the level of a 5 year old…here are 5 common traps people fall into when they move into cost cutting mode.

If you want to avoid dumb, penny-wise, pound-foolish cost cutting decisions in your business, which end up making everything worse than it was before you started, then read on…

1-You’re not actually cutting costs

If you think your mission is to cut costs, you’ve lost the battle before it’s begun.

You should be trying to build your bottom line – and while cutting costs is one way to do that, it’s far from the only way. And often not even the best way or fastest way.

While there have been occasional exceptions over the years, I have almost always found that increasing revenues improves your bottom line a lot faster than cutting costs ever will.

Now, you might tell me that you operate in a highly competitive market and couldn’t possibly increase the amount of money you charge your customers.

Respectfully, that’s nonsense.

All that means is that you haven’t done a good enough job of demonstrating value to your customers, to make them willing to pay you more.

Or that your service is unreliable.

Or that your customers don’t trust you to have their best interests at heart.

If any one of those factors is the case – much less all of them together – you need to fix those issues before you do anything else. Even if you need to spend more money.

And if you think you can’t, because the pressure to save costs is too great, I can guarantee that cost-cutting in these circumstances isn’t going to solve your problem.

You’re already in a death-spiral because you’ve drifted into being the supplier of last resort. The one people only buy from when they can’t get something similar from somewhere else.

Which is a problem because, to build your bottom line, you need customers who willingly hand you their hard-earned cash in return for the goods and services you sell.

If all you’ve got is customers who only buy from you when they don’t have a better alternative, the only question is how long you can hold off the inevitable decline into irrelevance or bankruptcy.

In terms of surviving as an organisation, never mind thriving as one, you need to fix that problem long before you worry about your cost base. Cutting corners to do a poor job slightly more cheaply than you do at the present is not the miracle cure some dumb cost-cutters seem to think it is.

2-Think about positioning

There is a small chance that you might be right, and your customers won’t pay more for what you provide.

But even that is a mental trap organisations fall into far too readily.

If it’s true at all, what this usually means is that the group of customers you have chosen to serve will not pay any more for the products or services you provide.

So, the best, fastest, easiest, and cheapest route to boosting your bottom line might well be to find a different group of customers who will happily pay more.

Or you could provide something different to your existing customers – if your products or services were more reliable, or delivered results faster, or solved a bigger problem for your existing customers, might they be prepared to pay more for them? Odds are they would.

And if you can charge 30% more, but only increase your costs by 10% in the process, odds are that any bottom line problems you thought you had will solve themselves without you having to do anything more,

In most of the business transformations I have led, switching the positioning of my organisation, or the services we provide, in some way has been at least a part of the eventual bottom line transformation.

And since switching the positioning is mostly a switch in mindset, it’s a remarkably fast and inexpensive way to make significant changes in your operations.

If you think switching your positioning is unlikely to be worthwhile, or even possible, just remember that the super-luxury sports car maker Lamborghini originally made tractors.

If in Italian tractor-maker can successfully turn themselves into a super-premium, aspirational sports car brand, whatever transformation you might need for your business starts to look like a piece of cake by comparison.

3-Go outside

Let’s go outside, in the sunshine…as George Michael sang.

OK, maybe don’t think about that metaphor for too long. It’s a great song, and an even better video, but given the song’s subject matter, don’t follow George’s advice too literally.

What I’m getting at here is the tendency of organisations to think they are solving a problem which takes place entirely within the walls of their own factories or offices.

I can assure you, that’s completely untrue. Not “going outside” scuppers many a cost-cutting programme in the wild.

What I mean by “go outside” is talk to your customers and your suppliers. They will give you a perspective on your business you will never get from endless meetings in a windowless conference room inside your offices, with only your own employees in attendance – however well-meaning and hard-working they may be.

For extra bonus points, track down people who used to be your customers and aren’t your customers anymore. They are far more likely than any other group of customers to give you the unvarnished truth about what really cheesed them off about dealing with your organisation.

Ask the right questions and your customers will tell you exactly where you’re going wrong.

Put right whatever they tell you and odds are you’ll both sell more to those customers and you’ll also be more cost-efficient at the same time because now you are crystal clear on exactly what your customers want, and can focus your efforts on delivering exactly that – no more, no less.

A lack of clarity, sometimes manifesting itself as trying to juggle too many competing agendas at the same time, increases your costs.

Bring clarity and you might be surprised how much your costs reduce, and how little effort it takes.

4-Walk the floor

I guarantee every single person in your organisation knows at least one unnecessary or unhelpful thing your organisation does which increases costs, reduces service levels, or undermines quality. Sometimes all three.

It won’t be obvious from the executive suite or the boardroom because the original idea will have been proposed in a board paper with lots of slides, accompanied by charts and graphs galore, and spreadsheets full of data.

It’s only on the shop floor where it becomes obvious that, however well-intentioned the original decision was, it holds your organisation back, and increases your operating costs. Either directly in cash terms or indirectly in poorer service and reduced quality which both cause problems which later cost you money to fix.

My golden rule here is to investigate everything – no matter how unlikely-sounding – and make sure I report my findings back to whoever mentioned the concern in the first place.

Not everything someone tells you will be 100% accurate, but it’s rare that there isn’t at least a grain of truth in what they say.

Someone might raise the issue of their equipment being unreliable and think their boss is either an idiot or in the pocket of some second-rate supplier. But their boss might be operating within an inadequate budget set by the Finance Department and doing the best they can, in the circumstances.

In the same way as you can’t see the shop floor from the boardroom, people on the shop floor can’t always see the intricacies of your organisation structure clearly from their end of things either.

But what they can see very clearly is how those decisions – however good or bad – are affecting their ability to do their job.

Start there, and a nugget from someone on the shop floor – even if it isn’t the full picture – can be the starting point in an investigation which gets you to the root cause in the end.

Ask the right questions on the shop floor, and you’ll never be short of ideas to reduce costs and improve service for your customers.

5-It’s all relative

You shouldn’t be trying to reduce costs in absolute terms. You should be trying to reduce costs in relative terms.

Specifically, you should be trying to reduce costs per unit of productive capacity…whether that’s “productive capacity” in a factory operations sense or, for example, the number of chargeable hours in a day a lawyer has for doing client work.

If I have two identical factories, which each produce 10,000 units a day, I can reduce costs in absolute terms very easily.

I just close one of the factories, and all the costs associated with that operation will disappear.

However, at the same time, I’ve also halved our productive capacity which might not sound like such a bad thing, except now your organisation’s overheads are almost certainly far too high relative to the much-reduced income it can now generate.

Looking at this situation the other way round, you could probably hold your overheads more or less steady while adding a third factory, which would increase your productive capacity by 50%.

Now you’re spreading your overheads across a much larger number of units of product and you can either reduce your prices a little to be more competitive in the market, thereby attracting more customers and keeping your factory working at maximum efficiency through generating economies of scale, or you can keep your prices the same as they were before and increase your profit margins instead.

So in all your cost cutting decisions, if you don’t factor in the impact on your productive capacity, you’re making a big mistake.

A while ago, I worked with a professional services firm who – in a cost cutting move, allegedly – dramatically reduced the number of administrative staff they had.

Someone thought that was a swashbuckling cost-saving move, but the reality was that the fee-earners were now billing a lot fewer hours each day because they were doing their own photocopying and sorting out their own filing.

Given that a single billable hour for a fee earner in this organisation was far greater than the cost of hiring an administrator for a whole day, you don’t need to be super-efficient in your administration for the decision to re-hire more administrators to be a very smart move for your bottom line.

Absolute costs went up, of course. But billings per fee earner went up dramatically, and relative costs per hour billed went down…way down.

If you think you’re cutting costs, firing administrators sounds like a smart thing to do.

But if you think you’re trying to boost your bottom line, that strategy makes no sense at all.

So, if your bottom line is under pressure, try to resist the desire to engage in a round of dumb cost cutting.

The fact that politicians, social media billionaires, and tech bros all think it’s a great idea doesn’t mean it is.

Tread carefully, and try to make sure you keep away from the temptation to do whatever everyone else does.

Because, mostly, cost-cutting is a job that’s done extremely poorly who don’t really understand what they’re doing – their only objective is to get the number on a spreadsheet to become a smaller number.

And they’re not usually too fussy about how they do it, as long as they’ve moved onto their next job before all the chickens come home to roost.

But if you’re in your business for the long haul, dumb cost cutting is about the…erm…dumbest thing you can do.

Every time you’re tempted to cut some costs in your organisation, check the five dumb cost cutting traps above, and make sure you’re not about to fall into any of them.

There is a famous Father Ted scene where Ted is explaining to Dougal that, while the toy cows in their caravan appear to be the same size as the ones outside, that’s only because the ones outside are very far away.

“I don’t get it, Ted” replies a bemused Father Dougal. He was incapable of holding those two different perspectives in his mind at the same time.

On a TV comedy show, this is great for a laugh. But this is exactly what businesses do all the time.

When you’re sitting in a conference room, the activities taking place in a factory hundreds of miles away seem very small. If those same people were sitting inside the factory themselves, the problems would look enormous, and those in Head Office would look very small by comparison.

To some extent, this is a natural part of how humans behave. The proximity of a problem is often a bigger factor in whether or not it gets your attention than its magnitude.

In the interests of full disclosure, I’m not immune to this myself but, like most problems in life, just being aware that it’s a factor is generally the first step on a journey to doing something about it.

It’s one of the reasons I’m a big fan of what used to be called MBWA (Managing By Walking Around).

Unstructured beats structured

Mostly, the business world tries to create structures because then you have something that’s easy to explain, understand, and track. Without structures, you can’t have KPIs, individual targets, or performance incentive schemes.

And that’s not all bad, of course. I’m not a complete hippy.

But structure creates blind spots 100% of the time.

Sometimes they are small blind spots, sometimes huge ones…but they always create blind spots. It’s an inevitable and unavoidable part of the process of putting a structure in place.

The minute you put a structure in place, the likelihood is that everyone in the team you’ve given the structure to will ignore everything that isn’t part of the pre-ordained structure and devote 100% of their energies to whatever you asked them to do.

You can’t complain about that. After all, people are only doing what you’ve told them to do.

So any blind spots are on you, not on your people.

And the cure isn’t to put even more effort into creating the structures. That quickly becomes sub-optimal and has the tendency to make the simplest task overly bureaucratic, which makes your management overhead greater than it needs to be, and so more expensive.

So don’t do that.

To be fair to structure-builders, that’s because all they can do it identify the obvious things.

Structure follows obviousness – which is why putting more effort into creating more detailed and complicated structures is largely pointless. All you’re going to do is see shadows that aren’t really there.

After a while, you’ve captured the obvious stuff. There is no obvious stuff left to capture. So from that point onwards, spending more time and effort on the structure means you’re taking away from your bottom line, not adding to it.

Management By Wandering Around was a more interesting take because this process is designed to uncover the non-obvious (or, at least, the non-obvious from inside a conference room hundreds of miles away – it’s 100% obvious to the people in that far-away factory).

Tom Peters and Robert Waterman wrote about the practice in “In Search of Excellence”, which is still a great book even if not all the companies they wrote about 40-odd years ago would be considered to be still excellent today.

But the roots of MBWA go back to at least the 1960s when it was a standard practice at Hewlett-Packard, genuinely one of the IT industry’s most innovative companies at the time.

He didn’t call it that (or in fact anything at all) but the best boss I ever had (present company excepted) taught me the importance of walking around the factory every day and checking in with staff members operating the machines. That practice has been a key component of my management toolkit ever since.

However, all the proponents of MBWA, from my old boss, to Tom Peters, to Bill Hewlett and Dave Packard agree on one thing.

It needs to be unstructured.

Don’t turn up with an agenda

In the same way as setting up a structure for people to report against means you’ve already introduced some blind spots into the reporting mechanism, doing Management By Walking Around with an agenda rather misses the point.

Sure, there might well be some things you’re interested in as you wander around, but you’re not doing this for you, primarily. You’re doing this mostly for the people who work for you.

If you’re going to set an agenda, you might as well haul everyone into your office once a week and quiz them on their KPI dashboard.

By letting your team talk about whatever they want to talk about you’re a long way towards understanding what most of the blind spots in your formal reporting structures are. This is the power of MBWA.

If you’re tempted to give this a try, there are essentially two questions you’re asking (although I suggest not asking them like a robot):

1. What’s getting in your way at the moment which is holding back productivity, efficiency, or the quality of the finished product?
2. What can I do to help you be more productive and efficient, or produce a higher-quality product?

While you shouldn’t ask the questions like a robot, you should always ask Question 1 before you ask Question 2.

In fact, I’d go further. You shouldn’t ask Question 2 until you’ve sorted out every issue that’s been raised as part of Question 1.

While there are occasional exceptions, nearly everyone I’ve ever met in an office or on a factory floor wants to work hard and do a good job for their employer. So if your employees are juggling 100s of problems caused by the way the company operates, poor management, or unreliable suppliers, it’s somewhat insulting to suggest they just ought to work a bit harder to meet their targets.

As a way of winning friends and influencing people, it’s not the best.

But even leaving the personal dimension on one side, here’s another pretty much universal truth…

You will almost always move an organisation forward faster by taking away the things that hold it back than you will by adding in new things designed to move it forward.

My experience is that the RoI on removing a problem tends to be several orders of magnitude greater than the RoI on introducing some “new thing” to magically solve all the company’s problems. (Spoiler: it never does.)

So always take away the negatives before you think about building in the positives.

The unvarnished truth

One big advantage of MBWA is that you get the unvarnished truth.

While department managers do their best, they are generally playing a political game of some sort and don’t want to look incompetent or, possibly worse, “a troublemaker” by highlighting things that are going wrong.

I blame the whole “don’t bring me problems, bring me solutions” crowd for that, which is less a management style and more an abdication of responsibility.

So there are some things a department manager can’t say, because it won’t reflect well on them, perhaps. And some things they won’t say, because it means dropping their buddy elsewhere in the business in deep doo-doo.

However if you talk to your machine operators, your call centre agents, or your office staff directly, you’ll find they have no issues at all in telling you that the reason they aren’t making their target this week is because the department before them in the process is making a mess of whatever they’re supposed to do.

Or because the deliveries from a tame supplier, who’s very friendly with the department manager, are always late.

Or because the HR department is hiring people who are incapable of doing the job properly.

Now that doesn’t mean the people raising those issues are right about the problem – at least not all of the time.

But what they are certainly doing is giving you a line of enquiry to investigate.

This is why it’s important to acknowledge whatever you’re told and to do something about it – if you do, next time round they’ll either tell you something else that’s a problem or they’ll have moved into the next category of improving their own productivity and quality.

A starter for 10

If you regard what you’ve been told merely as a line of enquiry, or a starter for 10, it’s much easier to conquer the understandable urge to tell the machine operator or call centre agent that they’re completely wrong, because all their department’s KPIs are on-track.

There’s no need to get into a battle about who’s right or wrong.

Instead, ask yourself “I wonder why they think that?” and set out to see whether that’s a perspective you agree with, after you dig a bit deeper.

For what it’s worth, I invariably find the problem is a real problem, but that the diagnosis is only right one-third to one-half of the time.

There is nearly always a measure of truth in their diagnosis, which is why that’s such an important part of this conversation.

But they, like you when designing KPIs reports in a boardroom somewhere, don’t have a perspective on second and third-order effects because they, like Father Ted’s cows, are too far away.

So it might well be true that the new staff who have been hired aren’t up to the job. And of course, HR did the hiring, so on the surface they were to blame.

But what if Finance had set an unrealistic budget to make their spreadsheet balance, and HR were just doing the best they can with a salary budget £10k under market rates?

In that scenario, it’s probably not the fault of either HR or Finance, but someone else (ahem…possibly even you…) who wasn’t prepared to take some short-term pain to unlock a long-term improvement in performance.

HR probably won’t tell you (well, not to your face anyway). Neither will Finance. They’ve got their targets to meet and they’re not thinking about anything else.

But someone operating a machine on the factory floor will tell you. Often forcefully.

And when they do, the smart thing is to take that as your starter for 10, get your Columbo raincoat on, and start digging into what’s really going on.

The challenge of leadership

Being a leader in a business is challenging at the best of times.

There are lots of moving parts to keep an eye on, any one of which can side-swipe you into oblivion when you least expect it.

So it makes sense to cast your net as widely as possible inside your business and talk to as many people as you can, especially those people you don’t talk to in the context of your regular KPI reporting cycle.

At the very least you’ll get a perspective you won’t hear any other way. And even if it’s not something you immediately need to investigate and fix, you’ve got another lens to look at what’s going on in your business through.

For that alone, Managing By Walking About is invaluable.

But sometimes people in leadership roles feel they should be in the office at all times, churning through the formal reports they get sent, and focusing on “the important stuff”.

That’s not a leadership mindset because it implies that your responsibilities in the business begin and end with the monthly KPI dashboard.

That’s not true at all. Your responsibilities begin and end with delivering the bottom line. The monthly KPI dashboard is as best a hygiene factor in the process. It’s just there to track the stuff you already know about.

Whatever is going to completely up-end your business isn’t likely to be something you already know about.

It’s much more likely to be something you had never even considered might be a factor up until the damage has been done.

And that’s why Management By Walking Around is invaluable.

While it’s not infallible, and there is an art to making it work, it might just open your mind to a perspective you hadn’t considered up to that point.

Fix that, and that’s a problem that isn’t going to side-swipe you anytime soon.

And if it’s not going to side-swipe you anytime soon, that means you’re managing your bottom line as well as you can which is, after all, your job as a leader.

There’s an old proverb: “The road to hell is paved with good intentions”.

If that’s true, then I reckon the highway to hell must be paved with logic.

Like good intentions, it’s not that logic is bad, in and of itself. There is a lot to be said for using logic as part of a decision-making process.

But as part of it. Not all of it.

At least, unless you fancy putting your foot down on the autobahn to oblivion.

Logic alone isn’t enough

Beyond the most trivial of decisions, logic alone isn’t nearly enough.

If you can buy your electricity for £100 or £110, all other components of the deal being identical, then logically you should only spend £100.

But the minute emotions come into play, that becomes a different decision.

What if I’m paying £110 for electricity from exclusively sustainable sources vs £100 for electricity produced from high-sulphur coal?

I’m not taking a view on the rights and wrongs of your choice here, just illustrating that this is a different decision from the pure £100 vs £110 decision because now we’ve introduced an element of emotion, or judgement, or personal preference into the decision.

Not only is logic on its own not enough – virtually no human being makes any decision based on logic alone in our personal lives.

The car you drive, the bread you buy, the house you live in, and pretty much every other decision you make, is based on a range of factors beyond the purely logical ones.

But, ironically, the minute we step into work mode, all other thinking processes tend to get switched off and logic alone becomes the basis for every decision.

There’s a search for objectivity and logical decision-making, in the belief that this is somehow the purest form of the art of leadership.

I’d argue this is more often just the surface appearance of objectivity, and that in reality there’s always a lot more going on than pure logic. But more on that in a moment. First we need to explore what’s going on in more detail.

Presuppositions

Where I see decision-making going badly wrong, it’s not usually the logic that’s wrong.

The logic is usually…erm…perfectly logical…

It’s what happened upstream of that logic being deployed that’s the problem.

You see, logic only generally gets switched on about halfway through a thinking process – the bit before that is usually invisible. Or presented as some sort of fundamental truth in a single bullet point on an introductory slide.

Sometimes that’s because there’s a strong cultural dimension, or universal truth which most people can agree with, at least intellectually. “We should strive to get closer to our customers” is one example – that’s a hard thing to have a fundamental disagreement about.

It would also be fair to say that, a large proportion of the time, the “upstream” stuff is deliberately kept invisible because it’s not in the interests of the person making the proposal to expose that to any potential challenge.

Whether it’s assumed to be a universal truth, or is being deliberately withheld because it’s not in the presenter’s interests to disclose it, the net result is broadly the same.

For the purpose of this article, I’m calling this upstream thinking “presuppositions”. And when things are going badly wrong, it’s usually the presuppositions that have gone skew-whiff.

If you accept the presuppositions as the full and unvarnished truth, the logic from that point onwards is usually…logical. Even if it destroys your bottom line.

An example

To bring this concept to life, let’s imagine someone who sells digital advertising is presenting to you. They want to make a sale.

So their presupposition is likely to be that, whatever the problem, digital advertising is the answer.

“As everyone knows, digital advertising is the future” they might say at the start of their presentation.

“The future” isn’t a logical concept – it’s a fuzzy, uncertain, emotional concept. But the minute they can get you to see yourself in the future, where digital marketing rules supreme, they’re more than halfway along to journey to making a sale to you.

For anything of any importance, we buy with our emotions first, then justify our decisions with logic.

That’s the power of a presupposition. That’s where all the emotions live.

The salesperson for digital ads is likely to show you lots of charts from brand-name consulting firms showing the spend on digital advertising going up and to the right over the last 20 years.

They’ll quote statistics from those same consultancies about stratospheric future growth rates for digital marketing, based on their extensive data modelling and customer surveys.

Here, the salesperson is shoring up the universal truth they would like you to believe with lots of apparently logical reasons to believe them.

After all, why wouldn’t you want to be part of a movement which has grown at a compound 50% per annum for the last 20 years and will continue to grow at the same rate in the next 20, according to a brand-name consultancy?

That’s a movement your career desperately wants to be part of. The power of FOMO kicks in big-time. (Which is exactly their plan, of course.)

While almost all of the presentation appears to be logical – there’s charts, graphs and stats galore – it’s nothing of the sort.

All of this is deliberately designed to appeal to your emotions. They’re hijacking your synapses and getting you to see yourself as a future superstar in the brave new world they set out in front of you.

Up to this point, zero logic has been deployed. Yet the appearance of logic has been used to heighten your emotional state and put the salesperson in the best possible position to make a sale.

What looks like logic in this setting is in fact 100% pure emotion, wrapped in a costume of superficial logic.

But, if the salesperson has done their job well, they can use what is now your shared presupposition that digital advertising is the only possible solution and then set out to demonstrate to you – using actual logic in a logical manner now – that their solution is better than other digital advertising solutions for one reason or another. It’s cheaper, or conversion rates are higher, or whatever.

Finally, logically, inexorably, they put you in a position where you’d be crazy to say “no”. And you get out your chequebook.

That’s the power of a presupposition.

Another example

Several years ago, when I worked in Higher Education, one of my senior colleagues, whose department was in a considerable degree of difficulty, convinced our CEO and board to promote a new course they hoped would attract a stream of students, and therefore revenues for their department.

The problem was they used a term in the course title which might well have been a technically accurate term…it might even have been a term the future employers of our graduates would recognise…but it was a term that no 16-18 year old potential student would ever have heard of, much less know what it meant.

It wasn’t used in school-level textbooks. Teachers didn’t talk about it. And unless the student happened to have a parent or close relative working in the sector, it was extremely unlikely they would have heard it at home either.

This department head’s presupposition was that because they knew the term, and they’d heard it used in industry presentations, everyone knew what it meant.

And to be fair, this wasn’t a completely bonkers idea. By and large, if an employer is looking for people to do Job X and you turn up with a certificate that says you’ve graduated in X, you’re in with a much better chance of getting a job than someone else who turns up with a certificate to demonstrate their expertise in a different field, even a closely-related one.

The problem was employers don’t fill places in Higher Education. 16-18 year-olds do.

My former colleague made the presupposition that because he knew what the term meant, so would everyone else. That was an emotional position, not a logical one.

It may not surprise you to learn virtually nobody signed up for this course. Within the target customer base of 16-18 year-olds, vanishingly small numbers of people knew what the course was about, much less were they prepared to devote several years of their life and several £000s in fees and foregone earnings on the off-chance that a course title they didn’t understand was the route to their future career.

All that said, downstream of the presupposition, all the logical elements worked just fine.

The marketing department used a standard template for course promotion which they had honed over the years, and which they executed to a high standard.

Now, if you’ve been paying attention, you’ll recognise that another presupposition has just been introduced here.

The marketing department’s presupposition was that it was impossible to improve on the course promotion template they had honed over the years. However mostly they were promoting courses that were well-understood by students and teachers – Marketing, Mechanical Engineering, English Literature, and so on.

But their template made no allowance for the fact that they might be promoting a new course in an unchartered area, for a new industry that very few people had heard of up to that point. So they did very little to explain why people should sign up to a programme title which used words nobody in our target market of 16-18 year-olds had ever heard of.

In both cases those presuppositions were wrong. The department head’s presupposition that “everyone knows what this technical word means” and the marketing department’s presupposition that it was impossible to improve on their existing course promotion template.

However, everything downstream of those presuppositions was perfectly logical.

Staff were hired (after all, you can’t teach a course without staff, right?). Significant amounts of money were spent to design and produce leaflets and brochures all about the course. Links were built up with employers to take the steady stream of graduates this department head confidently predicted would be coming on the course. Investment was put into the facilities required to deliver this new course, and so on.

Enormous amounts of time, money and effort were spent on a course that was a flop.

Even though, logically, it should have been a great success. After all, everyone had “done the right things”.

But they forgot that logic is, at best, only part of a decision, and not a very large part of it at that.

The road ahead

That’s why the highway to hell is paved with logic.

Most of the time when I’ve seen something going badly wrong in an organisation, the logic has been reasonable enough. It’s the presupposition that was badly wrong – downstream of that catastrophic oversight, everything made at least some sort of sense.

That’s why, when making decisions, it’s always advisable to go upstream of your starting point and check out the underlying beliefs and emotions at work before you allow the cruise control of logical thinking to highjack your decisions.

Once you get the idea of presuppositions, you see them everywhere.

You see them in your personal life, as well as in your business life.

Perhaps you’re scared of snakes (your presupposition: those things want to eat me) and you have a friend who keeps pet snakes (their presupposition: these things are majestic beasts and won’t do me any harm).

Perhaps you invest heavily in security measures in your retail store (your presupposition: all my customers want to steal from me) yet fewer and fewer customers come to spend their money with you (their presupposition: shopping inside a store that treats me like a criminal is not an enjoyable experience).

Perhaps you’re a prosecutor (your presupposition: the person in the dock is guilty) or a defence lawyer (your presupposition: my client is innocent).

It doesn’t matter what decision you’re trying to make. Logic can’t help if your presupposition is completely wrong – you’ll still make a complete mess of things, despite your impeccable logic.

That’s because there was never a problem with the logic. The problem was with the presupposition which made set the starting point at which logic kicked in.

This is why things go badly wrong for your bottom line.

You end up making a series of expensive decisions which turn out to be completely wrong, because the problem was with your starting point, not with the logic downstream of that.

Check it out

This takes a bit of practice – and it’s not something I can claim I’m perfect on myself. But the only way to counter this entirely logical way of running a business into the ground is to challenge yourself on what presupposition would someone need to make to believe that the course of action being proposed to you is the right one.

And, note of caution, it’s only infrequently going to be the thing the person presenting to you says it is. Because often it’s a blind spot for them too. Like marking our own homework, it’s generally hard for people to spot the holes in their own presuppositions (or, in some cases, that they are even making a presupposition).

At the moment, I’m seeing this a lot with AI.

AI is an entirely logical system (often also based on some pretty shaky “facts”, but that’s not relevant here).

And because it’s designed to be entirely logical, AI can’t conceive that there might be a non-logical dimension to human decision-making.

In large part, that’s because the people who write computer programmes tend to be strong on logical thinking and much weaker on every other sort of processing capability.

The presupposition of tech folk is that logic is the only thing that matters which, in fairness, for writing a computer programme, it is. So they put tremendous effort into making their software do logic even better than it did before.

This is usually presented as some great technological leap forward, such as when new AI models are unveiled amongst much hoopla, when it’s nothing of the sort.

Adding a few more data points into a logical process and doesn’t create a thinking process which transcends logic. It’s just logic with more data points.

So, if you’re thinking about turning your business over to AI, which some purveyor of magic beans has convinced you is the future because a “brand name” consulting firm has written a report which says it is, just remember this…

If you say “yes” you are implicitly accepting that logic is the only thing that matters in your business, and the only thing your clients care about.

And, without pushing too hard, I can demonstrate that presupposition is garbage.

If I have a problem with a purchase I’ve made, let’s say, I want my problem solving fast and, ideally, empathetically. I don’t want it solving logically, except to the extent that it facilitates what I really want (fast and empathetic).

That, by the way, is why chatbots are quite probably the worst possible “innovation” in customer service.

I rarely find one which solves my problem at all – yes, even the ones with cute and funny human names – never mind doing so quickly and empathetically. Chatbots, I probably don’t need to say, are entirely logical in nature which is why they are mostly hopeless as a customer service function.

My refund

I had a dreadful experience with a major hotel chain recently which was logically perfect (from their perspective), I’m sure, but about as bad as it could possibly be from a customer perspective.

Long story short: they took the payment for my room twice.

I contacted the hotel the same day (I didn’t notice it until I checked the notifications on my phone on my journey home) and pointed out their error. Naturally, I asked for a refund.

What followed was a month of “computer says no”.

Impeccably logical from their point of view, I’m sure: “our systems are that you need to wait 7-10 days while we process your refund request”…”until the finance director has signed off the payment we can’t issue you a refund” …”we are waiting for an update from our payment systems”…”we have issued the payment which should be with you in the next few days” (no payment was received)… and so on.

In all this, bear in mind the error was unequivocally theirs. Even the reception desk admitted that they had made an error.

Yet I had to fight with a series of logical processes inside this hotel group to get my own money paid back to me.

As an experienced CFO, I could imagine what the logical processes were inside the hotel group. And they were arguably fair enough if the payment request was coming from, say, a supplier who was chasing up payment of their account.

But I also have the experience to know that if anyone really cared, I could have had the payment they took in error refunded the same day. There is no great technical challenge about doing that, and I’ve done that myself a handful of times in my career when I’ve been on the other side of similar mistakes.

However, this hotel chain allowed a purely logical mindset to overwhelm all the other considerations at play here.

Net result: I’m unlikely to stay with that hotel chain any time soon, depriving them of revenue.

Even though I’m sure this hotel chain is proud of its efficiency in financial process, proud of their internal controls to make sure “just anyone” can’t make payments through their financial systems, and proud of their treasury management systems which means they hold onto cash for as long as they can before paying it out…even though all those purely logical decisions are, at some level, commendable, they completely missed the point.

In the highly competitive hospitality market, cheesing off your best customers is never a smart move for your bottom line.

Yet, despite “doing everything right” from their point of view, I’m sure, they’ve lost my business and, because I’ve told this story a few times now, they’ve lost business from other people too.

Beyond the level of trivial decisions, almost no problem can be solved by the use of logic alone. Logic needs to be part of the process, of course. But using only logic when there’s much bigger issues at stake, and in the face of a less-than-well-founded set of presuppositions, puts you firmly on the on-ramp of the highway to hell.

When organisations collapse, it’s rarely because they’re not being logical enough.

In the times I’ve seen that happen up close, it’s always been because they are being too logical and overlooking all the more important elements impacting their business, its people, and its customers.

That’s why logic alone is bad news for your bottom line.

The theory behind KPIs is a good one.

You identify the activities that really matter in your business (that’s the K – for Key – bit).

You decide what results you need to hit your top-line and bottom-line objectives (that’s the P – for Performance – bit).

And you have some way of tracking and measuring those to make sure you’re on target (that’s the I – for Indicator – bit).

Key Performance Indicators make a lot of sense as a concept, I’m sure you’d agree.

But, like a lot of concepts in business, when an otherwise good idea gets mangled inside a corporate setting, their usefulness can decline dramatically.

In many organisations, KPIs just mean a random collection of numbers because, at one time or another, the CEO has asked a question about some data. As a result, that data now appears for ever more on the monthly reporting dashboard, no matter how trivial that bit of information might be.

For a lot of support departments, battling to get a KPI on the monthly report for the board is taken as a sign of how important they are in the hierarchy. Even where that’s taking the definition of the word “key” down a dark alley late at night and punching the living daylights out of it.

I once worked in a large organisation where I was one of six divisional CEOs who brought in all the income and made all the gross margin for the group. Important to know how we were doing, you might have thought.

But the monthly KPI sheet was full of just about everything else the organisation got up to (supply chain, HR, compliance, etc, etc) and completely missed the point that without revenues and gross margin coming in at the required rate, everything else was just rearranging the deckchairs on the Titanic, no matter how interesting the managers of those support functions thought the numbers they insisted on reporting to the board were.

So KPIs are great as a concept. In practice they’re mostly designed badly and implemented poorly. As a result, they often end up not doing the job they are supposed to do inside organisations.

Today, however, I’m going to concentrate on just one of the ways in which KPIs can end up causing more harm than good.

And that’s the question of whether your KPIs inform or excuse.

A week on YouTube

For reasons that needn’t detain us here, I spent a lot of time on YouTube a few weeks ago.

And I noticed something which, at some subconscious level I know all social platforms do, but which hadn’t been demonstrated to me quite so starkly as YouTube did that week.

Normally I only spend 10 minutes on YouTube here and there, so this might have been going on for a while, but I just haven’t been spending enough time on the platform to notice previously.

But in my intensive week of YouTube watching I noticed that my feed was almost entirely full of videos I’d watched before or collections of videos very similar to something I’d watched before.

So, because I’d watched the video for “Back in Black”, I was being served a collection of videos which included “Thunderstruck” and “It’s a Long Way to the Top”.

Because I’d watched a clip from “8 out of 10 Cats”, whole episodes started appearing in my feed, and more clips, and collections of clips, and collections of collections of clips.

Because I’d watched the Mamas and Papas sing “California Dreamin'” (one of the most perfect pop songs ever recorded, in my opinion), my feed was full of all sorts of covers – some horrendously bad, I have to say – of one of my all-time favourite songs.

Now this is social media algorithm-writing 101 – if you find something that gets watched, drop more stuff like that in their feed to keep people hooked on your platform so you can serve them more ads.

In a nutshell, that’s the social media companies’ business model.

It’s deliberately manipulative, of course. But when it comes to serving me music videos, I can probably live with it.

(Although it did teach me that “California Dreamin'” is a much harder song to sing well than most people think it is. Watch 10-12 covers of it on YouTube then watch the Mamas and Papas, if you don’t believe me…)

With one exception

Once upon a time, there was one exception to this social media algorithmically-driven approach.

Or at least a place where it happened a lot less.

And that’s Twitter (as it used to be, not as it is today).

You might disagree about how well they did it, pre-takeover. And certainly in more recent years it was less true than it was, even before the platform turned into the bin fire it is today.

But for a long time, Twitter was about discovery, not about “if you like that, you’ll like this”.

It was a very different conceptual positioning.

The thinking at Twitter seemed to be that if they showed you enough interesting stuff, you’d stay on the platform and they would be able to show you more ads.

They also didn’t penalise including links to sources outside the platform in your posts, which most social media companies do. Twitter figured if you regarded their platform as the place you went to discover interesting stuff, you’d keep coming back even if you temporarily left their platform to read an article in the New York Times.

However, we’re getting diverted here from our main purpose. This isn’t an article on social media business models, although it’s starting to feel like one, so let’s move on…

Back to KPIs

So, what does this mean for your KPIs?

Well, you need to ask yourself whether your KPIs are designed merely to confirm your current view of the world or to give you a different perspective to the one you had before.

The problem with the social media companies’ algorithms is that they are designed to reinforce and validate people’s views, no matter how distasteful or extreme, because that’s how they get you to keep hanging around.

If there are enough people in the world who are crazy enough to share a set of extreme views, the social media companies will move heaven and earth to make sure their social media feeds are full of the crazies who think the same way as they do.

I’m not making a moralistic point here, but just as a matter of fact, humans tend to have their feelings validated by knowing there are lot of other people who think the same way as they do.

Now that might be only one completely crazy person in each of the 200-odd countries in the world, but squeeze that through a social media algorithm and a crazy person will quickly become convinced that the whole world agrees with them, because they’ll see nothing in their feeds apart from people agreeing with them and cheering them on.

KPIs work in a similar, if slightly less insidious way.

If I’m a senior manager in an organisation, and I can convince the organisation to adopt some KPIs which are likely to show my department’s performance in a good light, I’m essentially triggering the same thinking process in the board that the social media platforms try to leverage.

Provided my KPIs are above target each month, the steady drip-drip of “above target” ratings will have the board convinced I’m a genius in no time.

I’ve seen this game played a lot in corporate boardrooms.

That’s how failing organisations somehow limp on until it’s too late to save them. There has been so much collective back-patting inside the organisation because their KPI reporting says that everything is going perfectly – even as the bottom line goes deeper and deeper into the red each month and the cash flow stops flowing into the business and mostly flows out.

In that sense, KPIs are often designed to excuse the performance of individual departments, not to inform the running of the business.

Because everyone around the boardroom table keeps telling one another that Bob in Customer Services is doing a great job because he keeps hitting his KPIs, just like lots of crazy people imagining their views are acceptable because they keep having those views validated by an audience of exclusively like-minded individuals on a social media platform, Bob escapes the in-depth scrutiny he might well need.

But there’s another way

There is another way.

A bit like the way Twitter used to be, you can use your KPI reporting to inform the board about what’s really going on, rather than just to use your monthly reporting to excuse whatever the current level of performance might be.

But to do that, you have to largely ignore whatever you’re being told in the KPI reports by people with a vested interest in them being shown in a good light.

Let’s take a simple example.

Most organisations realise that offering a good level of customer service is a wise strategy if they want to grow and protect future revenue streams.

The way they track that is often by way of the NPS (Net Promoter Score). That’s the concept which is responsible for all those surveys you get after buying something online, asking you to score your experience on a scale of 1 to 10.

And it’s not a completely crazy concept.

It doesn’t take a huge leap of faith to believe that people who rate your customer service highly are more likely to recommend your business to other people they know who are looking for the same products and services as you supply.

So far, so good.

But NPS scores are entirely gameable, and you can provide a pretty poor service whilst still getting halfway decent NPS scores, if the person running your customer service department is so inclined.

As a board, you have a choice.

Do you just pat the head of customer service on the back for turning in a 7.2 this month against a target of 7.0?

Or do you go on a voyage of discovery?

Is it real?

The question I always ask about KPIs is “is it real?”.

I know that, mathematically, it’s likely to be an accurate calculation. Although it’s not completely unknown, very few senior managers in large organisations will tell an outright lie in their board reports. The maths is correct 99.99999% of the time, and on the few occasions it isn’t, that’s because your senior manager doesn’t understand maths, not because they’re being dishonest.

The maths usually isn’t a problem.

Rather, the problem is that the mathematically-correct answer to a calculation which has been gamed to show the person managing it in a good light does not necessarily reflect reality.

If you think I’m being harsh, call up a few major multinational companies’ customer helplines today.

I’m prepared to bet that 90% of those experiences will be terrible.

And I’m also prepared to bet that their internal KPIs will show they have achieved a perfectly acceptable customer service performance this year, however they choose to manage it.

Just that one simple thing – calling up your own call centre as a mystery shopper and not just taking the metrics at face value – means you’ve started to inform yourself about what the real customer service performance is like in your organisation. You’ve started to inform yourself rather than excuse whatever your organisation’s customer experience is by pointing to an all-green KPI dashboard.

You see, if someone is above target on the KPI sheet, they don’t get many questions. The focus switches to people who are performing below target.

There is a reason to do that, of course, and if there’s a problem that needs fixing elsewhere, that almost certainly requires some attention.

But in taking that view, the organisation is potentially underappreciating the magnitude of the problems bubbling under the surface (which, by the way, will usually pop out as a much bigger problem in a few months’ time) in favour of sorting out a more visible problem elsewhere, albeit one of, ultimately, a lesser order of magnitude.

Evidence sources

I consider myself really fortunate to have studied Law at university, although I never became a lawyer, because that’s given me a mindset I’ve often deployed over the years.

And it’s based on my second-year class on the Law of Evidence.

That’s where you learn how to “prove” a case in court…what the burden of proof might be…how compelling a particular piece of evidence might be, and so on.

So every time I see a KPI report, mentally I always treat it like the pleadings from “the other side” in a legal case.

I’m probably not saying to myself “isn’t the customer service team doing well to hit a 7.2 NPS”.

My internal dialogue is much more likely to be “how can I corroborate that claim, and is there any evidence around which might suggest that claim is not as well-founded as my opponent would like to think it is?”

I’m prepared to admit this approach has not been universally popular at places I’ve worked in the past but, while there are some benefits in the short-term for everyone basking in the glory of a 7.2 NPS, if that’s a house built of straw, the quicker you find out and fix the underlying issues before anything goes horribly wrong, the better, as a rule.

So next time you get a KPI sheet or performance dashboard of some sort presented to you, ask yourself this question – how would I be able to corroborate the picture of the organisation being presented to me here?

And then go and do that. Sometimes what you find opens the door to a perspective that you can use to transform your organisation for the better.

A perspective you’d never have come across if you had just taken the KPIs at face value and murmured your congratulations, along with everyone else around the boardroom table, to Bob in Customer Services for doing such a great job and turning in a 7.2 NPS.

When lots of people have convinced themselves that their views are correct because all the see and hear is people agreeing with them, that’s the point of maximum danger. That’s the point you need to find other ways to corroborate whatever you’re being told, because nine times of our ten, you’re probably not getting the full story

Despite what the AI hustle bros would have you believe, tech is a perfect answer for only a vanishingly small number of the world’s problems. Like writing software, for example, which is entirely logical and sequential, and you can train a machine to write it.

For almost everything else, tech is, at most, a supporting cast member in a production that’s 90% or more “not tech”.

If you don’t believe me, consider this: recently Bill Gates said that AI would replace most teachers in the next 10 years.

Now Bill Gates is vastly more successful than I’ll ever be, so I’m not personalising this or being disrespectful. It’s just a timely illustration of how so many tech folk (including fabulously wealthy ones) completely misunderstand reality outside their entirely logical binary world, populated entirely by 1s and 0s.

However the reason I’m writing this article is that the way tech folk think about the world is an easy trap to fall into. And these are traps that, from time to time, non-tech businesses fall into as well.

So, to help you avoid those traps, here are some of the ways tech bros and tech gals fail to appreciate just how little of the world they are in a position to impact, whether that’s inside the classroom or anywhere else.

The world is irrational

Whether we like it or not, the world is a highly irrational place. Tech is an almost entirely logical place.

This is one of the main reasons tech folk get it so badly wrong.

Rather than accepting the world is irrational they (ironically) irrationally assume the world is entirely logical and design all their tech solutions on the assumption that this is an accurate representation of reality, even though purely logic-based situations probably represent less than 10% of reality for most of us.

The politicians we elect, the car we drive, the food we buy, the places we live, the people we fall in love with – none of those are logical decisions.

Sure, sometimes we post-rationalise a logical excuse for our decisions. But just because we can articulate a logical-sounding post-hoc justification for it, that doesn’t mean the original decision was logical.

It just means we’ve learned to cover our tracks in a world that thinks rationality is a strength, rather than a weakness.

That’s why we don’t boast that our new BMW makes us look super-cool (well, most of us don’t – a few psychopaths do…). Rather we talk about the fuel economy, or the 0-60 speed, or the excellent residual values.

The truth is, we thought the Beemer would make us look cool. That’s why we bought it. But we post-justify our decision with a superficially logical excuse for doing what we (irrationally) wanted to do in the first place.

In case you think I’m being a little harsh here, there are cars every bit as good as BMWs. They’re just as economical at the petrol pump. They get to 60 in more or less the same time. The lower purchase costs can make their “whole life” financials very similar to a fancy BMW’s.

Yet, BMW can sell their cars for twice what some other, logically comparable models sell for.

The decision to buy a BMW – and almost anything else you buy – is almost entirely irrational.

So don’t make the mistake that tech bros and tech gals make, and assume that the world is a logical place. Perhaps less than 10% of it is – and, because that’s how human beings are wired, that’s unlikely to change in the next several millennia.

If you make business decisions assuming everyone is logical, you’ll be wrong an astonishing amount of the time.

Consider this: if you were entirely logical, every cupboard in your kitchen would be full of Tesco Value products. And, if you’re reading this, I’m prepared to bet that there are zero to not-very-many Tesco Value products in your kitchen. Everything else in there was an entirely irrational purchase, if you followed the same logic as tech folk think you ought to.

So if that’s true for your kitchen, how true do you think that might be in every other purchasing decision you, and your customers, make?

Tech folk think that pretending the world is entirely logical is the best approach. Given that reality suggests that assumption is almost entirely wrong, why would you make decisions in your business which assumed that a state of affairs which might exist, at most, 10% of the time should govern your decisions 100% of the time?

Teaching vs learning

I spent over a decade in the education sector, and one thing that always struck me was that there are two words we civilians use more or less interchangeably, but which are entirely different in practice.

In education, teaching means someone standing at the front of the room on “broadcast mode”. They read their slides while 30 pupils stare out the window, scribble in their books, or pass notes to their friends.

At one level, a KPI has been achieved. Year 7 has indeed experienced 45 minutes of geography teaching.

But if, during that 45 minutes, nobody has paid attention, and couldn’t recall a single thing the teacher spoke about, it’s all been a bit of a waste of time.

Learning, on the other hand, is what the experience looks like from a student’s perspective. Did they learn something they didn’t know before? If they did, the goal of the education system has been satisfied – Year 7 are now more educated than they were before the class started.

Tech bros and tech gals, Bill Gates included, it seems, confuse teaching with learning and struggle to conceive that there might be a difference between those two concepts.

That’s because it’s really easy to design a metric for teaching – did Mrs Smith turn up at 10am and talk for 45 minutes about geography?

And it’s really hard to design a metric for learning. How do you really know what went into a student’s head while they sat in Mrs Smith’s classroom?

There’s an attempt to do a vague post-hoc assessment by making students sit A levels and the like. But if the exam question is on a topic that Mrs Smith covered in April, and you fail it, does that mean you learned nothing from Mrs Smith in March or May?

Of course it doesn’t. Even overlooking its technical merits as an assessment approach, an exam is an extremely poor basis for assessing what a student has learned because it’s impractical to examine every part of the whole year’s geography syllabus in a 2-hour exam.

You’re just throwing darts at a dartboard and hoping a few of them land.

And the corollary is true too. If I was only awake in Mrs Smith’s class during April, but that happens to be when she covered the topic which we get examined on, I look like a genius even though I’ve learned a tiny fraction of what the syllabus says I should have learned.

(Full disclosure: I’m pretty sure this is how I got a wholly unexpected B in my Higher Chemistry, to the open-jawed astonishment of both my father and my chemistry teacher. That’s a class I was almost certain to fail.)

I can’t leave this section without noting that it’s not only tech folk who have problems with this. Ofsted, the government body which is supposed to assess education standard can’t seem to understand the difference between eminently KPI-able “teaching” and much harder to assess “learning” either.

Of the two, learning is what really matters. Teaching is just the pre-packaged way of getting about 10% of the way there.

AI will almost certainly underperform human teachers, except the truly dreadful ones, because the huge difference an enthusiastic, committed teacher can make to any subject can’t be replicated by non-humans.

I won the geography prize every year in senior school because I had a passionate, committed teacher who made the subject interesting…unlike the chemistry teacher did for their subject, for example.

The teaching equivalent of a bank’s AI chatbot reciting facts about geography would not have made me as enthusiastic about geography as my human teacher did.

Knowledge, not facts

To compound the problem of tech bros and tech gals confusing their perspective (eg teaching) with the customer’s perspective (eg learning), the next mistake they make is confusing knowledge with facts.

We want students, young and old, to have knowledge, not just to be able to regurgitate facts.

In the real world, outside the AI bros’ laboratory conditions, facts are almost trivial commodities. What really counts is knowledge.

In a business setting, a fact might be a KPI. It’s a number or a score of some sort, and the result of a mathematical calculation.

But what you’re really interested in as a business leader is why that number is what it is – whether that’s good, bad, or indifferent.

A fact, or a KPI, is knowing that the factory output was 50% of target last week.

Knowledge is what really matters, though.

Your response to that fact will be entirely different depending on whether it’s because a key piece of machinery broke and it took 48 hours to get a new part because your finance department hadn’t paid your key suppliers for months…or because the King was hosting a state visit to your factory and it had to be shut for 48 hours to enable all the security checks to take place…or your entire staff had been on an all-weekend bender the previous weekend and were too inebriated to operate the machinery safely for a couple of days after they got back.

Facts have a role of course. And in some areas of business more than others – if you ship products to a 99.9% purity level, you’d better have some factual way of assessing whether or not that standard has been reached.

But I’ve very rarely come across a business whose main problem is a lack of facts. Nearly always, businesses which commit monstrous acts of self-harm do so because of a lack of knowledge about what those facts mean. (Or a lack of accurate knowledge, at least – they nearly always have reams of eloquent explanations for their perilous predicament which are almost entirely wrong.)

I’m quite prepared to believe that AI can deliver facts to an 80% accuracy over the next decade or so (up from, I’m guessing, about 40% now).

But AI teaching you that World War Two started in 1939 – even if that’s a fact you happen to remember – means almost nothing.

What really matters is how we got to the point of a global war breaking out in the first place, and how the world dealt with its aftermath, which heralded a new world order, a state of affairs which still has a powerful hold over the world as it is today.

They are the aspects we need to learn from, and AI is unlikely to go a good job of conveying that any time soon.

It might well be able to tell you that a key fact in the build-up to WW2 was Neville Chamberlain’s visit to Munich in 1938. But that visit was so famously unsuccessful for a whole range of reasons which are entirely irrational.

And, as we saw above, tech can’t cope with irrationality – it can only operate in conditions of perfect rationality.

In your business, you want people to have knowledge, not to just spout facts – no matter how beautifully they present their performance charts (aka “facts”) in Power BI.

Facts are commodities with very little value. Knowledge is everything.

The 7% rule

To be clear, I don’t believe precise statistics when it comes to fundamentally unmeasurable situations. However I think there’s a considerable amount of truth underlying this message, even if I don’t think the % splits are necessarily always accurate.

Which, by the way, also illustrates why facts and knowledge are independent from one another. I can take a broad message from a statement which is helpful at some level whether or not it’s actually factually accurate to seven decimal places.

What I’m talking about here is the statement much loved by business coaches and leadership trainers that only 7% of your communication with another human is made up of the words you speak.

The rest is your tone of voice, your physicality (eg do you have a smile or a frown on your face as you say the words) and a range of other factors.

That 7% doesn’t need to be factually accurate for us to understand that only a tiny part of our communication is dependent on the actual words we use. The facts, if you like.

If your life partner asks, “what would you like for dinner?” the actual words spoken are doing very little of the communicating here.

The real message could be anywhere on a spectrum from “aw, you look really tired tonight so I’ll make dinner even though it’s your turn” to “I’m beside myself with fury that you forgot my mum is coming around for tea and you were supposed to have everything ready for serving up by now!”.

The exact same words. Two entirely different meanings.

For tech folk, words are all they work with. Programming tech is a series of logical words, instructions, and if/then decision points.

So whether the number is 7%, 12% or something else, we can probably agree that only a minority of our communication is the result of the words we speak.

But that’s all tech folk can work with. The surface vocabulary, and the formal dictionary definitions, not the meaning behind the words.

It’s why tech folk make the fundamental error of assuming our post-hoc rationalisations for our purchasing decisions are the real underlying reasons we bought something.

Because that’s the bit in words. The bit of your brain which is imagining how cool you’ll look to all the ladies you fancy is invisible to any form of tech.

This is also why your business can issue 80-page instruction manuals which explain everything people are supposed to do and you’ll still find people not doing the things the instruction manual says they should.

It’s not that they’re incapable of understanding the words. It’s because that’s only 7% (or whatever) of the total amount of communication required for them to fully understand.

I don’t think this is a very difficult concept to get your head around, but apparently it is for tech bros and tech gals.

However brilliant it might become, the maximum contribution tech can make to conveying understanding is just 7% of what is required, because that’s the maximum amount which can be conveyed by words alone.

All the other parts of the communication process require entirely human characteristics like empathy, understanding, appreciation for another person’s point of view, the wider cultural and societal context within which this communication is taking place, whether the person you’re trying to communicate with has eaten in the last 48 hours, and a whole host of other factors that tech does not know and never will know.

Sure, tech can do “pretend empathy” but that has zero impact with anyone. If it had a remotely positive impact, you’d spend a lot more money than you do on products promoted in all those emails you receive addressed to “Dear {Firstname}”.

Maybe in a thousand years, tech will be able to convince you it’s being empathetic by stimulating electrodes planted in your head. But until then nobody is fooled by the sort of formulaic faux empathy you get from tech solutions.

And, to return to Mr Gates’ assertion, that’s why teachers will not be replaced in any meaningful sense by AI. Because even great AI maxes out at 7% of the communications spectrum.

A great teacher can easily 10x that performance and AI has no way of catching up because it’s incapable of exceeding 7%…no matter how good the tech becomes.

Reality trumps theory every time

Tech folk, and perhaps Mr Gates, dream of theoretical worlds where everything is perfectly organised and logical. The world isn’t remotely like that, of course, but that’s what tech bros and tech gals think is going on.

What they forget is that you can theorise all day long – and I get it, this can be an intellectually stimulating process if your brain is wired that way – but reality always trumps theory.

All the business world’s biggest mistakes have been made because organisations think their theories represent reality, when they don’t.

Coca-Cola conducted exhaustive tests before launching New Coke – theoretically a “better” product.

Except nobody wanted to buy it. Coca-Cola was forced into a humiliating climbdown almost immediately because the reality of the market trumped the theory in their labs and their boardroom.

The Ford Edsel – one of the world’s biggest car manufacturers worked incredibly hard to develop a product to a rationally-optimal solution, only to find that nobody wanted to buy the car that came out of the end of that process.

In theory, securitised sub-prime mortgages are a great idea. The reality is that the way they were sourced, and later packaged up, created the conditions which nearly destroyed the world’s financial system.

I could go on, but you get the idea.

There’s an old army saying that “no plan ever survives contact with the enemy”.

In a business setting, the reality of the market counts for a lot more than the theory of what ought to happen, as Coca-Cola, Ford and plenty of others can very fully testify to.

The problem is that AI, and tech more generally, can’t deal with reality all that well.

Reality is messy, illogical, and powered by human thought processes which are undetectable to our robot overlords.

Tech has no way of even knowing what reality is, much less understand it, process it, and adapt to it.

Again, in a superficial way, tech claims to, but that’s mostly garbage as anyone who ever bought context-sensitive advertising knows.

When adverts for package holidays appear next to news stories about plane crashes because the requisite keywords in the news article triggered the ad placement, you know that particular tech solution is a busted flush.

In an educational sense, teachers have to factor in student’s health, well-being, home circumstances, problems with drugs or alcohol in the family, and a litany of other factors if they want to communicate with every student to the maximum extent possible.

Tech solutions wouldn’t even know where to start with all that. They have no way of collecting and processing that information. And likely never will.

Teachers are here to stay

So, with respect to the fabulously wealthy Mr Gates, the chances of AI making most teachers redundant any time soon is pretty low.

Even though I’m sure the tech will improve, and the more evangelical wing of the tech industry will shout loudly about how their secret alchemy will change the world for the better, the reality is that no matter how good tech gets, we will only move from tech handling perhaps 2% of a communications process at the moment up to handling 5% of it, out of the potential maximum 7% of communication that is based on facts alone.

While that’s an impressive improvement on the current performance, delivering 5% of the communication through tech still leaves 95% of a communications process “un-tech-able”, apart from a few tricks like personalising salutations on sales emails to make you think the tech cares about you, which fool no-one.

Sure, if you think facts are the only element of education that matters, and that people operate like software programmes, even though all the available evidence is that they don’t, then tech might play a role.

But the reality is we could spend £billions on AI assisted teaching solutions, at great expense to taxpayers, and barely move the needle when it comes to building a well-informed workforce who understands what they do well enough to make a difference to the UK economy and the lives of everyone who lives here.

Of course, tech has a role. But if you think “AI everything” is a good idea, just remember this is like asking your Finance Department to run every aspect of your business – from strategy, to production, supply chain management, HR, sales, marketing, and more.

If you think that’s a good idea, implement as much tech as you like. At the very least that’s likely to hasten the inevitable and unpleasant end, so you can get on with doing something more productive with your life.

But if you think that would be a crazy idea, then think twice before you get seduced by the “AI is the future” crowd, no matter how wealthy and revered the person telling you that might be.

For that idea to work, you need to believe there’s no “human” in “humanity”.

And I, for one, don’t want to be just an “ity”.

In the business world, optimisation is the holy grail. It’s something everybody wants. And if you sell optimisation solutions, finding people who want to talk to you isn’t all that difficult.

Optimisation is the business equivalent of the advertisements for “perfect abs”, “beach body ready”, and the “look 20 years younger miracle cream” all rolled into one.

Most businesses will give the time of day to someone who promises to squeeze some extra bottom line profits out of their existing operations through becoming more efficient, cutting costs, and getting people producing more output for every hour they work.

Except there’s a problem with optimisation.

A big problem.

A big problem that the “optimisation solutions” people won’t tell you. (And that goes double if the solution is a tech platform of some sort.)

You see, it’s entirely possible to optimise your marketing, for example, while knackering your sales efforts.

Or to optimise the resource requirements in your contact centre while cheesing off every customer you have.

Or to optimise your supply chain costs while getting the reputation as a supplier who never delivers on time with your customers.

I’d go so far as to argue that it’s almost impossible to optimise a single aspect of company operations, and for that to result in a net positive bottom line return across the business.

I mean, I have seen it occasionally – usually when the manager of the department being optimised was epically incompetent at their job – but the odds are very much against it.

You need to take a company-wide view to optimise the bottom line, not a departmental-level view.

Sometimes optimisation means doing nothing

One of the many issues I have with the current tsunami of AI-powered optimisation solutions flooding the market – apart from the general level of grift in the sector and the fact that they all seem designed to foster an unhealthy level of co-dependency with the solution provider – is that there’s an assumption, often unspoken, that optimisation means taking what you do now and doing it more cheaply.

I’m not saying that’s never the answer. Sometimes it is. But it shouldn’t be the default setting – sometimes the answer is to do nothing at all, not to do what you do now more cheaply.

On the flip-side, sometimes the push is to get more for less – that is, to squeeze more output per hour from the current cost base.

And occasionally that’s the right answer too. But that’s not a foregone conclusion either.

An old boss of mine used to say that the art of change management wasn’t in knowing what needed to change. It was in knowing which elements you should leave alone, exactly as they are.

So whether you’re trying to do what you do now, but cheaper, or trying to get more for less, without realising it you’re already trapped in a mindset which is unlikely to give you the best bottom line result for your organisation.

And you can shift those odds by several orders of magnitude in a negative direction if you try to optimise a single department, or a single function, rather than operating at a company-wide level.

“War – what is it good for? Absolutely nothing.”

Edwin Starr sang that line in his anti-war classic song “War” back in 1970.

But the language of optimisation is often expressed in war-like terms. And they are usually good for absolutely nothing too.

We have to “beat the enemy” of inefficiency. We have to “win the battle to lower our costs”. We have to “take no prisoners”. We have to “fight them on the beaches” to stop anyone getting in the way of our optimisation programme – even if it’s people who care about the business raising reasonable-enough concerns.

Sports metaphors are also often trotted out to justify unhelpful behaviours in an optimisation programme. We need to “carry the ball over the line”, or “knock our cost savings out of the park.”

All of these metaphors are unhelpful at the best of times, but they’re especially unhelpful in the context of trying to optimise your organisation because they all presuppose there’s an activity taking place which needs to happen faster, quicker, better, or more cost-effectively.

That’s what “winning the battle” or “putting the ball in the back of the net” looks like.

Where war metaphors and sports metaphors fall down is that there is a simple, one dimensional, pre-defined objective where everyone already knows the answer.

While sport is like that – you either score a goal or you don’t – very few businesses operate in a simple, one dimensional, pre-defined objective like sports does.

Yet, when it comes to optimising business performance, 95%+ of the time, the people involved in the process pretend that a simple, one dimensional, pre-defined objective is exactly what they’re dealing with.

That’s where the problems start…

…closely followed by a phase I like to call “solving one problem but creating an equal of bigger one in its place as a consequence”…

…which, in turn, is followed by a phase in which everyone tries to work out why they’re still making losses on the bottom line even though they spent £1million to “optimise the business”.

If you’re serious about optimising your business performance, and thereby boosting your bottom line, you need to acknowledge three important truths:

1. Trying to optimise a single department in isolation is a route to disaster.
2. To optimise the organisation as a whole, some departments cannot be fully optimised.
3. The best optimisation solution often means doing nothing at all, not doing what you do now faster, better or cheaper.

A practical example

There’s a much better way to think about how you optimise your organisation.

I’ll explain more in a moment, but first go and watch this video (you only need to watch the first 30 seconds to get the point I’m about to make, but the whole thing is worth a watch, for reasons we’ll come on to in a moment).

I’d particularly like you to focus on the guy with the cymbals.

As you’ll notice, he does absolutely nothing for the first 28 seconds. You can listen as hard as you like to that track, but there are no cymbals being played until almost half-a-minute in.

And even when the cymbal player gets going, there’s just a bit of gentle, rhythmic sounds for a while. If I hadn’t asked you to concentrate on what the cymbal player was up to, you probably wouldn’t have noticed them.

No doubt some tech bro or tech gal would count that as a potential optimisation their AI-powered tech platform could deliver – “You’re paying a full salary to someone who does nothing at all when they should be clanging those cymbals together on every beat, and getting more output from your current level of resources. Either that, or you should fire the cymbal player because you obviously don’t need them.”

Of course, that’s nonsense. Although, in my defence, that level of nonsense is a fairly representative of the level of nonsense in the average tech platform pitch these days.

Optimising what the cymbal player does in isolation would make this, or any other, piece of music unlistenable.

Imagine every instrument in an orchestra playing at full pelt the whole time. It would be the worst listening experience you could think off.

And it’s the same in your business. If the marketing department optimises what they do at the expense of every other department, the sales department does the same, the operations department does likewise, and so on, you don’t end up with a well-ordered optimised business with tip-top bottom line results – you end up with a chaotic business heading for the bankruptcy courts.

That’s why optimising overall bottom line results for the organisation as a whole means some areas of the organisation need to run sub-optimally.

Like the cymbal player, sometimes they just need to sit around doing nothing.

But when you need them, you need them

The temptation is to regard costs like the cymbal player’s salary as unnecessary, and eliminate them.

However, a bit like whoever’s decision it was to run Heathrow Airport with just a single source of electric power, even if that’s possible some of the time, it isn’t possible all of the time.

The cymbals in this piece – technically called the Galop Infernal from Offenbach’s opera “Orpheus in the Underworld” but known to most of us as “the can-can music” – play two roles.

For some of the piece, they merely provide part of the rhythmic structure. That’s what they’re doing between about 00:28 and 00:40.

And in other sections, the cymbals are bringing drama and emphasis, as they do at about 00:42 and, most notably, in the climax at the end.

But at about 01:10 the cymbals abruptly stop again and the cymbal player is back to not being optimised…at least not in the way tech bros and tech gals think they should be.

Now, there’s a good reason for that. The section from 01:10 is led by the wind section, which plays very softly at first. Too much cymbal crashing would drown out the delicate flutes and oboes, so Jacques Offenbach took the wise route and, rather than optimising the cymbals, made sure they had no notes to play in that section at all.

However, as the music swells, and the drama builds, the cymbals come back on again at about 01:28 to accentuate the more forceful passage that follows.

So now we’re about a minute-and-a-half in and the cymbal player has only been working for about one-third of the time.

For someone with an AI-powered business optimisation platform, that looks like a gimme for cost reduction.

Optimisation happens to the whole, not the parts

This is the difference between a department-level view of the world and an organisation-level view.

You can optimise the cymbal player in isolation and remove a cost you only use one-third of the time in the first 90 seconds, so can’t presumably be all that important.

Or you can “get more output for the same cost” by making the cymbal player work all the time, at the expense of most of the audience walking out after the first few minutes.

Either of those would be typical department-level views of the world.

At the organisation-level view, you realise how important the cymbal player is to delivering “The Galop Infernal”, especially in those sections where you need to heighten the drama and the impact of the music.

It wouldn’t be the same with a kazoo, no matter how much cheaper that was.

However, the real reason you need to optimise at the organisation level is that this is the only place where meaningful trade-offs can be made.

For example, what if you could make the marketing department “more efficient” in the sense that they generated more leads for the same cost, but doing so made the sales department less efficient because the quality of the leads was lower.

While there are times you might take a different view for other reasons, from a bottom line results point of view, in general you’d want a maximally efficient sales team, especially in B2B sales where they tend to be an expensive and scarce resource.

At board level you can make a decision to run your marketing department “less efficiently” because there’s a bigger prize here – the efficiency of your sales team.

At the marketing manager’s level, they’ll just optimise their own department, and expect a bonus from finding more and more leads for the same cost you had before. It’s not their problem if doing so makes the sales department less efficient.

That, in essence, is how expensive business optimisation programmes end up achieving much less than they promised…and often making a business worse-off after implementing the programme than it was beforehand.

Whether that’s a marketing manager in search for glory or a senior team who thinks “optimising everything” is essential for business success, it’s easy to make things much, much worse while claiming to be pursing the objective of making things better.

That’s why knowing what needs to change and what needs to be left well alone is for me, as it was for my old boss, the…erm…cymbal of success.

If you need a reminder, just remember the cymbal player in “The Galop Infernal”.

The composer’s and the conductor’s jobs are to optimise the whole piece for the audience’s pleasure, even though some parts of the orchestra are “inefficient”. Not least the cymbal player who is only producing at maximum volume for about 3 seconds in the entire piece.

If you think about optimising your business for your customers’ pleasure, even if that means sort parts of your business run “sub-optimally”, you won’t go far wrong.

Imagine you wanted to launch a new product to the world.

A product that would help define your business for the next decade.

A product that would encapsulate all the values of style, innovation, and modern living that your prospective customers yearned for.

A product which would blow those pesky competitors who had been stealing market share from you right out the water.

How would you go about doing this?

Well, if you’re like most people, you would invest a significant amount of time and money to make sure this new product would really hit the mark – after all, you’re hiring loads of new people, building a new factory, creating a boatload of marketing collateral from scratch.

None of those are cheap, right? None of those are cost-free or risk-free – you need to hire the staff and build the factory before you sell a single one of your exciting new products. So you’re in the hole by a significant amount of money before you make a single sale to a customer.

So, naturally, you’re not going to launch this product on a whim. You’re going to do your homework.

The homework

The obvious place to start is to find out what your customers want.

I say “the obvious place”, although many organisations launch ideas that someone tinkering away in a lab thought was a good idea before they check a single detail with their potential customers.

But let’s assume you’re neither a tech bro nor a mad scientist and that you decide to do what someone sensible might do.

You might start by trying to find out the reasons why people who used to buy from you have drifted away to other suppliers. By understanding their motivation, you might have a better idea as to what customers value, so you can build whatever that is into your new product.

So, for example, if my former customers told me that the design of my products was looking rather staid in a market which prized style over functionality more than it used to, then I might consider hiring some top design talent to make sure my product was every bit as stylish as the competition’s.

I might also discover there are some features my existing product doesn’t have, but which the market generally now expects to have “as standard” for those products. Perhaps I’ve been doing this for a long time and I have concentrated on becoming more efficient at producing my old products, so I ended up missing the new features people have come to expect as standard.

No problem, I’ll build those into my new product. Even though it means I might need to re-tool the factory, and it could add some time to the new product development cycle.

But still, if it’s what the market is demanding as table stakes from suppliers in my industry, I can hardly ignore that, can I?

As time goes on, I realise there are more and more features I had been blind to previously, so I decide to ramp up the market research to make sure we don’t miss anything obvious – after all, this new product will define our company for the next decade, so we don’t want to miss any up-and-coming ideas which might go mainstream over the next few years.

It means the development cycle will be longer, but that can’t be helped. The importance of understanding our customers’ motivation for buying products like ours is pivotal to our success in the next decade, so we can’t skimp on it.

The business case

We’re running a business here. So of course we need a business case – the clue is in the title.

How do we know that we will be able to sell enough of our new product to earn a return on our investment in people, factories, design, customer research and marketing?

Well, naturally, we do some market analysis.

Although there are many downsides to being behind the market, there is one important upside – we know how our competitors are doing with the products they sell which, increasingly, our customers prefer to ours.

So, if we add up all the sales the competition makes, and assume our super-duper product will be better than theirs, thereby gaining market share at their expense in the years to come, we should be able to make an assessment of the likely return on investment.

Now, this piece of work will take a team of analysts a significant amount of time. But it’ll be worth it. After all, we can hardly employ all these people and build a new factory without knowing it will all make a positive bottom line return at the end of the day, can we?

We’re running a business, not a hippy commune.

Of course, this adds a bit of time to the new business development cycle, but it’s an essential part of the process. There’s no point in creating a new product to sell that we can’t make any money on.

The future

Because we run a sober, sensible business, we don’t just run the numbers based on the market as it is today.

We want to ride a wave into the future because sales growth is always easier in a market that is expanding, rather than slugging it out for market share in a stagnant or declining market.

So we need to find people who can’t just tell us what the market is doing today, important though that is. We need people who can tell us what’s going to happen 10 years from now because we recover all our factory building and tooling costs over an assumed 10 year useful life.

You know what these “brain scientists” are like. Smart as anything, they can extrapolate trends and work out forthcoming changes in society – information like there will be more families with teenagers !0 years from now than there are today. So products which appeal to families with teenagers are likely to be a growing market – that sort of thing.

Thankfully, the brain scientists told us that, 10 years from now, over half the people in the country are going to be in the sweet spot for products like the one we’re planning to launch.

While we’re a little bit behind our competition, the upside between the potential market as it is today, and the potential market 10 years from now, when half the country is going to be fighting to buy products like ours, is enormous.

So if we get to the level that our competitors are today soon after launch and then, through superior products and better marketing, capture an outsized share of the upside over the next 10 years period, this new product will be a sure-fire money-maker.

Being distinctive

Now, we’re not idiots. Although we have competitors who are doing well with their offering – better than us, if truth be told – we can’t just slavishly copy what they do.

We need to be distinctive. We need to stand out from the rest of the market so people see our product and want to buy it.

We need to be bold – that’s what our market research said. We can’t just blend into the background.

While all of our competitors were doing better than us, according to the target customer groups our researchers spoke with all our competitors were seen as much of a muchness. It was hard for customers to identify which product came from which company.

Our target customers wanted something that stood out. Something that would show they were the sort of people who choose products which were distinctively different and rather stylish, rather than one of the “fade to grey” offerings from our competitors.

Armed with that insight, of course we commissioned some of the top designers to come up with the visual identity for our product. And boy, was that distinctive…! You knew that was ours straight away – it looked like nothing else on the market.

Of course, that meant we had to make some more adjustments to our manufacturing processes, because we weren’t just doing what everyone else did. It’s a problem, on the one hand, but it’s also what makes us distinctive, so it’s a worthwhile investment.

And don’t forget the ads

As we all know, having brilliant products is great. But having brilliant products nobody knows about is pretty much pointless.

We need to get the word out.

Now, because this is a keystone product for our company, we’re going to the very best.

We’re going to get 19 of Madison Avenue’s finest ad agencies to pitch for our exciting new product, after which we’re going to commit serious cash to the launch and follow-up marketing to make sure everyone in our target market is itching to hand over their cash to us.

Yes, that’s going to take a little while because until we know exactly what we’re selling, we can’t even begin to create, much less run, the ads.

But anything worth doing is worth doing well. So let’s get all the big ad agencies in to see what they have to say for themselves. Then we’ll pick whichever agency we like the best and give them the cash they need to create the ads and buy all the media they need to run those ads.

It’ll be worth it, though.

A combination of an exciting new product, meeting our target market’s desired preferences, and the promotional input from one of Madison Avenue’s finest ad agencies…surely we’re onto a winner?

Or are we?

Well, dear reader, it might not surprise you to learn that, in this particular case, the answer was “no”. We aren’t onto a winner at all. Far from it.

Despite “doing everything right”, it’s still possible to create one of the business world’s more celebrated failures.

The story above is a lightly fictionalised version of the story behind the launch of the Ford Edsel.

Younger readers might not have heard of the Ford Edsel for the very simple reason that it was launched with a great fanfare in the late 1950s, but bombed more or less straight off the launchpad, and was killed just a couple of years later.

Ford did everything right. All the research. All the engineering. All the marketing.

But it took them 10 years to get to launch. And by then, the market had shifted and what might have been a desirable product at the start of the process had been overtaken by events.

And because they did everything right, it cost an estimated $250million to get to the point of launch.

They spent so much money to get everything right that the Edsel had to hit a home run right off the starting line if Ford was ever going to stand a chance of recovering their investment.

But after an initial rush of interest, sales figures fell off a cliff. Within three years of launch, with total sales to that point less than 50% of the level of sales required just to break even, Ford pulled the plug.

There are many contributory factors to the failure of the Edsel, not all of them the fault of the company.

Yet, fundamentally, the Edsel was a failure despite Ford…in theory…doing everything right.

How to protect your bottom line

While there are many things Ford could have done differently, unless you build cars for a living, some of them are of limited use to you.

However there are some aspects every business can factor into their forward strategy:

1 – The market is all that matters

In the end, it doesn’t matter how clever you are and how much money you spend. If the market doesn’t like what you’ve done, your idea will fail.

2 – The theory vs the practice

It’s easy to get swept along by the brilliance of the people doing your market research, and all the charts and graphs they prepare. But everything is theoretical until your product launches – after launch, all anyone cares about is how well it works in practice. Theory becomes irrelevant at that point.

So you are probably best served by getting a real product, or something very close to it, in the hands of some of your target market as early as possible in the process, so you can get practical feedback to work with instead of the theoretical wishes and desires of people who the market research company spoke to.

3 – Distinctiveness isn’t always good

Standing out from the crowd is usually a good thing. However, that’s only true if people like the way it stands out.

If your target market hates the distinctive elements of the design (the vertical centre grille in the case of the Edsel), distinctiveness alone won’t save you.

4 – Cash commitments

In general, don’t go round committing $250 million until you know you’ve got something the market really values, as opposed to well-meaning statements your target market has shared with your market research company.

You ideally want to be investing more and more on the back of an idea which is clearly gaining traction than to push $250 million in chips onto the roulette table before spinning the wheel to see whether your numbers come up or not.

5 – Are your customers clear?

Pre-launch, Ford largely ran “teaser ads” to whip up interest in the new Edsel. As a marketing strategy that isn’t completely crazy, but it meant nobody in their target market really knew what was coming.

When you break down individual features, like improved air conditioning, and run your ads around that it’s hard to find anyone who doesn’t think better air conditioning is a good idea. So you get lulled into believing that you’re on the right track.

And your customers aren’t lying. They just don’t know the full picture. But what they probably didn’t expect you to think was that they would buy an ugly car with better air conditioning over a more attractive car with slightly poorer air conditioning.

Yet, in essence, that’s what Ford did. And it’s why, when the full picture was unveiled at launch, sales for the Edsel were underwhelming. No longer being asked for an opinion on one narrow aspect of their car purchase, buyers could see the full picture, and not enough of them liked that full picture for the Edsel to become a success.

The thing is, nobody really knows anything in advance. You can have all the theory in the world. All the research. All the business cases. All the advice from the very best people in their field.

And still, sometimes, it doesn’t work.

So whether you’re looking to make big changes in your business or small ones, it’s usually best to remember Charles Darwin’s line about it not being the strongest, or the most intelligent species which survive, but the ones which are most adaptable to change.

That’s never more true than in the field of new product development.

Of course you need an idea to work up, but from that point onwards, don’t become too attached to the outcome. That’s how Ford got tripped up.

Regard it as a hypothesis only. A Ver 1.0. A pre-launch sample.

Then get it out in the world as fast as possible and stay light on your toes. Be prepared to react to real world feedback as quickly as possible and build from there.

In businesses which like lots of rules and procedures, this is almost impossible. The concept of “staying light on your toes”, with a lot of flexibility about what happens post-launch is an anathema to many businesses, large and small.

But there’s a good reason to do things that way.

Because that way you don’t waste $250 million creating a product people don’t want to buy, and your company doesn’t end up as a business school case on how not to launch a new product.