AlastairThomson.com

Whether it’s good or bad, stopping the rhythm of the way your organisation habitually works isn’t easy.

Now if everything is perfect inside your organisation, and the rhythm of your business today is getting the results you want, then whatever you do, don’t touch it.

Don’t introduce new tech tools “to help”. Don’t change the people. Don’t decide this is a good time for an organisation-wide restructuring process.

Stand back and leave it alone. Any changes made at that point are only likely to make everything worse.

As a leader, that takes discipline and self-control. You need to be humble about your role in all this, rather than feel you have to throw everything up in the air every now and again just to show everyone who’s the boss around here.

Let me say two things about that, though.

Firstly, almost no business in the world is running perfectly.

Perfection doesn’t mean all the KPIs are green on your monthly reporting dashboard. All your KPIs can be gamed…and often are. Every business I’ve seen in real difficulty had near-perfect KPI dashboards just before the bank called their loans in. As a result, it’s been a long time since I was impressed by an all-green KPI dashboard.

Rather, this is about the rhythm in your business being perfect. Where everything happens just as it should, perfection comes naturally, seemingly without effort, and your people routinely go above and beyond for your customers. It’s like watching anyone who’s a true master at their craft – they make things most of us wouldn’t have a hope in hell of achieving look easy.

If that’s what’s happening in your business, the bottom line will largely look after itself. And the last thing you should do is change anything while you’re in that groove.

More likely, statistically speaking, that’s not how your business is running. So it’s not unknown for business leaders to want to change things to get different results to the ones they are getting now.

The difficulty, however logical and sensible the ideas you want to implement might be, is that the process of change will be hard, expensive, and is unlikely to stick.

That’s because the beat inside your organisation is going to keep you travelling down much the same track you’ve been travelling down for months or years beforehand. It’s hard to stop.

If your instructions up to that point have been that customers are to be treated as if they were trying to steal from your business, your staff will have developed a way of making customers feel on edge all the time and probably creep them out by following them around everywhere while they’re on your premises.

But one day you read an article in a business magazine and you decide being more customer-centric is the way to go. So you send an all-staff email to tell everyone to be nicer to your customers. Job done, right?

Well – and I suspect you’re ahead of me here – almost certainly not.

Once someone has been ingrained with the belief that customers are to be regarded as potential criminals, and people become used to being rewarded for thwarting potential thefts, I can pretty much guarantee that not a single member of your staff will treat your customers any differently.

Their “beat” is to treat customers like criminals. Stopping that beat is hard.

Bottom line benefits

Now, I strongly believe that there is almost no cheaper, better, more lasting way to build your bottom line than by becoming excellent at customer service.

So let’s imagine someone comes to that point of view too, and decides to change the “customers are criminals” ethos that has prevailed in their business up till now. What’s likely to happen?

Well, at first, probably nothing, due to the ingrained behaviours highlighted above.

Then, in most organisations, there are all sorts of memos written, instructions issued, meetings with HR, escalating rhetoric from the board, firing of a few of the worst offenders, and all manner of internal comms. All at great expense.

After a round of blood-letting, if you’re lucky, the best you can probably hope for is an anaemic level superficial compliance to whatever people are being told to do…mostly carried out with a sceptically raised eyebrow or a knowing look between co-workers who, inside, haven’t changed a bit.

After all, they were probably hired because their “customers are criminals” outlook on life came relatively naturally to them.

In even a half-reasonable job market, all the people who thought the opposite, but might have breezed into a customer-hating business by accident, will find another job as soon as decently possible and move on.

So the people left mostly have a natural “customers are criminals” mindset.

This, by the way, is why some astonishing number of corporate change programmes don’t work. I think KPMG, or one of the other big consulting firms, did some research a while back to the effect that over 70% of change programmes didn’t achieve their objectives.

And that’s because businesses spend $millions to implement new systems, build an AI-enabled front-end chatbot, re-align the organisational structure to synergise efficiencies…or whatever corporate-speak guff business magazines are writing about at the moment.

This is not a mystery. What happens most of the time one of those organisation-wide change programmes gets rolled out is a demonstration that you can’t stop the beat.

Or, at least, not quickly, easily, or through the mechanism of an all-staff email.

It’s not difficult for a business to find itself spending £10 to try to force change into a system and receiving only £1 of benefit back again…if, indeed, there’s any benefit at all. I’ve seen it many times, albeit the KPI dashboard usually magically becomes all-green shortly after, allowing whoever made the decision and whoever implemented it to claim victory by gaming the metrics.

Every time a business employs a manager to “deliver X” or “change the culture in the Y department”, it’s probably adding a lot of overhead (the £10) to barely move the needle on the outcomes (the £1). At least that’s what happens if you track your costs properly, which an alarming number of organisations don’t.

Can you stop the beat?

You know the old saying about every action causing an equal and opposite reaction?

That’s not just true in physics class. It’s true in every aspect of business.

If you take action and tell people they’re wrong to treat customers are criminals, after years of telling them to do exactly that, you’ll very quickly find that the equal and opposite reaction either involves your people ignoring you or spending a lot of time telling you that you’re wrong.

They’ll dredge up that time five years ago when they really did apprehend a criminal and use that as the seemingly-logical justification for refusing to change their views that customers are criminals.

Paradoxically, the harder you go in to make a change, the less likely it is to happen. That’s not just my point of view – it’s physics…

So what can you do?

Well, I’d argue that while you can’t stop the beat, you can change the beat.

And I’d also argue that changing the beat is better for your bottom line than trying to stop the beat.

That’s because 1p of effort gets you £1 of bottom line results, rather than £10 of effort getting you £1 of bottom line results in a more conventional top-down change management process.

Here’s how it works…

A DJ saved my life

Imagine you’re a DJ in a club. You’re getting towards the end of one song and you’re getting ready to play the next song.

Everyone is dancing and having a good time, so you don’t want to kill the mood.

But the song you’re playing now is more up-tempo than the next track up.

If you abruptly switch off Track 1, people will leave the dancefloor, nip to the loo, or get themselves another drink.

That’s bad news if you’re a DJ, because you want people to be dancing, not buying drinks or sitting down to chat with their mates.

This is a bit like a traditional corporate change programme. The shock of the switch kills most of the benefits which, in theory, were the reason for making the change in the first place.

So, what do DJs do?

Well, firstly, they start from where people are (on the beat of Track 1), not where they would like them to get to (on the beat of Track 2).

Let’s imagine Track 1 is “YMCA” by the Village People. And don’t pretend you don’t know that track – it might not be cool, but I’m assured by a DJ pal of mine that it’s a guaranteed floor filler. A couple of bars of the intro, and everyone is on the dance floor, ready to do all the moves.

And let’s imagine Track 2 is “Stayin’ Alive” by the Bee Gees – a disco classic, and also an infectious tune that has everyone dancing.

Two good choices for a DJ who wants to keep the dance floor busy, you might think.

There’s just one problem.

“YMCA” runs at 127 beats per minute, while “Stayin’ Alive” runs at 104 beats per minute. Or in other words, Track 1 is about 25% faster than Track 2.

You’ll notice the DJ doesn’t just issue a memo to ask people to dance 25% slower. Nor do they just “flip the switch” and do what corporate change management people call “going Big Bang”. Neither of those are likely to work – either in a business or on the dancefloor.

Typically (although there are other techniques) the DJ will gradually slow down Track 1 until it matches the beats per minute of Track 2. Then they will fade out Track 1 and let Track 2 run at its designated 104 beats a minute.

When done skilfully, most of the people on the dancefloor will barely notice, and they’ll transition with almost no fuss and almost no leakage from Track 1 to Track 2. Everyone will stay on the dancefloor and they’ll still be dancing, albeit a bit more slowly than they were before.

Net result: A 25% change has been accomplished, and most people didn’t even notice. There was no push-back. No arguing. No need to get HR involved. The transition took place smoothly and now people have changed their behaviour at a cost of pretty much zero, with just a little bit of thought and a tiny bit of effort.

I don’t need another hero

You might notice a couple of things about this approach.

Firstly that it is a low-cost, high-impact approach – which is always the best for your bottom line.

And secondly that there is no hero in this story. There’s nobody on a white steed calling on people to change and follow them to the Promised Land.

People are changing because they want to change. That’s the bit corporate change management types find hard to deal with, because it doesn’t give them the space to be the hero.

This has always puzzled me. Not because I’m an ego-free zone – none of us are. But because, given a choice between a more effective way of achieving and end-goal and a less effective way of achieving the same goal, I’m surprised how many people insist on taking the less effective path.

And it’s not even like the more effective path is harder. If anything, it’s easier. Provided you don’t make this all about your own ego.

You just need to understand where people are now. Not necessarily to agree with their perspective, but to understand it and to sit with them in their perspective that the world moves at 127 beats per minute.

Only after you’re, metaphorically, dancing along with them at 127 beats a minute can you gently move them in the direction of dancing at 104 beats a minute, all the while ensuring they are still having a good time.

If you force your way onto the dancefloor trying to dance to “YMCA”, but at 104 beats a minute you’ll look like an uncoordinated fool.

And if you stand at the side of the dancefloor grooving away at 104 beats a minute and shout to everyone having fun while making all the dance moves to “YMCA” that they should come and join you because you think 104 beats a minute is the future for dancefloors, people will think you’re a lunatic.

Yet that’s pretty much how corporate change management programmes work.

A much faster way of getting to the objective of 104 beats per minute is to start at 127, where everyone else is, and for the DJ to gradually slow down the first track until “Stayin’ Alive” takes over on its own at the desired 104 beats per minute.

If you’re serious about making changes to improve your bottom line, think less like a heroic medieval figure on a white charger, waving your sword around your heat.

And think more like a DJ.

While stopping the beat is hard, expensive, and unlikely to achieve the end-goals you hoped at the outset, changing the beat to transition your people from one outcome to another is usually easy, inexpensive, and much more likely to bolster your bottom line.

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PS: the title of this article was inspired by the wonderful song “You Can’t Stop The Beat”, written by Scott Wittman and Marc Shaiman, from the movie and stage show “Hairspray”. If you fancy a boogie right now, you can find the song here.

Periodically the 1% gains theory gets mentioned by some business guru or other. The story they usually tell to evidence the concept is the tale of Dave Brailsford, the sports coach who took British cycling from being about as much of a joke in the cycling world as British cooking is to a French person, to a slew of Olympic gold medals and Tour de France wins.

Cutting a long story short, he did this over a period of time by making tiny improvements in hundreds of different aspects of how cyclists prepared for, and rode in, their events. Shoes that were one ounce lighter. Helmets that were 1% more aerodynamic. Bikes with only one coat of paint instead of two. That sort of thing.

Over time, all those 1% gains added to other 1% gains and the compounding effect took the UK to the very top ranks of the world of cycling from pretty much ground zero a few years earlier.

Now, Dave Brailsford clearly did a fantastic job and has rightly been lauded ever since for his approach.

So much so that all manner of business gurus have picked up on the concept and incorporated it into their own teaching.

Like a lot of things in business, it’s entirely possible to have something which – at its core – is valuable insight but which, applied unthinkingly at scale, can have the exact opposite effect and end up making everything worse.

Some of the more zealous “1% gains” crowd fall into this trap.

Your business is not an enclosed system

The biggest difference between improving the performance of cyclists and running a business is that in the former, you are in control of pretty much all the elements you are playing with. In a business you’re in control of only a fraction of all the elements you’re playing with…and not even a terribly large fraction, at that.

A cycling coach is trying to get a single rider (usually) from Point A to Point B in the shortest amount of time possible. They know, or can easily find out, key aspects like the surface my rider will be cycling on, whether there are any hills and the precise gradient of each of them, the points where a cyclist is likely to be cycling into the prevailing wind or has the prevailing wind at their back, and so on.

Now, there are some variables at play here – the weather on the day of the race, the talents of the rider (some are better at climbing hills, others are better on the flat), the pace of development in the field of carbon fibre technology for making bike frames, and so on.

But a lot of those can be selected for – if you’re choosing a team to compete in the UK in October, select your best wet weather riders.

If the race has a lot of hill climbs in it, choose people who are good at hill climbs. And so on.

And, unless you’re very lucky, the pace of developments in carbon fibre technology impact all the teams equally as scientific developments tend to become widely known pretty quickly. So you need to keep up with those…and you might occasionally be slightly ahead of another team, or another team might occasionally be slightly ahead of you…but as long as you keep up with industry developments, that’s unlikely to be a major source of over- or under-performance.

So, once you’ve aimed off for all those “big picture” issues, you’re left with the aspects which are essentially in that 1% gains territory, and which are all under your control.

You have a closed system to work with. Selecting the fabric for riders’ jerseys is entirely up to you. Likewise choosing their shoes. And subtler aspects such as coaching them to hunch their bodies over the handlebars in the optimum aerodynamic shape.

And it’s fairly easy to change any or all of those aspects – and the hundreds of other similar factors in a cyclist’s performance – to see where it gets you. If it makes a difference, keep doing it. If it makes no difference at all, stop doing it.

Since a cyclist’s performance is, in large part, down to how effectively they use their muscle power to propel a bike of a known weight as quickly as possible from A to B along a pre-determined route, it’s very clear that anything you can do to improve their muscle power or reduce the weight they have to propel along the road…even by a tiny amount…is worth doing.

In cycling races the margin of error is tiny. In the Tour de France – a race of over 2,000 miles – the smallest winning margin between first and second place was just 8 seconds.

When gold and silver medal are separated by small a difference as that, even taking a coat of paint off a bike, over the course of 2,000 miles or so, really can make the difference between a win and a second place.

What about your business?

Contrast the job of a cycling coach with someone running a business – even a very small business.

Despite what you might think, you control very little in your business environment.

Governments implement ideas that increase your costs whether you like it or not. Customers decide to buy from someone else, no matter how long they’ve bought from you. Your staff – or the better ones, at least – can get another job at any time for more money than you’re paying them…no matter how much you pay them.

And that’s before we factor in all the companies in your supply chain, including companies you don’t know anything about because they’re suppliers for one of your suppliers. Or interest rates which you can’t control. Or changes in accounting policies about how you report your profits.

Not to mention changes in the external business environment, like new competitors discovering a different technology that does what your business does at a fraction of the cost. Or new competitors from overseas entering your market. Or one of your biggest customers going bankrupt.

Compared to a cycling coach, the number of aspects of their business a CEO can truly control – no matter how intelligent and hard-working they are – is tiny.

And that’s why, like a lot of ideas implemented into businesses from a sports or science/engineering background just don’t work as well in practice as the theory suggests.

Even a theory as superficially attractive as the 1% gains approach pushed by those business gurus.

The laws of statistics are against you

While it’s far from the only reason, one reason the 1% gains theory doesn’t work that well in most businesses is that the laws of statistics are against you.

When you’re coaching cyclists, you can attach all sorts of monitoring equipment to them while they ride their bike on a simulator on a lab somewhere. If you’re trying to help them get off the starting line faster, you will probably practice that manoeuvre hundreds of times and you’ll have thousands of data points about those crucial first couple of seconds of a bike race to work with.

In that environment, statistics can be helpful because that’s a science that only works with large numbers of data points.

In many businesses, you might not make hundreds of sales in a month or even in a year, especially if you’re in B2B. With cycling training, you could practice the first two seconds of 100 starts in a morning.

Sure, you can try out packing box B instead of packing box A and see if that slightly cheaper option is strong enough to protect your products all the way to your customer to the same standard as your original packing materials.

But if box B survives the first journey, what do you learn from that? Comparatively little – you might have just been lucky, maybe it wasn’t raining that day, or perhaps your driver took a little extra care because they could see there was something different about that box, even if they weren’t exactly sure what the difference was.

Now, at this point, people I talk to like this often leap to the conclusion that I’m going to tell them to collect lots more data points so they can use statistics to draw statistically-valid conclusions.

That’s almost never the right course of action.

It either means taking a massive risk by going “Big Bang” on a new, untried, untested theory, in the hope of collecting the amount of data required to assess whether that was a good idea or not. This is rarely a sensible way to manage business risk.

Or it means spending a small fortune on either people or systems to collect, track, and report on data which will be mostly a waste of time. Through an unscientific process of trial and error, odds are you’ve iterated your way to a pretty reasonable way of working by now, at least most of the time. So the number of times you’ll stumble across a huge, previously undiscovered, benefit to your bottom line isn’t zero, but it’s not a huge number.

So many of the data collection and analysis programmes I see are of very dubious benefit to the business overall, at least on a net basis after factoring in the costs.

If it was a piece of machinery in your factory which cost £100,000 a year to run, and produced occasional £20,000 upsides, but most of the time brought no benefit at all to the business, you wouldn’t buy it.

Yet plenty of businesses spend that £100,000 a year without a second thought because they believe there’s a previously undiscovered secret hiding inside all the data they weren’t collecting previously. Dear reader, I have to say there almost never is, in my experience.

In particular, the data is unlikely to give you information that someone who really knew what they were doing couldn’t have told you already. But instead of listening to those people, many businesses would rather spend £100,000 a year and still not find the answer.

The lack of a system

From what I’ve been able to tell, one of the main reasons corporate data collection efforts are so often a waste of time is that they lack the clarity about the systems they operate in the first place. And often, they don’t really have systems at all.

Oh sure, they’ll have some procedure manuals around the place, or a “systems bible” (as I heard it described once), which tell people what to do.

Lots of people think if they talk about systems and processes often enough, it’ll make them sound super smart and they’ll get a promotion. But what they’re usually talking about is a procedure manual of some sort, which is a million miles away from having a system in place.

This comes out in lots of different ways in practice, but I’ll just home in on a small number of them here. I should say at this point that the work of my long-time business hero W. Edwards Deming is especially relevant to this section, so spend some time with his writing if you want to take this seriously.

There are four key elements of a well-running system, according to Deming. And the number of times I have seen anything close to this in a real business are vanishingly small, so the odds are your business has some work to do in most or all of these areas:

1 – Systems are not silos

I often hear people talk about their marketing system or their HR system. But however good those might be within a single area of operation, that’s not the same as your business having a system in place.

To operate in any meaningful sense, a system has to be an end-to-end piece of work which encompasses your business’s entire range of operations.

As an example, you can have the world’s best marketing system, but if your sales team takes the leads your marketing team produce and make a complete hash of converting them into customers, all the effort your business has put into creating the world’s best marketing system has been a waste of time when it comes to the bottom line impact.

2 – Is it a blip or a trend?

For the purposes of illustration, let’s assume you have a system in place. And that your business has achieved 80% of what would be expected today. Should you care?

Well, that’s a trick question. From that information you can’t possibly know.

But in most businesses, there would be people dashing around all over the place, collecting data, printing reports, having meetings and crisis talks with one another.

Which all looks a bit foolish when the following day clocks in a 120%, meaning the average across both days is the 100% of target you expected all along.

Understanding what a variance really means is critical – and that’s something too few organisations really understand.

Within every system, however well-run, there will always be a degree of natural variation.

But organisations have a tendency to either dramatically over-react to differences which are entirely within the expectations of a statistical model, or dramatically under-react and do the corporate equivalent of Emperor Nero fiddling while Rome burned.

3 – The right data

While I was uncomplimentary about most organisations’ data collection efforts above, I acknowledge that some data is required to make decisions about your business. The trick is working out which data is the right data to collect.

There’s a temptation, especially for people who like to live their lives through the lens of an Excel spreadsheet, to believe that all data is equally valuable, so they set out to collect it all.

The reality is, in most organisations, a relatively small subset of all the data which might potentially be collected is truly mission-critical. The vast majority of it conveys no particular benefit or insight at all.

A common example of this is the NPS stats larger organisations like to obsess over. I’m always puzzled by the way in which those organisations can convince themselves they’re doing a great job based on their NPS scores, while still being widely hated by a large proportion of their customers.

I can tell how happy your customers are by spending 10 minutes in your call centre at the busiest time of day. I don’t need NPS scores to help me.

However, in a previous life when on-time delivery was a critical factor for the business I ran, one of our key metrics – and one I genuinely obsessed over – was the on-time delivery of the materials we needed for client orders.

Because pretty much every job for this business was bespoke, we couldn’t buy ahead of customer orders. But if an incoming delivery was late getting to us, odds are we would be late delivering to our customers.

Even there, although we collected the stats, the fact that I could see our suppliers’ trucks pulling into our loading dock from my office was a benefit I often used to save me having to pour through the stats. I knew that, whatever else was going on, on-time delivery from our suppliers wasn’t an issue because I saw the trucks passing by my office window long before the on-time delivery stats came out.

4 – People impact

Science and engineering types think that writing down a supposedly water-tight process is all that’s required, and people will just follow that process like robots.

That’s the complete opposite of my experience. At both ends of the spectrum.

There is almost no formal procedure a human being, deliberately or otherwise, can’t interpret in a completely different way to the intention of whoever wrote down the procedures in the first place.

And some of your best employees won’t follow that process either, but on the upside.

Perhaps your process instructs a supermarket cashier to wish customers a nice day and move on to the next customer in line. But perhaps today they see something in your customer’s eyes that makes them think they might be experiencing some personal or emotional difficulty, so they take another minute to ask the customer “Are you OK?”.

At that moment, they are being inefficient and going against everything the system some alleged genius wrote down at head office says they should do.

But in that same moment, at a cost of virtually zero, they are helping another human being out the kindness of their hearts and, possibly, making it more likely that this particular customer and everyone within earshot will think “What a caring place this supermarket is. I must shop here more often.”

In organisations where the impact of people on an organisation is not fully understood, all the data collection in the world won’t help you. Your decisions will still be sub-optimal.

So what do you do?

Much of the time, collecting data and tinkering with things on the 1% gains principle is somewhere on a spectrum between being a waste of time and being positively detrimental to your bottom line.

So, as Adam Ant used to say, what do you do?

I’ve always found “what’s the upside?” is a good question to start with.

If you spend £5,000 a year on something, and you can save £50 a year (which is 1%, after all), how much effort is it worth?

Pretty much zero, in this case. Although this sort of thinking does explain some of the terrible-quality paper people have put in office printers over the years.

If it takes even the tiniest bit of administration, management, or oversight to save £50, I can tell you it’s just cost more than £50 to save you £50, which is the exact opposite of improving your bottom line.

The difference is that the £50 saving on photocopy paper is visible, but the £200 of management time to unlock that saving is invisible, because you pay your Procurement Manager a straight salary. So nobody ever calculates the true RoI.

On the flipside, a 1% saving on a £5million spend is worth spending a bit of time on.

But, a remarkable proportion of the time, you would save more money by firing your Procurement Manager and putting their salary cost back on the bottom line even if, in the same breath, you accept that you might spend an extra £50 a year on printer paper every now and again.

Internal staff resources aren’t free, so their costs need to be factored into any RoI.

However, asking yourself “what’s the upside?” will help you take an early go/no-go decision about most things you might be tempted to do.

Yes, even when that comes to collecting data, improving systems, and finding marginal gains.

I know it sounds simple. Almost overly-simple, perhaps, but the fundamental challenge to manage your bottom line effectively is not to spend any more than you have to in carrying out any activity inside your business.

While not every idea someone in your business has will be a sure-fire home run, at least “what’s the upside?” will keep the lid on the number of times someone sets out to deliver a project which has a low expected return, relative to the cost incurred to get there.

Unless that upside is a significant multiple of the cost of making any change, you’re probably better not collecting that data and not making that change. Being able to wrap that idea up in a story about how the British cycling team became world-beaters still doesn’t make it a good idea if the impact on your bottom line isn’t big enough.

You might not instantly recognise the name Bjorn Ulvaeus, but I can guarantee you recognise the words he’s written. You’ve seen them, or more likely heard them, hundreds…perhaps thousands…of times.

That’s no exaggeration. As the primary lyricist for Swedish supergroup ABBA, every time you hear Dancing Queen, SOS, or Waterloo you’re listening to words Bjorn has written. (His songwriting partner Benny Andersson – the other “B” in ABBA – mainly wrote the music.)

So it might not surprise you that “The Day Before You Came” is another of Bjorn’s lyrics. And, I think, his finest.

It might not be the ABBA song everyone thinks about first, and it was – by ABBA’s standards – a very minor hit in the UK when it was released back in 1982. But lyrically and musically, it’s a stand-out piece of work.

In case you’re not familiar with the song, I’ve linked to it below, but really all you need to know for the purposes of this article is that it’s a relatively downbeat listing of the events in a woman’s life the day before she met someone who had a big impact on her.

Whether that’s a huge positive impact or a huge negative impact we don’t know. Bjorn’s storytelling skills mean that is left entirely to our imagination. You can interpret the lyrics either way.

The genius of “The Day Before You Came”, in both lyrics and music, is that it’s a very un-ABBA song.

There are no gaudy outfits, over-the-top stage performances, or glitz and glamour about it. The lyrics are – not be unkind to one of the most popular songwriters of the 20th century – a pretty boring recitation of the events of a day in someone’s life, delivered largely without emotion.

And Benny Andersson’s music is the perfect accompaniment. Just for a change, the song is not particularly melody-driven, there’s no sing-along chorus (or any chorus at all, for that matter), and you’d be hard pushed to dance to it.

But it’s a hypnotic, rhythmic, constant cycling through the verses which beautifully complements Agnetha’s voice as she runs through the succession of trivialities that made up a typical day in her life before this mystery person came along.

All those elements together make “The Day Before You Came” an wonderful pop song.

“So what?” I hear you ask

This is all well and good, I’m sure. But The Bottom Line Bulletin is supposed to be about ways to grow your bottom line (the clue is in the title, after all). What do ABBA songs have to do with that, you might be wondering.

Well, I’ll tell you.

“The Day Before You Came” is a bit of a metaphor for your customers.

You see, just like the fictional character Agnetha Faltskog sings about, there’s probably nobody out there eagerly waiting for you to show up and transform their lives.

They are in a groove, going through the motions, living their lives. And doing so, mostly, in complete ignorance that your business even exists.

Because most businesspeople are busy running marketing campaigns, posting on social media, writing blogs, and whatever else they get up to, business owners often think everyone in the world knows about them and their business.

The reality is almost nobody does. Tiny percentages of people respond to your marketing campaigns or social media posts. An even smaller percentage read your company blog.

Of course all the platforms like to trumpet how many impressions your post got. They all do some version of: “Whoopee! The photo of your warehouse you posted had 3,000 impressions yesterday – would you like to pay us some cold hard cash to boost your post even further and promote your brand?”

When you realise an impression means that someone spent a nano-second scrolling past your post at warp speed looking for something else entirely, you’d probably get a good deal less wrapped up in the platform’s feigned excitement about the number of impressions you got.

And, implicitly, that assumes the right sets of eyes were counted, which I can guarantee you isn’t the case 100% of the time. For a while I was counted as an “impression” every time I scrolled past the regular ads I got in my Twitter feed for construction jobs in Toronto, even though I have no construction-related skills and I don’t live anywhere near Toronto.

That doesn’t mean there’s no point at all in posting on socials, running ads, or promoting your business on-line. Of course there’s a place for all those things as part of getting the word out about your business.

Just don’t imagine that, except in the tiny, tiny fractions of a percentage point, it’s likely to make much of a difference to your business unless you’re putting some serious investment into your campaigns.

Whatever you’re doing is unlikely to cut through the ingrained habit patterns in your customers’ lives. Just because you check out all your own social media posts doesn’t mean anyone else does.

Focus out, not in

If you want to find more customers and boost your sales, you need to do something very few businesses do – start wherever your customers are now.

Most businesses start with what they want to sell. Only rarely do they start with what a customer might want to buy.

Start by trying to understand your customers – from their perspective, not based on what you think they “ought” to want.

Find out what they are doing or not doing now. Try to pick up on the rhythms of their business and the criteria they use to make decisions.

When you start wherever your customer is, rather than where you are, and put the focus on them, rather than on your internal processes or your some high-falutin’ marketing strategy dreamed up in a corporate boardroom somewhere, you’re much more likely to understand your customers well enough to make a sale.

That’s what I mean about “focusing out” on the customer, rather than “focusing in” on your own business.

When you do this well, you’ll discover that, except in the largest multinationals where there are some economies of scale to be gained from specialisation, nobody is even thinking about your category all that often, never mind actively trying to find other suppliers beyond whoever they use now.

A bit like in “The Day Before You Came”, there’s a constant rhythm to your customers’ lives. Odds are they’re not thinking about your business, or even the product you sell, more than once in a blue moon.

I often tell clients that their biggest competitor, but one that very few businesses recognise or build into their marketing plans, is inertia.

Unless something goes catastrophically wrong, the person who buys whatever you sell is likely to keep buying from wherever they buy it now, thanks to inertia.

They don’t have the time and energy to spend hours looking for new paperclip suppliers when their current supplier does a reasonable job at what seems to be a market rate for paperclips. (If you don’t sell paperclips, insert whatever you do sell into the sentence above for the full effect.)

So they’re in a constant, repetitive rhythm of buying the same things from the same place unless either you’re going to cut the price in half or the MD of the current supplier runs off with their boss’s wife.

Best sales quote ever

Once you get over the shock that most of your sales prospects are not thinking about your business as often as your marketing platform of choice would like you to believe they are, it becomes quite liberating.

Because now you know what you’re really working with.

The best advice I ever heard on sales is a quote from an American copywriter called Robert Collier who said you should “Always enter the conversation already occurring in your customer’s mind”.

Now, he was talking from the perspective of writing sales copy, but exactly the same advice applies for making an in-person sale.

To give a simple example, if your sales pitch is based entirely around your offer to supply for 30% less than your incumbent competitor, you might feel that’s a strong pitch.

But imagine their current supplier is woefully unreliable. I don’t know about you, but I’d need a lot of convincing that someone offering to do the same thing for 30% less than a woefully unreliable supplier is going to be more reliable than the supplier I have now.

I’m trying to solve a “lack of reliability” problem – that’s the conversation that takes place in my mind when products like yours come up for discussion. While naturally I want a fair price too, that’s the least of my issues when the factory is at a standstill because our current supplier is late with their delivery again.

Give me a “30% off” pitch in those circumstances, and I’m probably not buying. The conversation taking place in my mind is that you’re likely to cut even more corners than my current supplier and therefore are likely to be even less reliable. That amplifies my problem, it doesn’t solve it in any way. So the price is irrelevant.

However, if I lead a pitch to the same prospect citing our on-time delivery performance of 99.9% compared to an industry average of under 80%, now I’m entering the conversation already taking place in the customer’s mind, which is probably something along the lines of “Jeez, why are all the people in this sector so staggeringly unreliable?”.

Now I’m in with a chance.

You need more than information

Now I recognise that “get as close as you can to your customer” is one of the key lessons in Basic Sales Advice 101.

And nowadays on the internet, there are a lot of ways to gather information. There are cookies on your website, prequalification questionnaires your prospects fill in, the desk research you do on LinkedIn before you pick up the phone to a prospect.

It’s not difficult to start the call with lots of information. But frankly that’s more or less useless – it’s far too easy to make a set of entirely unwarranted assumptions that’ll scupper a sale faster than someone can say “get out of my office”.

My personal favourite is something men, mostly, do when selling to other men. They try to bond over a sport – usually football or rugby.

Now, if you know me IRL, you will know I often talk about taking my son to football matches, and the hours I spent on the touchline cheering him on when he played junior football – which he did to a very high level.

So the lazy sales approach is to ask whether I had a good weekend. I say something like “I went to the football with my son”. And the sales rep launches into a whole spiel about football, trying to work the team I went to see into the narrative somewhere, thinking they’re bonding with me and it’s going to make a sale more likely.

In truth, it’s the opposite. I love my son, but I viscerally hate sport of every kind. I go to football matches to be with my son, not because I’ve got the slightest interest in sport. So the more a salesperson tries to “get close to me” talking about football, the less and less likely that sale gets. They rarely pick up on the clues, like me not engaging much in their chatter, they’re just happy to assume I’m interested and rabbit on regardless.

That’s why information alone is not very helpful. Yes, even information that AI produces, and even in the unlikely event that information is correct.

Information is a commodity. It’s not been a USP for anyone since the 1980s.

We see that in “The Day Before You Came”. It’s really easy to look down a list of facts and draw a whole raft of entirely unwarranted conclusions which someone might think of using to “get closer to the customer”.

Consider this line: “I left the house at eight, because I always do”

That sounds like someone with a routine, a steady rhythm to their life, an early starter perhaps. You might think about building that into your sales approach.

But maybe the office where Agnetha works is locked until 9am, so the reason she gets the 8am train is that’s the latest one she can catch to get to the office at 9am if she has an hour-long commute. The information that she leaves the house at 8am every day is, on its own, more or less useless.

Or this line: “I must have gone to lunch at half-past twelve or so, the usual place, the usual bunch”

Does that mean she has a close-knit group of friends at work, or does it mean there’s only one half-decent place anywhere near her office so, by default, everyone goes there for lunch each day?

Or what about: “The train back home again / Undoubtedly I must have read the evening paper then / Oh, yes, I’m sure my life was well within its usual frame / The day before you came”.

It’s easy to imagine this is someone who lives a very lonely life, and who therefore is aching for something more. Many salespeople would identify that as a pain point, and try to sell a solution for it.

But what if Agnetha preferred solitude because, in her head, she was planning out a novel she was going to write…what if her entire family had recently passed away in a terrible accident on the motorway and she was still processing her grief…what if she was just content as she was and had no desire to conform to society’s ideas of how she ought to live her life…?

Now I don’t know the answer to those questions any more than you do. But the point here is that understanding how your customers live their lives might seem like it gives you an edge when you try to sell them on something.

But information alone is useless. If you doubt me, try to sell me something after you’ve started the conversation talking about football just because I mentioned I went to a match with my son at the weekend.

If you’re trying to understand the conversation already taking place in your customer’s mind, just make sure it’s the real conversation, not some lazy generalisation of what you think your customers ought to be thinking.

Because I can virtually guarantee you it’s not that. Lazy thinking about your customers’ motives is probably not going to jolt them out of their inertia and stop them buying whatever it is they buy now.

The key question

So ask yourself – if someone is a potential buyer of your product or service, what were they doing the day before you came.

Odds are, like Agnetha, they were happy enough in their routine, living their life the way they had lived it for some time. And almost certainly they weren’t thinking about you or your business.

There’s a fashion in the marketing world at the moment to talk about the 95/5 rule which, simplistically put, means that at any given time 95% of your potential customers are not looking to buy whatever it is you sell. The 5% who are ready to buy cycle in and out as their needs get fulfilled, being replaced by a different 5%, and so on, over time.

If you want, you can try to fight it out with the 5% who are in the market, competing on price against the other 3-5 quotes they probably got for whatever you sell.

Or you can focus on the 95% who aren’t in the market at the moment and really get to know and understand them and their key drivers. Not superficial-level knowledge and projection like “he goes to football matches, so he must be a football fan”, or “she never mentions seeing any friends in the evening, so she must be lonely”.

The first part of both those statements is a fact. The second part is pure conjecture – and the more of that you do, the less likely it it you’re really understanding your customers at all. So, no matter how much sales effort you put in, there won’t be a sale coming out the other side of that process any time soon.

To get the maximum bottom line impact from your sales and marketing, you need to work to understand – really understand – the 95% of your market who isn’t looking to buy anything now.

Because a proportion of them will move into the 5% who are going to buy next – and if you have truly understood their needs and their hopes and aspirations before they move into buying mode, the more likely it is your pitch will hit the points they were looking to satisfy more effectively than anyone else.

So the key question is, what were your customers doing the day before you came?

There’s a stretch of road I walk along fairly regularly. It’s about a mile, perhaps a mile-and-a-half, long.

In times gone by, this was a wealthy area of town. The houses are big, set back from a busy road, and raised up a little from the road level.

I guess in the days of horses and carts, when these houses were built, it was a way of keeping the well-to-do away from the less pleasant sights and sounds of the town they lived in.

If you look out the living room window of any of these houses, I doubt you’d see the top deck of a double-decker bus driving past. That’s how much higher than road level they’re set.

All the houses have well-tended gardens sloping down to road level from the house, with a driveway on one side. The gardens typically end by the road with a lovely stone wall somewhere between four and six feet high, over the top of which pokes a 10 to 12-foot high hedge.

From the inside this means you can sit in your front room and look out to a nice garden and the greenery of your hedge instead of watching riff-raff like me going about their daily business.

Nowadays many of the bigger houses have been converted into care homes. The mid-sized ones into offices for lawyers and accountants. The smaller ones into flats.

But those stone walls and high hedges still come in handy, because whether you’re a Victorian mill-owner or a modern-day senior partner in an accounting firm, you can enjoy being cocooned in greenery while still being less than a mile from the centre of town, thanks to the 12-foot hedge down by the pavement.

Shrouded in vegetation, you can almost forget how busy the road is.

The traffic is constant, but free-flowing. Drivers can rely on covering that stretch of road at a good 30mph on their way from the outskirts of town into the town centre.

About two-thirds of the way along my usual route, there’s the town’s main hospital – in fact, the main hospital for quite some distance around as this is the main economic nexus for a largely rural county.

Once you step outside the town boundaries, the next stop is the Dales.

It starts with good intentions

On my usual walking route, I have to cross five or six side-roads which come off the main road and lead to some pretty tree-lined avenues lined with nice houses.

Not as nice as the mansions lining the main road, but still pretty nice.

Crossing these roads can be a bit hairy. When the traffic barrelling along the main road needs to turn left, the cars tend to be going at a fair speed.

And because the streets are wide, with generous-sized pavements, the turns tend to be fairly gentle, meaning drivers can keep up a decent speed while turning.

At some point, someone had the good intention of doing something about this.

Crossing those wide side streets on foot got a bit more exciting as automotive technology improved. When pedestrians set off from one side of the road, it was unlikely they would get to the other side without encountering cars, busses, or vans coming from one direction or the other.

I imagine there were probably some accidents, maybe even some fatalities. So the council was galvanised into “doing something”.

And as part of that process, I’m sure someone did the research that showed if you build a little island in the middle of the side-road, near where it joins the busy arterial route, then pedestrians will only need to get half-way across before they reach a place of safety.

I’m not an expert on traffic planning, but I’m prepared to bet that adding these traffic islands generally do reduce deaths and injuries by a significant amount.

So far, so good.

Doubling down

As part of putting in the crossing islands – perhaps at the same time, perhaps later…those crossings predate my acquaintanceship with this town – someone at the council thought it would be a good idea to make those crossings more accessible to people with disabilities.

An excellent idea – not enough is done to make our streets and buildings accessible to people with disabilities of one sort or another, in my view.

There was almost certainly some funding the council could access to lower the pavements at those crossing points and put in what my daughter used to call “bobbly pavements” so vision-impaired people could identify where the crossing was, and so on.

It wouldn’t surprise me if there was some government target to make sure councils had x% of all their road crossings accessible to people in wheelchairs, or some such thing.

So all half-dozen or so side-roads along this mile-and-a-bit stretch of busy road have had the benefit of these enhancements.

Which is great news if you’re visually-impaired or physically infirm.

Apart from one thing.

The importance of thinking it through

Clearly these are important works, which could make a big difference to people’s ability to get around. And the pavements and crossings have been beautifully done. I can tell by looking at them that they were conceived with the best of intentions, and the people doing the work did a great job.

They might be some of the finest road crossings I’ve ever seen.

At least, that’s true if you only look at the physical installation in isolation.

But if you take a moment to reflect on the purpose of these facilities, they’re terrible. Possibly worse than having to do a mad dash across a wide side-street with cars and vans whizzing past you in order to get to the other side.

And the problem goes back to what makes this stretch of road actually quite a pretty stretch of road – the high stone walls and the 12-foot hedges.

You see, for aesthetic reasons (which, on some level, I could understand), or perhaps because best practice says this is the way you build this type of crossing, the “bobbly pavement” is positioned where the curve of the corner finishes and straightens out for the side-road proper.

That means, at the point where you’re supposed to cross the road, you have zero visibility of the cars barrelling along the main road which want to turn left onto the side street where you’re standing.

You can’t see their indicators. You can’t see the vehicles themselves to see if one of them looks like it’s slowing down to turn. You can’t even hear them all that well because the 6-foot high stone wall, topped by a 12-foot manicured hedge, deadens the sound of approaching traffic.

And because this is a busy, but not nose-to-tail traffic, sort of road, cars can belt along the main road at 30mph or more and pretty much maintain that speed while turning the corner.

Imagine you have mobility issues, or you’re in a wheelchair, or you’re pushing a pram.

You can use this well-constructed crossing, intended to help people get across the road safely, but only if you take your life in your hands and launch out across the road with absolutely no idea of what traffic might be hurtling around the corner the next moment.

At no point is this a good idea at any point along this stretch of main road.

But it’s a genuinely terrible idea when it comes to crossing the road which leads to the biggest hospital for 50 miles around.

Last time I checked, the people heading towards a hospital are mostly sick people. They might have an injury or a broken bone, a disability or a physical condition, be in a wheelchair or be visually-impaired. At the very least, I’d expect the incidence of those conditions to be significantly higher on the crossing place on the road leading to the hospital than on any other random street corner in the town.

What should happen is irrelevant

Obviously what should happen is that drivers on the main road should keep to the speed limit, not tear around corners like a driver on the Paris-Dakar rally, and be driving at the 10mph or so the Highway Code says is the speed to take a corner at.

But, in business, what should happen is irrelevant. You have to work with what really is happening or you end up completely delusional.

I’m sure all the local councillors congratulated themselves on investing to make road crossings easier and safer. Along the way they probably ticked a government target of some sort. I haven’t checked, but there was almost certainly a press release of some sort trumpeting the road safety improvements as these crossings were clearly part of a fairly significant plan to make it easier for people walking into town to cross the roads the needed to cross along the way.

But like a lot of target-setting and self-congratulatory corporate PR, this was largely a waste of time. It might even have taken the cause of road safety backwards.

On this stretch of road, by far the safest place to cross the side-roads, from the point of view of pedestrians trying to spot oncoming traffic, is right at the apex of the corner, before the kerb starts to straighten up again to form the pavement of the side-street.

From that viewpoint, you can see traffic coming in both directions, hear if their engines are slowing down to turn, spot if their indicators have been switched on, and whatever other information you might need to decide whether it’s safe to cross the road.

The problem is, at that point in the road, you’re a good 10 feet away from the crossing island in the middle of the road, so you’re back to having to cross the whole expanse of the road in one go again – precisely the problem the crossing islands were meant to solve.

And if you happen to be physically challenged in some way, or in a wheelchair, good luck getting off the high kerb onto the road itself to cross over. You’re also 10 feet away from the point where the pavement has been lowered to road level to make that an easy process.

So rather than the road crossing making it safer to get from one side of the road to another, the net result of this project has been to give pedestrians two unenviable choices, both of which are riskier than using the crossing point the way it was intended.

The stone walls and towering hedges along this stretch of road means there is no safe way to cross these side-roads despite £000s, no doubt, being spent on lowering pavements and putting in crossing islands.

This applies to corporate objectives too

While I’ve been babbling along, you might have recognised some of these situations in your own organisation.

It’s a good example of the outcomes from a lot of corporate objective-setting.

Someone starts off with a good intention – whether that’s “let’s make crossing the road safer” or “let’s work to delight our customers”. Both are noble objectives.

There’s an investment case – which might be financial or might be something that feeds into a wider corporate objective of some sort. If a business is worried about customer churn, there might be an impetus to invest in a new CRM because, after all, that’s how we serve our customers better, right?

Someone throws some numbers together to show that if churn reduced by just 2%, the new CRM would pay for itself.

Some people call that a “business case” (although I don’t – I call that “wild speculation”). Just as I’m sure someone in the Transport Dept at the local council worked out that if only 2 people weren’t hospitalised as the result of a car accident crossing the road each year, the new pavements and crossing islands would “pay” for themselves.

Next is an unhealthy focus on the process, not the result, as a result of which the desired outcome becomes less likely than it was before.

The minute your “improve customer service” objective becomes an “implement a CRM” objective, you’ve probably lost whatever benefits there might have been, making the investment largely pointless.

You see, it’s entirely possible to implement a new CRM system at great expense. Tech providers will queue up to help businesses do that.

However, if those businesses persist on keeping their surly, unhelpful staff because they’re cheap to employ, force customers to go through lots of new processes “because the CRM system says we have to”, and delivers the same shoddy products as they delivered before, frankly a new CRM isn’t going to help you in the slightest.

But that’s what almost inevitably happens when the process takes over the original noble objective.

Just like the desire to put lowered pavements and crossing islands in the more aesthetically-pleasing place, from the point of view of a road designer working in isolation, forgetting that speeding drivers and 12-foot high hedges are also part of the environment within which a decision to cross a road is taken.

And finally, there’s the hubris of delivering a project – with all its accompanying PR, bonuses for the key players, and photoshoots for the company website – and imagining the job has been done now and no further action is required. Declare victory, and move on to the next project…!

What rarely happens is that the project leader – or even better someone further up the organisation who they report to – does a proper “real life” review of what they’ve delivered and assesses how well it met the original good intention, as an entirely separate exercise from the question “did we get Salesforce implemented on-time and under budget”.

I defy anyone to try to cross that road near that hospital, even as an able-bodied individual, and not realise that the lowered pavements and crossing islands are in entirely the wrong place if you want people to cross the road safely.

In fact, it’s so obvious that it’s also obvious nobody has ever done it, or they’d have ripped up those crossing points and moved them.

Perhaps I’m being a little uncharitable. Maybe they did realise that but, as in a lot of corporate settings, fell prey to the sunk cost fallacy – that is, some version of “we can’t rip those crossings out and start again in a better place because it cost us £50k to build them and we don’t want to waste that money”.

That’s why connecting with the original mission is essential. If the current crossing location is dangerous, and your objective is to get people across the road safely, then ‘fess up to your mistake and get the crossing moved.

If this job is just a tick-box on a KPI sheet that enables you to move onto the next project, promotion in hand, then keep your head down and don’t say or do anything that might make it look like you goofed up.

That’s not just people working for councils.

Your CEO should mystery-shop your call centre once your new CRM has gone live and check that the original objective of improving customer service has been met. They shouldn’t just focus on the internal PR and backslapping. They should check out what it’s like in real life.

Too often, I’ve seen corporate objectives, which have been beautiful as stand-alone pieces of work, make everything worse by the time the original noble objective has been sliced down into specific projects like “implement a new CRM”.

Too often, people have been working in isolation without realising that, hidden behind the 12-foot hedge behind them, is a competitor working on something that will blow their fancy CRM system out the water when it comes to making customers happier.

Next time you implement a project, take a good 360-view all around. Make sure you’re not confusing “spending money” with “solving a problem”.

It’s entirely possible to do one without the other. In both directions.

And ultimately the value to your business is in solving a problem for your customers – it’s not in how you solve it, or in pretending you’ve solved it by implementing a CRM when, in fact, almost nothing has changed in your business except there’s now a thin veneer of expensive tech on top of something that wasn’t working before.

Projects – like lowering pavements or implementing CRMs – are easy to deliver.

Noble objectives – like helping people cross the road safely or making customer service better – are much harder, but so much more worthwhile to your bottom line.

If you have a choice to make, focus on the second option.

Once upon a time, technology improved our lot as humans.

Sure, machine-made shoes weren’t quite as good as shoes hand-made by a master craftsman, but at least now just about everyone could afford shoes.

Technology has improved the quality of our drinking water, saving millions from terrible, life-threatening diseases. Technology made cars safer and aeroplanes more likely to stay up in the sky.

And technology kept the UK safe from invasion in the 1940s – the codebreakers at Bletchley Park and the radar stations along our coastline kept us free when most of Europe succumbed to darkness.

Once upon a time, “technology” was mechanical because there was no other way to do anything. But then digital technology came along.

Early in my career, during society’s first faltering steps in digital technology, I saw transformations in my own world equivalent to those probably experienced by master shoe-makers in Victorian times.

Computers and software took over the world of accounting and made everything cheaper, faster, and better. Month-end took minutes instead of weeks. And the ledgers always balanced.

They weren’t always right in terms of the individual postings, but the total of the debits was always equal to the total of the credits because, within this confined, cosseted, hermetically-sealed digital world, there was no way for it not to be.

Then it gets harder

Whether you’re dealing with mechanical technology or digital technology, it gets progressively harder.

In the early days of computerised accounting, almost anything was an improvement on manual bookkeeping in terms of speed, reliability, and reporting capabilities.

But then a problem common in all technological developments set in…

The Law of Diminishing Returns.

This is just a fancy way of saying that, after a certain point, you get less and less back in return for each incremental investment. And, ultimately, you get back less than it cost you to invest in the first place.

At that point, the only sensible economic decision is to stop investing. When each incremental £1 spent brings in less than £1 in incremental returns, there’s no point persisting.

At least, that’s what happens in theory.

I’ve seen plenty of situations where a business kept investing regardless, yet couldn’t figure out why, despite continuing to invest £millions, they lose more and more money as each month goes by.

There are two main reasons for that:

1 – They’ve been sold on a concept to the exclusion of anything else, including rational thought

Every time I see an organisation talking about being a “digital first” organisation, I know the people running it have jumped the shark. They are so obsessed about making everything in their business digitally-based they have completely forgotten that the job of every business is to put money on the bottom line, not to become slavish, uncritical adherents to the technology equivalent of some TV evangelist.

Government departments are particularly good at doing completely daft things in the name of “digital first”, or some such silly rallying-cry. But that’s because they’re run by politicians who are incapable of rational thought except when it comes to attracting donor funds into their bank accounts.

But plenty of companies, large and small, fall for the charms of some tech evangelist with the sales skills of someone hawking face cream on QVC at 2.30am.

If a tech evangelist can convince you that the answer to everything is “more tech”, you become their meal ticket for life.

No wonder they put so much effort into finding their next mark – the payback to them is enormous.

The payback to you? Often nothing. And, increasingly, it makes everything worse.

You might as well just hand across a suitcase full of fivers and leave everything exactly as it is for all the good your business will experience as a consequence.

That’s often because of this…

2 – Non-existent business cases

There is nothing wrong with the concept of a business case. That’s what every business should be looking for to justify a proposed investment, right?

Except business cases often resemble reality about as closely as slurry down at the sewage farm resembles drinking water.

With machinery it’s a lot simpler: give me £10,000 for this special bit of kit and I’ll increase your hourly throughput by 1,000 units in less than 90 days.

It’s easy to model the impact of those extra 1,000 units, factor in the time-delay until the new system gets up and running, and so on.

You end up with a clear view of whether this proposed project adds any value, and if it does, how much.

And if, like the sensible businessperson I’m sure you are, you’ve done some trial runs as part of the commissioning process to make sure the machine performs as promised before you have to pay for it, you’re pretty safe.

That’s because of a clearly visible reality.

There’s either an extra 1,000 units at the end of the production line an hour later, or there isn’t.

If there is, that justifies the investment. Everybody, including yourself, is happy.

If there isn’t, you’ll tell the supplier to take the machine out and give you a refund.

When we’re dealing with digital technology, that’s not nearly so obvious.

While there’s nearly always a business case, that business case is nearly always garbage.

A typical business case for tech investments

This is slightly unkind for one or two people I’ve come across over the years…but only slightly… 😉

Here’s a typical tech business case, in summary form:

• This report from Gartner (or BCG or KPMG or someone like that) says switching customer services to digital chatbots will save the typical business 20% of their customer service costs.
• In your case, that amounts to £5million a year.
• So give me £1million to make you a chatbot and fire 20% of your call centre operators.
• That way, you get a 5:1 RoI, just in year 1, with gazillions of cash to follow in subsequent years.
• Sign our terms and conditions here and we’ll get started.

That’s not a business case. At my kindest, I might describe it as some sort of existential wish list, compiled by people who should probably get out more.

However, if one of those tech televangelists has already persuaded you that digital technology is always…inevitably…inscrutably the way forward in every conceivable situation, then the likelihood is you are reaching for your chequebook long before the sales rep asked for the sale.

The truth is that, unlike 20 or 30 years ago when using some technology where none had existed previously would almost certainly deliver a positive RoI, nowadays it’s a lot more nuanced.

And the margin for error is a lot smaller than it used to be. Which means the risk of a negative return in reality (whatever the overoptimistic business case said at the outset) is pretty high pretty often.

Of course, if your tech televangelist wants to sell anything, they know they need to come up with some sort of business case. I don’t particularly blame them for wanting to make a sale. The blame lies with people who don’t pause for long enough to challenge the rationale.

That’s almost certain to lead to higher operating costs for your business, even though you run digital project after digital project in the course of executing your “Digital 2030” vision.

Because tech is the future…right? Gartner, or someone, said so.

A coffee shop example

Just in case you think I’m making this up, I visited a coffee shop in London recently which had clearly fallen hook, line and sinker for this digital transformation nonsense.

The coffee shop had pretentions of grandeur and was working hard to recreate the Central Perk vibe, from the coffee shop in Friends.

I’m sure this coffee shop sees itself as a cut above Costa and Starbucks. And I’m guessing this coffee shop is part of a small chain – I’ve never seen one where I live in the north of England but I’ve seen a handful in London.

However, instead of Gunther in Central Perk, customers are greeted by a massive touchscreen ordering system when they walk through the door. Not quite as tacky or as big as those in McDonalds, but along those lines.

I spent some time trying to figure out what menu options my preferred coffee was hidden under and then had a bewildering succession of questions about coupon codes, extra shots, dietary information, and payment details.

This was followed by a section where I had to type my details into this massive touchscreen device in order to get a receipt emailed to me. It was genuinely impossible to get a printout of a VAT receipt while I was on-site – in what could well be a breach of VAT regulations, but that’s not my specialist subject.

Now, I’m sure some tech bro or tech gal sold this giant touchscreen solution to the coffee shop owners as something that would increase efficiency, or some such nonsense.

Yet, in the several minutes it took me to figure out this clunky technology, the two staff members behind the counter were doing absolutely nothing.

Well, nothing beyond chatting to one another and having a giggle about what they got up to the previous evening at least.

I know that’s what the staff are doing at the average Starbucks too, while I’m waiting in the vain hope that someone will break off their conversation and take my order.

But at least in Starbucks they’re not standing there watching me type my order information into a giant touchscreen while they stand by chatting.

At Starbucks I’m just being ignored. At this coffee shop, I’m being humiliated into the bargain.

The numbers make no sense

It so happened that I was in this coffee shop for quite a while as I had two meetings back-to-back. And I saw pretty much the same situation repeat itself throughout the morning.

Two members of staff stood around chatting most of the time, occasionally making a cup of coffee.

Successive visitors struggled with the giant touchscreen, some of them giving up completely and leaving the coffee shop before finishing the ordering process.

Let’s look at the reality of what’s going on here.

The coffee shop has to pay two members of staff regardless – for Lone Worker Regulations reasons, if nothing else. Even though there is only one coffee-making station, so realistically only one member of staff can make coffee at any one time.

I could have spoken my order to one of those people in about 10 seconds and the other staff member could have made my coffee straight away. It’s not like they were doing anything else.

But this chain thought it was a good idea to double the amount of time between when I walked into their coffee shop and the time I got my coffee cup placed into my hand, so they made me spend several minutes messing around with their blasted giant touchscreen.

So, if two humans – two humans whose salaries were already being paid by the business – could have taken my order verbally, and made my coffee straight away, then the investment in those giant touchscreens…together with the barrage of EPOS and stock control modules which ran off the back of them, I’m sure…was a complete waste of time and money.

It didn’t – and couldn’t – make the staff more efficient, because two members of staff were always required, regardless of how much tech was deployed.

A fairly standard till operated by a staff member, instead of chatting and laughing with their colleague, would have given this business all the EPOS and stock control information they needed.

Which means their “putting digital first” investment took money off their bottom line despite some tech evangelist selling them on the idea due to the supposed “extra efficiencies” of going digital.

And that’s just the obvious stuff

As a purely financial, surface level business case, this investment didn’t seem to make any sense.

But here are three other ways this “efficiency investment” might be bad news for their customers. And ultimately themselves:

a) When I…and I suspect most coffee shop customers…have to take longer than necessary to get the result I want (ie a steaming cup of coffee), I’m unlikely to come back any time soon. As it happens, this location was particularly convenient for a business meeting. But there was a Pret a few doors down where I could get the same amount of caffeine in a fraction of the time, and without fiddling around with giant touchscreens for minutes on end.

b) If I was a stalker (which I’m not, to be clear) I could position myself behind anyone keying in their email address to get a receipt and see what they typed in. Now, a high proportion of the people wanting a receipt are likely to want it to claim against business expenses, so it’s fairly likely they’ll enter their work email address. If someone up to no good looks over their shoulder, they now know the person in front of them is Jane-dot-Smith, and she works at Megabank. That’s more than enough information to track this person down.

c) I never actually got my receipt. Why, I don’t know. But now I can’t go back to the coffee shop and ask them to print me another one because they’re incapable of printing out a till receipt. And I can’t get the giant touchscreen to produce one without ordering another coffee, which rather defeats the point. So now I’m down by £4 I can’t claim back – while I’m fortunate that being out of pocket by £4 isn’t the end of the world to me, it is still profoundly irritating. And for some people, I’m sure, would have been extremely bad news.

Time to reflect

So, in summary, this coffee shop has a tech solution which:

• increases costs instead of reducing them, by adding unnecessary tech on top of the staff salaries the business was already paying for
• make no difference to the hourly coffee sales, because only one person could make coffee at a time anyway
• irritates customers through clumsy UX – some of the grumpier ones of which won’t be back in a hurry
• lost customers who couldn’t figure out the giant touchscreen and chose to walk down the road to Pret instead
• can’t produce a receipt for me on-site
• didn’t send me a receipt by email, for reasons unknown, costing me £4
• increases the risks of stalkers and ne’er-do-wells by making customers share personal information in a public place

Put all that together and I’m genuinely struggling to see a positive RoI from a no-doubt substantial investment.

Yet this is true of so much tech nowadays.

If you keep your accounting records manually, there is almost certainly a positive RoI from getting them onto Xero or Sage.

But if you’re already using Xero or Sage, the business case for upgrading to some enterprise grade solution with all manner of reports you’ll probably never use built in almost certainly delivers a negative RoI.

Yet some tech televangelist will set out to convince businesses every day of the week that the increased reporting capabilities alone will pay back the investment they’re asking for.

And every day, around the world, thousands of businesspeople believe them.

If you believe more tech is always the answer and that business cases prepared by suppliers always include all the negatives as well as all the positives, there’s almost certainly disappointment ahead for you.

Although the coffee shop is a fairly trivial example, it’s nonetheless pretty much what every tech solution I’ve seen for a while looks like.

Maybe 10% or 20% of the time there is still a positive RoI for investing in tech. But the odds are increasingly against it.

Next time a tech bro or tech gal comes to tell you about their exciting AI-enhanced robot service capability, start running and don’t stop until you find a good accountant to talk to.

It’s easy to forget that metrics alone tell you very little about what’s happening in your business. So little, in fact, that I’m surprised so many people are quite so obsessed with them.

Please note: I’m not saying you don’t need any metrics at all, just that most businesses could be run with a fraction of the metrics they collect at the moment, and almost certainly don’t need the cottage industry in management reporting that sustains a fair part of the overhead costs in the P&L.

At best, most metrics give you a surface indication of what’s going on. They’re a comfort blanket of sorts…providing cover for people to justify their existence, mostly, without necessarily moving the business forward.

You see, once someone convinces you that the management fad of the day is vitally important for the future success of your business, they’ve effectively also sold you on the need for a department full of people managing whatever that thing is, a daily/weekly/monthly reporting cadence for that thing, a slot at every board meeting to talk about that thing (leading, they hope, to a place on the board for themselves in due course), and a pretty secure job for themselves.

After all, you couldn’t stop doing something that was so vital to the company’s future well-being could you?

Now, lest you think I’m a grumpy old Hector complaining about “young folks nowadays”, that doesn’t mean that I think all modern management fads are entirely without merit.

Mostly, there’s at least some point to them. And I, for one, would like to think I left the world a better place than I found it, so I have no problem at all with most of the things businesses are expected to do these days.

It’s turning these noble-enough objectives into metrics I’ve got more of a problem with. Because then the activity – however worthwhile it may be – turns into a process of managing the metrics, not a process of delivering the outcome which the process is supposed to deliver.

That might sound a little convoluted, so let me explain.

Many business processes are terrible

Firstly, and perhaps most obviously, many business processes are terrible.

They’re often badly designed, customer experience and user experience are generally woeful, they’re usually inflexible, and they arrogantly assume your customers have all the time in the world to interact with some unholy combination of your website’s FAQ page and some soulless, AI-powered chatbot.

And that’s just the good bits.

Business processes are also often under-resourced, poorly integrated with a company’s wider systems, and unsympathetic to anything other than pre-determined, pre-defined scenarios. The minute anything happens that doesn’t fit neatly into a box on a process chart somewhere, the system grinds to a halt because nobody knows what to do.

If you think I’m being a little unfair, I used to deliver business process re-engineering programmes.

All of these things happen on a regular basis, and every time you find one of those conditions, it means your business costs are much higher than they need to be – there’s no cheaper way to run a business than to “get it right first time” and resource your activities properly. (And before you think it, no AI doesn’t help that at all. It just makes it cheaper to deliver the existing terrible service.)

But here’s the bigger problem

Terrible though many business processes are, you create an even bigger problem when you overlay whatever’s going on with a set of metrics, and a regular reporting cadence.

Then, the activity becomes all about the metrics, almost to the exclusion of the original objective.

This is even worse in the age of AI because it has effectively become free for people to game their metrics. A random person in your company might be no closer to achieving the company’s objectives, but they keep their job because their monthly RAG-rated report is all in green territory.

Gaming the metrics without impacting the outcome is, by definition, a complete waste of time and money. And, to be fair to the tech bros and gals, this went on long before AI was invented. AI has just turbocharged the pointlessness of it all.

Let’s take one everyday business example to illustrate.

You are no doubt familiar with the old sales and marketing mantra that you need seven touchpoints with a potential customer before you make a sale.

Let’s skip over the fact that this is nonsense – there is no magic in the number seven, any more than there is in 3, 5 or 12.

It’s very likely to be “more than once”, unless your business is an extremely well-known brand, or you’ve had a personal recommendation from a close family member into the decision-maker.

But enough articles have been written about seven being the magic number…enough motivational speakers have quoted that statistic…and enough sales and marketing textbooks include a reference to this particular “golden rule” that pretty much everyone believes it now.

And, as I said at the start of this article, there is some underlying merit to this principle. The answer is almost certainly “more than once”. But plenty of sales are made on the 8th, 10th, or 42nd touchpoints too.

It’s the distilling of a reasonable enough principle of “more than once” to “exactly seven” that I have a problem with.

However, since everybody now believes the magic number is seven, I can now set up all my sales and marketing processes to hit those magic seven touchpoints. If you’re my boss, you’re unlikely to challenge the conventional wisdom when I tell you I need the resources for seven touchpoints, because everyone knows that’s the magic number, right…?

Spare my inbox

So now we have all the ingredients in place:

• a terrible process to reach the magic number of seven touchpoints, by hell or high water
• a metric we can track (is it more or less than seven, at the time of writing this month’s report?)
• and a system we can game to make it look like we’re indispensable to the business.

You’ll note something subtle has happened here.

The only real objective of a sales process is to make a sale. Everything else, no matter how elegantly it’s performed, is just window-dressing.

However, my objective now is to engineer seven touchpoints. It’s not to make a sale.

This is especially true if I’m in the Seven Touchpoints Department and some other department has to make the sales.

Then I’m sitting pretty even if we never sell a thing because I’ve held up my end of the bargain: “Hey, check my metrics – I hit the seven touchpoints. It’s not my fault the sales department can’t do their job properly.”

However it’s a great protective mechanism even if you, or your department, is responsible for both making a sale and achieving the seven touchpoints. That’s because I’ve persuaded you to believe in the metrics, and switched your attention away from the outcome you wanted…at least most of the time.

Nowhere is this phenomenon more obvious than my email inbox at the moment.

The amount of AI-generated garbage sales messages which end up in there is beyond a joke – they’re poorly targeted, inelegantly delivered, and terribly written.

Yet I can guarantee you that someone somewhere is counting every one of those as one of their seven touchpoints.

The problem with that theory is that, at least in the old days, the concept behind the seven touchpoints was that you had to do seven different things, not the same thing seven times over.

At some level, I get the need for a degree of persistence in making a sale. That’s true when humans try to make a sale and it’s true when our robot overlords try to make a sale too.

But persistence alone rarely makes a sale. More often, what persistence results in is a stiffening of my resolve never to buy anything from your business for as long as I live.

Last time I checked, cheesing off all your potential customers wasn’t a great way of trying to build a business, but hey-ho, no tech bro or tech gal seems to have worked that out yet, so the daily torrent of garbage continues for now.

It’s clearly news to those responsible, but I’m not likely to buy anything from people who irritate me. There is no shortage of arrangers of business finance and utility brokers in the world – if I ever need one of those, it won’t be hard to track down someone who hasn’t irritated me intensely up to that point by sending me a never-ending flood of clumsy sales emails first.

The metrics that matter

Metrics like the seven touchpoints, or the number of daily emails sent, are largely pointless.

I get it that if you send zero sales email, you’re unlikely to make a sale from an email. But if you’ve sent a thousand emails and I still haven’t responded, the likelihood of me responding on the 1,001st is as near to zero as makes no difference.

So the benefit of tracking a metric like “emails sends” is also pretty much zero.

The metrics you should track are the activities or events which indicate you’re moving closer to your end goal – which, remember, is making a sale, not sending out seven identical emails.

And to do that effectively, you’re by and large looking for information external to your business – or, at the very least, external to the process you’re running here – which indicates a changed state at the customer end of the equation.

1,000 emails I don’t respond to means nothing. Except the fact that I almost certainly will never buy from your business, of course.

A single email – whether that’s the first, the seventh or some other number – that I click the “book a demo” button on? Now there’s a changed state.

There’s engagement. There’s an indication that someone is moving down the decision-making process. There’s an early indicator that a potential sale might be in play.

The changed state, ideally from outside your business, or at least outwith the process, is important because that’s much harder to game than just sending out seven identical emails written by AI.

It’s not impossible to game, but it’s a lot harder to game.

And by the time you’ve strung two of three of those together, you can be pretty sure that you’ve got a genuine prospect on your hands.

If the demo leads to an in-person sales call, which leads to your prospect attending an event hosted by your company, you’re way past the opportunity for gaming a metric. That’s almost certainly a real sales opportunity, which you should have a decent chance of converting, because your potential customer wouldn’t have wasted that much of their time in an activity they had no interest in.

So the metrics which are most helpful to track, and the hardest to game, are the state changes from outside your process, not the activity taking place inside it.

But proceed with caution

In the early stages of a process like this, gaming the metrics is still possible. It’s only later on, when your prospect has invested significant time and effort from their side, that it’s almost impossible to game, unless your sales manager has 150 close relatives.

You can, for example, create fake engagement with a sales email.

You can almost certainly do this with some dodgy software, although that’s not something I have any knowledge of.

But you can also do it by putting things into your barrage of emails to encourage people to take some action.

My favourite of the moment is “Reply ‘no’ and I’ll stop sending you emails”

I never reply “no” because the minute I do, the AI bot on the other end knows my email address is real and active. All that’s going to happen here is someone will book my reply as “engagement” against their engagement metric, and the AI is going to get cranked up to 11 because it has convinced itself that I’m a real prospect because I’ve replied.

One day I might do that just to see what happens because they’ll almost certainly ignore me, which means I’ll have a case to take to the ICO, but frankly I’ve got better things to do with my time.

So, until then, I’ll just keep ignoring their emails, and mentally ratchet up their position on the list of organisations I’m never going to buy anything from instead.

If “engagement” is only defined as a reply to an email or a click on a link and nothing else happens from the customer end, that’s not really engagement at all. Someone might have hit reply by accident, or you might have caught them at a weak moment.

Movement is the key from the point of initial engagement onwards. Is your prospect going further down the sales funnel or are they just stuck at the second level without any signs of them ever making progress in the direction of an eventual sale?

Timescales can be quite helpful here.

If a prospect took an action, even if, in theory, it was moving them closer to a sale (eg by clicking a link in one of your emails) but they haven’t done whatever the next thing in your process is in the next 30 days, they need to come out your “Level 2” prospect list and go back to being a “Level 1” prospect.

Of course, it depends a bit on your business and your sales cycle, so 30 days isn’t a hard and fast rule. But you need to define a timescale which forces the sales team to recognise that they need to start from the beginning again. They can’t just carry forward a metric to justify how busy they are if it now looks like a genuine prospect has dropped out the running for some reason.

I’ve spent too many years being told by sales directors that their extensive list of Level 2 prospects are “going to buy any day now” that long ago I stopped regarding metrics like that as very helpful. It’s movement through a process I’m looking for, not how many Level 2 prospects you had on the books at the end of last month.

It might well be interesting enough to know, but the predictive value of knowing the number of Level 2 prospects isn’t nearly as high as knowing that one prospect, in the last 30 days, has downloaded a fact-sheet, met in-person with a sales manager, and is attending one of our sponsored events next week.

Movement is the key. And that’s hard to game – especially beyond the initial engagement – because very few people have the time to waste meeting salespeople to talk about products they have no intention of buying.

It’s not just sales

Although I’ve used making a sale as an example above, the same principles apply to every department.

Every single department in your business is likely to be able to game whatever internal metrics you give them, so they are often of questionable value – even though you’re likely to be paying a group of expensive people to manage them, track them, and report on them.

One example I came across recently was an HR Department trumpeting their success in health and safety because everyone in the company had attended the compulsory company-wide health and safety training.

I don’t know about you, but no matter what I thought about health and safety training, if the HR Department told me I’d be on a disciplinary if I didn’t attend the training, I’d make sure I attended the training, even if only under sufferance.

Would I necessarily remember what the trainer told me, or act on whatever recommendations they shared at the end of the session?

Well, that’s a different matter. Knowing that 100% of the company attended the training is interesting as far as it goes, but it’s likely to be a less-than-perfect indicator of whether there will be fewer accidents at work in the future than there have been in the past.

That’s because this is an internal metric, based entirely within the process itself (ie “threaten everyone with a disciplinary if they don’t attend”). It’s been gamed by the HR Department to claim a victory against their metrics, but there is no evidence of a change of state from outside the system at all.

To be fair to that HR Department, there are some legal benefits from putting everyone through “sheep dip” training like this in the event of an accident in the future. We did everything we could, the Head of HR can tell the Health and Safety Executive Inspector after the factory roof gets blown off in an explosion.

But what you really want is fewer accidents at work, more people wearing their safety boots, nobody obscuring the warning signs in the factory with random pallets of spare parts, or whatever.

It’s entirely possible to have compulsory company-wide training which makes no difference at all to any of those states, all of which would make accidents at work less likely in the future.

When you design metrics and reporting systems, counting “steady state” situations – such as the number of Level 2 prospects you have or the number of people who attended the compulsory health and safety training – is of extremely limited benefit.

Nearly always, all those metrics do is give a get-out clause to someone who can then say, “I did everything I could – look, I hit my target of getting 100% of the staff to attend a compulsory training event”.

Track the metrics from outside the system instead, especially those which indicate a change of state which are, by definition, much harder to game.

Then you might have a set of metrics you can truly run your business on.

Managing metrics in any organisation is a lot more complicated than it used to be.

At the start of my career, you were lucky to get weekly or monthly stats for most things. Now daily, real-time, and click-by-click updates are everywhere.

Trouble is, a lot of the additional data that has come our way in the intervening years is irrelevant, or at the very least unhelpful in the timeframe in which it’s presented.

If a salesperson has a target of £10,000 a month, it’s 9.30am on the first working day of the month, and your salesperson hasn’t made a sale yet, does knowing that give you any clearer idea of how that month is likely to go for them than you had before?

Well, it depends on your business model, but almost certainly not.

Yet many businesses invest six figures every year to track information like that, even though it won’t make the blindest bit of difference to the way you run your business. In no time, whether you like it or not, your inbox and notifications are being flooded with real-time updates.

Along the way, someone clearly thought this is a good idea, often at the prompting of a sharp-suited IT systems salesperson in my experience, but it rarely is.

Knowing that information is unlikely to make any difference to what the salesperson is going to do in the next half-hour, and it’s unlikely to make any difference what the 17 other people who get the real-time stats are going to do either. That six figure investment was probably a monumental waste of money.

At least, at that point in the process…

Obviously if the same salesperson gets to the end of the month, it’s half an hour away from close of business on the last working day, and they still haven’t sold anything…now we have a different problem.

But even there…in that moment…is anyone who is privy to that information likely to do anything different between 4.30 and 5pm on the last working day of the month than they would have done anyway?

I doubt it.

Between those two extremes, is there a crossover point when it isn’t too early to take action, while not being too late to do anything about a terrible month’s sales results, if left unchecked?

A point at which some focused effort from the salesperson and/or their manager might turn this month’s results around…or at least reduce the shortfall against their annual target which will be carried forward into next month?

Of course there is.

At that point, information becomes useful.

Before that, it’s more of a distraction than anything else. It then remains useful for a while, before not being terribly helpful again because the salesperson is running out of time to turn this months’ results around, almost no matter what they do.

Is it actionable?

In my days as a CFO, I refused to circulate information that wasn’t actionable. I’m no fonder of bucketloads of junk I never have time to look at piling up in my inbox than anyone else, although I would concede my professional has a reputation for sending bucketloads of impenetrable reports around whenever possible. (For some people I’ve worked with, that reputation is entirely justified.)

There is a temptation for people who revel in data to circulate as much of that as they can find. But that’s rarely helpful to anyone.

The costs of compiling data tables, charts, graphs, and whatever else constitutes an organisation’s information flow is considerable. So employing people to produce reports nobody looks at – or even if they look at them, they can’t take any meaningful action based on what they see – seems more than a little pointless.

I’d prioritised making reports actionable for a while before I heard the term “signal vs noise”. I first learned about it in the context of the financial markets, but I later learned it pops up in other arenas too.

In financial markets, though, the “signal vs noise” question boils down to this: “can I make a decision to trade based on the information I’ve just been given”.

If you can’t, then it’s noise…just the markets bouncing around randomly, doing what they always do.

If you can, it’s a signal. Time to place that trade.

Sounds simple enough, I know. But most organisations favour circulating a torrent of data at every opportunity – and spending the GDP of a small country to do it – even though, most of the time, nobody is going to do anything different as a result of receiving that information.

When IT suppliers tell me they can give me real time updates of every metric imaginable, they think this is a major selling point.

For me it’s a sign that nobody has thought clearly enough about what information they want from a system, so they’ve defaulted to sending everything to everyone as often as possible, no matter how irrelevant and non-actionable it may be.

Natural variation

One of the problems with expensively collected and distributed real time data is that it assumes every minute of every day is no different to any other minute of the day, when that’s patently untrue.

It might be different if you’re a huge multinational operating across multiple time zones, or you run an online ecommerce operation, but for most businesses there will be no sales activity between 5pm one day and 9am the following morning. For that period of time, the availability of real time information isn’t a selling point.

Or during the day someone might take an hour off to visit the dentist, during which they don’t make any sales. Yet you already knew they’d gone to the dentist so the real-time data system flashing red because Janet hasn’t sold anything since 2pm is, at the very most, an unhelpful distraction.

Some days of the week might normally be stronger than others.

Some weeks of the month might be better or worse than other weeks.

And sometimes, people are just having a bad day. Tracking their minute by minute activity is almost certainly a waste of everyone’s time.

If your end-to-end sales process involves making outbound calls to prospects with the objective of booking them in for a product demonstration and your average hit rate is 1 in 10, that doesn’t mean every time you make 10 calls, one of them is a demonstration booking.

The laws of statistics mean that if you make enough calls for long enough, your hit rate will average out at 1 in 10. You might conceivably make 27 calls in a row without booking a demo, but calls 28, 29, and 30 all book a demo, averaging you out at your KPI of 1 in 10.

But statistics only works with large numbers, not small numbers.

So if that target is 10 calls an hour, you’ll know in a day or two at most how your salesperson is performing.

But it that target is 10 calls a month, you might conceivably need to track performance for three or four months before you can take a view on their performance. Getting to the end of the month without a single demo booked means virtually nothing.

Much as providers of management information systems would like you to believe otherwise, a fairly high proportion of the torrent of real time information pouring off their systems is really not much use.

And if it’s not much use, why are you collecting it, much less disseminating it around the business to distract people from the jobs they should be doing instead, which might put some more cash on your bottom line?

Your business model

Much of this goes back to your business model.

If you “hard sell” low-ticket items in volume, your data needs are very different from, say, a capital goods manufacturer who sells 30-40 industrial machines in the course of a year.

Your sales cycle is a good guide for what your information needs should be.

For selling low-ticket items in volume, a daily reporting cadence is likely to be about right, and you can use the laws of statistics to work out unusual patterns or salespeople who seem to be stuck in a long, inexorable slide in their daily numbers.

If you sell three or four high-ticket items a month, a monthly or quarterly reporting cadence is more likely to be appropriate. And the laws of statistics are unlikely to be much help because there just isn’t enough data to make statistics work for you.

While some reporting is always helpful, that doesn’t mean all reporting is helpful.

An area which is often missed are the leading indicators, which in turn are based on your business model.

For low-ticket, high volume sales it doesn’t matter nearly so much because your sales cycle is likely to be registered in no more than a couple of minutes. You just sell as hard as you can and check your daily numbers.

But for high-ticket, less frequent, sales the actual sale itself is not all that relevant most of the time, because a sale is a rare occurrence under that business model.

However you are probably prospecting on a regular basis. You’re having initial in-person meetings with clients. You spend a lot of time with them on diagnostics and systems specifications.

Even then, a real-time data tracker isn’t going to tell you much here. But you might be surprised how accurate a forward sales forecast you can make just by knowing how many systems specifications meetings your salesperson has had this month.

If, on a fairly reliable basis, a systems specification meeting today turns into a delivery of some shiny new equipment to a customer three months from today, now you’ve got some useful information.

And while you still won’t need real-time data tracking given that an in-person sales meeting in that depth is unlikely to happen more than a couple of times a day, the flow of systems specification meetings becomes much more helpful information than sales data.

Of course, your accounts team will report sales data in the monthly accounts, but the sales data will be “lumpy” and some months you might not have any sales at all.

But given that you will have some sort of conversion rate from systems spec through to actual sale, even if you do that at a pretty high 1-in-2 or 1-in-3 conversion rate, you now have twice or three times the information you had before about what future sale are likely to be.

Don’t panic

Part of the problem with reports – especially now there’s so much software around which can spit out graphs at the touch of a button – is that there’s often a temptation to panic when performance isn’t in line with some notional average or a monthly target figure.

That’s usually when a whole raft of sub-optimal decisions get made.

When you see an average number or a target shown as a straight line on a chart, with an actual number plotted and a red “fill” between those lines if performance is below target and a green fill if it’s above target, the temptation is to panic when you’re in “red” territory.

While occasionally panic is an entirely appropriate reaction, most of the time, it’s just that the timescale is off.

If you make three sales a month and haven’t sold anything by lunchtime on the last working day of the month, don’t discount hitting this month’s sales target entirely, even though you’ve spent most of the month so far in “red ink” territory.

And, provided you’ve been tracking the leading indicators appropriately, even if you end the month with zero sales, it’s highly likely that the three sales from “last month” will come in during the first couple of working days of the following month, and you’ll still have a whole month to make three more sales before 5pm on the 31st rolls around to keep your long-term run rate intact.

If you try to manage a long sales-cycle business on short-cycle data flows, you’ll almost certainly make bad decisions – you just need to hold your nerve sometimes.

Equally if you try to manage a short sales-cycle business using just long sales-cycle data, things can easily have gone completely off the rails before you know anything about it. That’s not a good outcome either.

So when it comes to data and reporting, it’s worth checking two things:

1- Does the reporting cadence make sense in the context of your sales cycle

2- Is the information being circulated actionable?

Anything over and above that is likely to be unhelpful at best, not to mention expensive to compile and distribute.

When a business is going through hard times, there’s a temptation to think that you need more data, more information, more reports, so you can work out what’s going on.

Often the answer is that you need less data, less information, and fewer reports.

When there is too much “noise” in your reporting – either because of a timescale mismatch or because you’re sending round a never-ending torrent of mostly irrelevant, non-actionable information – then odds are you’ll miss most of the “signals”.

It’s easy to develop some sort of number-blindness and miss most of the key insights you need to take action in your business.

Next time a report turns up in your inbox, ask yourself whether it’s helpful in the context of your business cycle and whether it’s actionable.

If it’s neither of those things, seriously consider switching that report off.

At the very least you’ll be giving people time to manage the activities in your business that really matter, instead of spending their time battling against a never-ending fire hose of mostly irrelevant data.

You never know. They might spend their time doing something more productive instead.

If you run a business, of course you want to run it at the lowest possible cost relative to the income you receive. That way the difference between the two – your profits – is as high as possible.

As an objective, that’s fair enough. But you’ve got to know what you’re doing because it isn’t as simple as it sounds.

That’s because too many people focus on just one element of the picture and ignore their real purpose.

You see, the objective of any business is not to reduce their costs as low as possible.

It’s to make as much profit as possible.

They sound like the same thing, but they’re not. There’s a false equivalence at work here.

So if you want to know how to put as much profit as possible on your bottom line, keep reading. I’ll share some of the common misconceptions and show you a better way of getting the results you want.

Cheap

I guess we’ve all worked for cheapskates at one time or another. I certainly have.

But let me ask you this – how come none of the cheapskates you worked for have built a multi-billion dollar business?

Sometimes you find cheapskates running multi-billion dollar businesses once they get to that size. But it’s rarely how someone builds a multi-billion dollar business.

Once you have a multi-billion dollar business, there can be an argument for chasing down the efficiencies that open up due to economies of scale kicking in, or volume discounts for buying larger amounts of goods and services. But that’s very different from building a business through being a cheapskate.

There are a couple of reasons for this.

1 – Your customers

Ask your customers if they want cheaper prices or not, and they’re likely to say yes.

However, unless you’re selling to cheapskates – which, by and large, is a terrible economic model – that’s not what they really want. What they want is good value, not necessarily the lowest price.

Putting any other consideration aside, though, training your customers to always buy the cheapest isn’t all that smart, because one day the cheapest provider won’t be you. But if you’ve been trumpeting about how cheap you are, all you’ve really done is lay the groundwork for someone else to sweep in to undercut you.

Focusing purely on reducing your costs, and passing on those savings to your customers to win their business, also limits you to the 10-20% of any market who are dyed-in-the-wool cheapskates who will always buy the cheapest, no matter what.

The other 80%+ of the market won’t come near you with a bargepole.

And sure, some people cycle into being cheapskates and cycle back out again so there’s churn which can give the impression of more people buying from your business. But over time, you’re limiting your target market if being the cheapest is all you’re trying to do.

That’s because, once you’ve been around for a while, you get tired of buying cheap things that break and trade up-market as and when you can afford it.

And customers can smell a cheap operator out dead easy.

In my career, I’ve found that any firm which has a reception area about as welcoming as the visiting room at a maximum security prison is almost certainly cutting corners in their production in order to be the cheapest, without thinking that I might want something else as well, like product quality, longevity, or reliable after-sales service.

To confirm my opinion, I usually ask to visit the gents. If that also looks like what you find in a maximum security prison, I’m very unlikely to buy from you. If you treat your staff that badly, it’s too a big stretch for me to believe that you’re likely to look after me and my business any better.

Sending out messages like “we’re cheap as chips” to your customers – either explicitly in your marketing or implicitly in the state of your factory toilets – is something only a minority of customers want. And even those are fickle – off like a shot if they can find someone to do something similar for a penny cheaper.

2 – Your bottom line

There’s an old saying “buy cheap, buy twice”. There’s usually nothing more expensive than buying cheaply, and sooner or later, most people work that out for themselves.

Rather than buying a quality product that last 5 years, some people buy a product at half the price that stops working the minute the 12-month guarantee period runs out. So you need to buy another one, and so on.

By “buying cheap” at the start you’ve spent 2-and-a-half times more over that 5 year period than you would have spent by purchasing the higher quality product.

As an aside, this is one reason government spending is so wasteful. It’s not actually because they’re deliberately wasting money (at least not most of the time). It’s because they’re spending 2.5x the amount of money they need to spend over 5 years because their only purchasing decision has been “who’s the cheapest?”

Yet, many businesses fall into the same trap, falsely equating “low price” with “good value” when it’s often the exact opposite.

That’s why every cheapskate business I’ve come across has to pedal twice as hard to keep the show on the road as other businesses in the same sector. They’re always the people who pay their VAT late and worry about making payroll this week.

It takes a lot of time, nervous energy, and (ironically) money to run a cheap business, even though purveyors of more simplistic business strategies would have you think otherwise.

Even if the product you sell is nominally cheaper per unit to produce, you need a bigger complaints handling team because your low-quality products break more often, you’re probably sending out more rush order replacements for products which don’t work as intended because corners were cut in the manufacturing process, and your accounts team is larger than it needs to be because of all the credits and reinvoicing they have to do.

The hidden costs of being cheap are considerable.

Cheaper

If you find a thoughtful analyst or two…or have a (ahem!) superstar CFO…you can work out the areas where being cheap is costing you money and take some different decisions.

That probably won’t give you all the upside, but at least it will stop the downside leakage for your bottom line of having to express-ship replacement products which broke in transit due to someone deciding to save 3p on the bubble wrap which used to protect your products inside their shipping boxes.

For the upside, though, you need insightful managers who can join the dots in a way that most managers can’t.

Most managers have a very narrow focus on their metrics and don’t much care what happens as long as they hit their sales targets or their production quotas.

At some level this is understandable, but let’s face it – your business runs on bottom line profits and cash flow. Whether or not the operations director has met their production quota is an irrelevance.

Tractor factories in Soviet Russia always met their production quotas and their economy still collapsed.

However you, as the leader, need to be comfortable with the trade-offs required to make this work.

If you continually hammer your production director for not meeting their quota, when the reason is that they had to stop the machines and make urgent repairs to save the next batch being made for your biggest customer being returned as sub-standard, then don’t expect them to manage the bottom line for you. They’ll focus on their quota to the exclusion of everything else, including your bottom line.

Some people take to this style of management better than others. By and large, people from a large company “managing by the numbers” background find this difficult, even though being able to make intelligent trade-offs is one of the most important ways someone in a management role can add value to the business.

While they won’t always make the right calls, if the company mindset is that you expect managers to make intelligent trade-offs – or at least trade-offs that appeared smart and thoughtful at the time the judgement was made, irrespective of whether or not it ultimately turned out as intended – then your wins will far outpace your losses over time.

Your managers will make “best value” decisions, not “lowest cost” decisions.

Your customers will probably pay more for better quality and more reliable products.

You won’t be funding the cost of failure any more (eg returned products and customer service complaints) – those savings flow straight to the bottom line, outpacing any additional costs you incur usually.

There is an art to this though. In the same way as buying something cheap can be a very expensive decision, so can buying something expensive, if it’s only really a shoddy product with a fancy price tag.

And occasionally the increased cost isn’t worth it. If a product lasts 10% longer than others in its industry, but costs twice as much, all things being equal, that isn’t a good value decision.

That’s why you need smart people who can make the trade-offs necessary to add to the bottom line, not just plough their own furrow to the exclusion of any other consideration…even if that isn’t in the company’s best interests.

And it’s also why you need to support those smart decisions, even the ones that don’t work out (as long as they were smart at the time the decision was made) or people will drift back to just looking after their own furrow and not come out again for a long time.

Cheapest

While the cheaper/best value strategy is better for your bottom line than the cheap/lowest cost, there’s another way of running your business which is often even better.

That’s because in the “cheaper” strategy nobody in the business, apart from the managers, is doing anything different to the “cheap” strategy. If I’m running a machine or making sales calls from the call centre, I’m just doing whatever I was doing before. It’s just that, now and again, my manager tells me to start doing this or stop doing that.

But that usually comes with a significant management cost.

Now, when this is done well, the extra management cost saves the organisation more than the cost of employing the managers, so there is plenty of upside for the business. But that’s not always the case, so you need to remain vigilant.

There is another way to run your business, though. When this works well, it’s the cheapest way of all to run your business, but it does require you to employ high-calibre people – not necessarily outrageously expensive people, just people to the middle-to-top end of the market rate salary bracket for the job your hiring for.

Here’s what you need to do:

1 – Structure = cost

Every time you see a management structure, you need to see cost. While the focus in most businesses is on line-worker productivity, you need to think about your management team in the same way.

It’s not a cast-iron rule, but I’ve seen a lot of businesses which could operate with half the managers they have and be no worse off than they are today, pocketing the saving in extra cash on their bottom line along the way.

However businesses think that when they get to a certain size, they need to employ an HR Manager or a Quality Assurance Manager or a Finance Director.

There are times when all those decisions can be good decisions, but they can also be bad decisions. One of my proudest moments as a CFO advising a growing business was talking them out of hiring an HR Manager for their 10-person start-up and hiring another salesperson instead, at a higher salary than they were prepared to pay for an HR Manager.

Now, these were lovely people, and their hearts were in the right place. They’d read all those articles in business magazines about the importance of people development in any successful business and thought they should do the same “because of the amount of time we spend on people”.

The reality was they just needed to get rid of a particularly difficult member of staff and “the amount of time we spend on people stuff” reduced to almost nothing in just a couple of weeks.

When you think about bringing in more management resources, you need to ask yourself if you’re just papering over a problem – in this case employing someone to spend their working day having someone moan at them constantly, instead of the bosses having to do it – or if you’re really taking the business forward.

In this case the additional cost of the additional management structure was taking away from the bottom line, not adding to it.

That’s because management structure equals cost – unless you can see an RoI on that cost, you’re probably better off not employing someone in the first place.

2 – Process = cost

In the same way as management structures increase costs, so do business processes.

Now, I know what you’re probably thinking – but we implement business processes for increased visibility, transparency, and efficiency.

And that’s what people who obsess about business process management will tell you.

Sometimes it’s true, but more often it isn’t.

What you actually do every time you implement a business process is that you set a “floor price” that whatever you’re doing can’t fall through.

Which is bizarre, because you’re trying to add to your bottom line, so the last thing you want to do is set a floor price which ensures you can, beyond a point, never do an activity at a lower price than you do now.

When I ran a 1,000 person call centre operation, we discovered that when we asked all the questions we needed from a caller in a certain structured process, calls took significantly longer than when we just let the caller talk in any sequence they wanted and just noted down what they said in the relevant part of the online form the call centre agent filled in.

With a structured process, calls took about 3 minutes.

When customers gave us the information in the order which suited them best, calls were often less than half that amount of time. (Full disclosure: sometimes calls were longer too, but they were much rarer than the shorter calls, which meant we were net winners overall.)

If you want to run a business at the lowest possible cost, you might need to give up some of the processes you currently use as they are effectively “inking in” a minimum level of cost you will never be able to go below.

3 – Decisions = cost

Every time something has to go to another person for a decision, you’re building in cost.

At the very least, there’s the time your staff member spends explaining the issues to whoever needs to make the decision. Sometimes there’s some negotiation, a bit of to-ing and fro-ing as well, some additional information required, and so on. All of which increases the time spent, and therefore the cost, of that decision.

There’s another cost too. If your customer is waiting an extended period of time for a decision, the likelihood is they’ll probably shop elsewhere next time they need whatever you’re selling.

Life is too short for someone to wait 48 hours to find out if they can have something you sell in blue instead of green.

So you want as few touchpoints as possible beyond the first person who encounters an issue in your business. You need to give your people some leeway to make decisions so they don’t need to refer on to someone else to get an answer.

That’s especially true when the answer is obvious or largely predetermined.

Back in my days running a call centre, we did a study and found out that (based on their salary costs) if we let a call centre agent give a customer an answer that cost us about 50p. If they referred the decision to their manager, that cost £5. And if the manager referred it to a director that cost £50.

It might not surprise you to learn that the vast majority of the time, the decision a director took to rubber stamp something was the same “obvious” or “predetermined” decision a call centre agent could have given. We just spent £50 making that decision instead of 50p.

I don’t know about you, but spending 100x the cost to get to the same answer doesn’t immediately sound like the best strategy for building the bottom line of any business.

So we gave call centre agents much wider parameters for making decisions on the spot which saved up the majority of the extra £5s and £50s we had been spending previously.

The parameters are key, of course. We didn’t want a call centre agent committing the business to a £1million refurbishment of a customer’s warehouse just because one of our truck drivers had scuffed some brickwork while reversing into the customer’s loading dock.

However, could the call centre agent process a refund because the goods hadn’t turned up as promised without referring that decision up the line? Of course – what was the director going to do, tell the call centre agent that Mrs Smith was lying about the late delivery even though they had never met or spoken to Mrs Smith?

And did we have a few Mrs Smiths who called up a little too often to complain about a late delivery in the hope of getting a refund. Of course we did, but when the call centre agent fired up the customer record, anyone who had a history of multiple refunds was quizzed much more closely than someone who previously had a “zero refund” customer record.

In either scenario, we relied on the call centre agent’s judgement, using their 1:1 conversation with the customer and their customer record to guide their decision. However no better decision was likely to be taken if the manager (£5) took it or the director (£50) took it, instead of the call centre agent (50p) taking it.

If you put your mind to it, there are a remarkably large number of activities in your business that don’t need expensive organisational structures, rigid processes, or drawn-out decision-making criteria.

Every single one of those adds cost to your business.

Throw together a penchant for always buying the cheapest, irrespective of quality, and thinking that an increase in management, rigid processes, and complex decision-making criteria will always have a positive RoI, I’m here to tell you that’s almost never the case.

Control freaks can’t run businesses with a minimum of management, processes, and decision-making, but you need to ask yourself – would you rather be a control freak or would you rather run a highly profitable business?

The odds of anyone doing both of those at the same time are vanishingly small.

The choice is yours.

Just in case you needed proof that accounting can tell you most things you need to know about your business, today we’re having a look at a management accounting concept which – slightly adapted – can be a tremendous help in accelerating your growth as a business.

But before we get into the exciting management accounting concepts…I know you can hardly wait…let me ask you a question.

All things being equal, which would you rather have: 10 jobs each of which was 10% complete, or 1 job 100% complete and 9 jobs 0% complete?

In most organisations, the answer is the first one.

Or at least if you look at what they actually do, rather than what they say, it’s the first one.

In every organisation there are people pootling away on activities of one sort or another which might not be entirely without merit, but which, at that point in time, make very little difference to the future of the organisation.

Let me illustrate: if I spend my time today writing up a revised expense claim policy, I might be busy enough. But when did you last work in an organisation where the lack of an updated expense claim policy was the biggest problem that stopped the organisation reaching its goals?

Probably never. But I bet you’ve sat in lots of meetings about activities like this before now.

Time ebbs away regardless, but the truth is whether you update your expense claim policy today, tomorrow, or a year from now, your business is unlikely to succeed or fail purely based on the state of your expense claim policy.

However by the end of the day, you might have a 10% completed project. Alongside a range of other 10% completed projects.

The likelihood of all those projects being equally valuable to your business is pretty much zero.

Yet, by the end of the day, they’re all 10% complete, with completion dates staggered out over the next few months depending on when the board gave you a deadline for.

The exciting bit of management accounting

Given that backdrop, management accounting has a helpful perspective to offer.

Fear not, I’m not going to go too deeply into the technicalities. I just need to introduce you to a concept called “the limiting factor of production”.

This is a really important concept in management accounting because your costing system should be designed to maximise the output from whatever the limiting factor of production is. (By the way, exactly the same principles apply in the service sector, I’m just using a manufacturing example here because most people find that easier to visualise.)

Let me illustrate.

In a factory, there are three machines. To produce our products, we need to take the raw materials through each machine in sequence.

Machine A has the capacity of 10,000 units an hour. Machine B can handle 5,000 units an hour. And Machine C has an 8,000 units an hour capacity.

What this means for costing purposes is that you need to base your cost models and pricing on a maximum output of 5,000 units an hour, because that’s the fastest that your limiting factor of production (Machine B in this case) can produce.

Put another way, given the nature of our production process, here we have one project (Machine A) running at 50% of capacity, Machine B is at 100% and Machine C is at 62.5%.

That’s the optimum output, and the maximum machine utilisations, for your factory under those conditions.

Flipping that around

Important though that is for the accounting nerds among us, that’s not what we’re primarily concerned with today.

Once we identify our limiting factor of production (Machine B) we have a range of strategies open to us.

For example, if we bought an identical machine to Machine B, we would presumably increase our output from the “B” section to 10,000 units an hour (2 x 5,000 units per hour), so that it matched up with the production rate of Machine A.

In that scenario, Machine C is now our limiting factor of production, because that’s not going to run faster than 8,000 units an hour, even though both Machine A and Machine B (x2) can now handle 10,000 units an hour.

If we forget about the excitement of management accounting for the moment, what does this tell us about the company’s priorities?

Well, in this scenario, any time invested to improve the output of Machine A is completely wasted, as is any time spent doing the same to Machine C. No matter how much better those machines run, your factory will still never produce more than 5,000 units an hour because that’s the maximum throughput of Machine B, your limiting factor of production.

Linking back to where this article started, by far your biggest business priority should be working out ways to improve the output of Machine B or, as in this case, just buying another identical machine to double the “B” section’s throughput.

In fact, anyone doing anything other than fixing the “B” section problem is by definition incurring cost for the business without generating any upside.

Will rewriting the expense claim policy fix the Section B problem?

Or the all-staff, offsite awayday?

Or the digitising the paperwork archive in the finance department to save on external storage costs?

No, they won’t. But those projects will rumble on in the background anyway, clocking up time and cost without actually fixing the biggest issue holding your business back at the moment.

It’s not as simple as this

Of course, it’s not quite as simple as this. I’ve just expressed the problem in fairly stark terms to make the point.

I don’t suggest you pay your corporation tax six years late “because we were doing more important jobs”. HMRC tend to take a dim view of that sort of thing.

But it does illustrate the way that most organisations are happier rumbling along with a jumble of 10% completed projects when they would nearly always be better concentrating all their efforts and resources on the biggest problem in the business instead, and doing their best to fix that.

The biggest problem in the example above is getting more throughput in Section B. Nothing else in your business even comes close at being able to generate better bottom line results.

Knowing your limiting factor of production allows you to make better management decisions.

Let’s imagine the all-staff, offsite away day was organised months ago and is taking place next Tuesday.

Next, some insightful CFO (ahem…) explained the concept of limiting factors of production to you.

Then you hear that the suppliers of Machine B are in the country at the moment and could meet you next Tuesday afternoon to talk about selling you another Machine B. However, they need to get a flight home on Tuesday evening and won’t be back in the UK for another month after next Tuesday.

Now what do you do – cancel the awayday and meet with the supplier, or have the awayday and catch the supplier in a month’s time when they’re next passing through?

Put in those terms, the obvious answer is to cancel the awayday, even if you have to pay some cancellation charges to the venue, because the upside to your bottom line of getting a second Machine B at least a month earlier, based on the hypothetical numbers above, is almost certainly greater than the cost of another day’s room hire for your offsite.

That’s the obvious answer in terms of your bottom line, but I haven’t worked at many places where that’s the decision they would have taken.

Because the away day has been in everyone’s diaries for months, and finding another day the whole board can all be together again will be tricky, and because no-one wants to upset the team who had put all the away day activities together…that’s what gets prioritised.

None of those reasons are completely without merit, of course.

It’s just that compared to increasing your factory’s output from 5,000 units an hour to 8,000 units an hour (i.e. the maximum capacity of Machine C, which has now become your limiting factor of production), nothing else you can do is likely to have anywhere near the level of bottom line impact as meeting the Machine B suppliers next Tuesday.

Knowing me, knowing you

Knowing this dynamic is in play, let’s go back to the original question.

Which would you rather have: 10 jobs, each 10% complete. Or 1 job 100% complete and 9 jobs 0% complete?

If the job you had focused on to the exclusion of everything else was sorting out another Machine B in our factory example above, then you’d much rather have that than ending the day with 10% of the Machine B sorted out, alongside 10% of the new expense claim policy and 10% of the agenda for the all-staff away day.

Equally, if your business had sorted out 100% of the away day agenda, but hadn’t even made a start on buying a new Machine B yet, I’d seriously question the wisdom of that decision.

In most organisations, though, the acceptable way forward is to have 10% of 10 jobs done, rather than 1 job 100% complete.

All sorts of tasks – each of them worthwhile in their own way, and championed by people who mean well – take time, energy, and effort away from what should be your organisation’s number one objective.

Because they don’t understand how limiting factors of production work, most organisations would give their HR Manager a bonus for organising a wonderful away day, but they would fire the HR Manager if, at their appraisal, they said they hadn’t done any of the objectives set in their last appraisal because they’d spent 100% of their time helping Bob in Production buy a new Machine B instead.

In reality, if you cared about your bottom line, you’d give your HR Manager a bonus for pitching in to help deliver the single most bottom-line enhancing project your company needed delivering this year, and fire them if, while a huge opportunity went unattended to, they were fiddling around organising the menu for the away day.

A life of their own

This is a problem with organisational structures. While they are helpful to an extent…necessary even…they often get in the way of what really needs doing.

That’s because, once you set up a Marketing Department, or an HR Department, or a Finance Department they will find things to do in order to keep the people in that department busy.

So someone will be organising the away day, someone will be rewriting the expense claim policy, and so on. That’s the way organisations are set up to operate.

Set up a Department X and inertia takes over. In no time, Department X will be taking up time and energy in your management infrastructure and further reduce the focus on the Machine B project.

Department X will take up airtime and energy in management meetings, which will tie up people for longer than they were before. Time that could have been spent on Machine B.

And that’s because the Head of Department X only has the objective of doing “Department X stuff”. Whether or not Machine B ever gets sorted out isn’t their problem – it won’t interfere with their promotion prospects or pay package in the slightest.

For that reason, while it’s not a perfect model, when you think about bringing in more people to your organisation, or get persuaded that “you really need a Department X here because all our competitors have one”, you should ask yourself one simple question.

“Will doing this help us reduce the impact on our business of our limiting factor of production?”

Now, that presupposes that you know what your limiting factor of production is, which many organisations don’t. Or to the extent that they think they do, it’s something that might be superficially true but isn’t actually the real issue.

During my time in the education sector, for example, an organisation I worked with put a lot of store in making sure that student behaviour was clamped down on to “stop troublemakers” as that was seen to be the biggest issue for their bottom line. The amount of reporting and staff appraisal energy which went into this was considerable.

And although, in isolated instances, poor behaviour was an issue, it had nothing close to the bottom-line impact of running courses which were impossible to make money on – if we needed 30 students to take a course at the level of income we received from the government, but our biggest classroom only held 20 students, that’s a guaranteed sea of red ink on the bottom line no matter how good or bad any student’s behaviour might be.

Because the limiting factors of production weren’t used in this organisation as a basis for making management decisions, much more effort was put into selling these guaranteed loss-making courses than was put into selling courses we could make a profit on.

The question to ask

For that reason, every time you are presented with a request to spend money or hire a new staff member, there are only two things you need to do before making your decision.

Firstly, refresh yourself on what the limiting factor of production really is inside your organisation.

Then, ask yourself whether the proposed action takes you closer to eliminating, or at least minimising, the impact on your bottom line of whatever your limiting factor of production.

If it doesn’t, think twice about spending the money.

However well-intentioned the request is, you’re almost certainly going to generate sub-optimal returns on your investment.

This may surprise you, but in a conversation with someone the other day, they let slip they didn’t have a favourite cost accounting technique.

I know…crazy, right?

Now, in fairness, the bloke I was talking to wasn’t an accountant, but I just imagined everyone in the whole world had a favourite cost accounting technique. So the realisation that this was not the case came as something of a surprise.

Admittedly, it would be truer to say that I have two favourite cost accounting techniques, with a 50/50 weighting, and I generally use them in conjunction with one another which makes both of them together more powerful than either one of them on their own.

But, just in case you’re one of the weirdos who doesn’t have a favourite cost accounting technique, I thought I’d write about one of them today. I’ll save the other one for a future article – after all, it’s always good to have something to look forward to…

Although the principles underlying the technique I’m about to explain go back over 100 years, back to when FW Taylor was busy developing his Principles of Scientific Management, it was probably most used in the 1980s and 1990s before being overtaken by trendier ideas.

As is often the case in the world of accounting, however, trendier is not necessarily better, or more accurate, or more bottom-line building.

Fashionable or not, I have never failed to get valuable insights into a company’s cost structure and profitability by applying the technique I’m sharing with you today, even though most accountants have never used it “for real” and mostly can only recall a superficial fact or two about it from a textbook they studied for their professional exams.

Although if you’ve ever worked with me, or for me, I’ve used this technique so often that nowadays I mostly do it all in my head. I rarely make a big fuss about where the insight for all the awkward questions I ask comes from.

So listen. Do you want to know a secret…?

As easy as 1, 2, 3

The secret is that most cost accounting techniques are applied in either a very broad-brush way or in a mechanically, but very specific way. And both approaches are wrong.

Wrong, but surprisingly popular.

People take what looks like “the easy route”, but this leads to many organisations making poor commercial decisions. They have an unrealistic, and inaccurate, view of what their costs really are.

This is so much the case that when I come across an organisation in real trouble, the root cause is often that they’ve made perfectly sensible and logical decisions based on the information they get from their cost accounting system.

It’s just that the information in that system doesn’t reflect either the organisation’s true cost structure or its commercial realities.

Put away the broad brush

To give an example of the broad brush cost accounting approach, a company might work out a charge-out rate for their team of field engineers by adding up all their salaries and dividing that total cost by the number of engineers they employ.

One, but by no means the only, problem with this approach is that the company will lose money on every job they put their more experienced staff on do because the rate they pay their more senior engineers tends to be higher than the average rate used to work out the costing for clients.

Sometimes people argue that doesn’t matter provided that, on average, every engineer is kept as busy as every other engineer. And mathematically, there’s something in that argument.

Except the commercial reality is that your senior engineers will normally be allocated to the trickier jobs, the bigger jobs, the jobs for your more important clients where you wouldn’t be comfortable letting a trainee engineer loose by themselves.

Even if, on average, the costs come out about right (and even then I’d be sceptical) what you’re really doing here is dramatically under-pricing the more complex jobs you do for clients.

A job that ties up a team of senior engineers for several weeks should bring significantly more income into the business on an hourly basis than the same number of hours a junior engineer spends changing filters on less technically demanding jobs.

If it doesn’t, you’re leaving money on the table.

The “mechanically specific” trap

At the other end of the spectrum, a spreadsheet wrangler somewhere allocates every cost in the business, in minute detail, to every product and service, generally under the cover of “being commercial” or “being tough on costs”.

Carrying out that process to some level is worthwhile. But so is knowing where to stop.

And that’s probably long before you allocate 50p in stationery costs to each job because, on average, you do 100 jobs a year and spend £50 on stationery.

But with a barrage of Excel macros, management information systems, and…God help us…Power BI, you’d be amazed at the level of detail you can get to pretty quickly.

I mean, not that it’ll actually be useful in any way, but it’s impressive enough for people who like playing around on spreadsheets.

What too many organisations do is mistake information at that level of detail as a helpful input into management and commercial decisions. It rarely is.

Although it did give me some amusement in a management meeting several years ago when I worked with a business facing £multi-million losses and a likely emergency funding round.

In all seriousness, the single big cost-saving idea from one of the senior managers was to send all our post second class instead of first class.

He had gone to the trouble of working out that second class stamps were something like 30% cheaper than first class stamps. Impressive bit of detail there.

But he was so proud of his 30% saving – well above the 10% target the organisation was trying to reach – that I may have burst his bubble when I pointed out, as gently as possible, that since the organisation only spent £5k a year on postage, even if we didn’t send out a single letter, it still wasn’t going to make much of a dent in a £multi-million black hole.

This information was admittedly very specific. But also pretty useless in the context of the problem we were trying to solve.

If you’ve read this far, you may not be surprised to learn that one of the reasons this organisation was in trouble was precisely because they didn’t really understand their costs and how management decisions impacted the bottom line well enough to make the best decisions for the business.

As simple as do re mi

While it isn’t quite a simple as ABC, 123, or do re mi, the principles behind one of my two favourite cost accounting approaches are easy enough to grasp. (Sadly, space doesn’t permit covering the topic in more depth…well, sadly for me. You, dear reader, are probably eternally grateful.)

But here are the guiding principles.

1 – Split your costs the right way

Organisations generally think of costs in two categories – fixed costs and variable costs.

Now, in a pure accounting sense, there’s some truth in that way of looking at the world. However that’s not necessarily very helpful when it comes to commercial decision-making.

Instead, think about your cost as those costs which directly relate to creating something your business sells – whether that’s physical products or services – and all your other costs.

You will find that, as a generality, variable costs are more likely to be part of delivering a product or service, and fixed costs are more likely to end up in the “other costs” bucket. But that’s not a perfect split for a range of reasons, one of which we’ll come onto in a moment.

So, the rent on your factory is not a cost that directly relates to creating the physical products you sell. Even though it’s an important cost for your business, you’d still need to pay the rent even if you didn’t sell a single product.

On the other hand, the sheet steel which gets delivered to be bent, twisted, and machined into your finished product is very clearly a cost that relates to the products you sell.

If you had no orders from clients, you wouldn’t buy any sheet steel.

2 – Get clear on your cost drivers

When I was a CFO, I rarely came across a business which had the level of clarity on its cost drivers that it really needed to make good commercial decisions.

For our purposes here, you can think of a cost driver as “the reason why we’re spending this money”.

If you need sheet steel to manufacture your products, the reason you buy sheet steel is to satisfy customer orders (assuming, for simplicity’s sake, that there is no stockholding to factor in here).

So the driver for the sheet steel purchase was the order from your customer – no order, no steel required.

There is an argument that you only do this for the input costs to your products and services, but I find many traditional accounting systems have all sorts of costs which move around depending on a wide range of different cost drivers, so you’ll get valuable information about your business by doing this in as many places as possible.

If you do, you’ll also find a remarkable amount of cost hidden away in your overheads that fluctuate for all sorts of reasons, all of them unrelated to manufacturing your finished products or services. Until you understand what those costs are, and the activities that they relate to, you don’t really understand your cost base well enough.

Your marketing department will have a range of costs which are driven by their lead generation activity, for example, which will be entirely disconnected from receiving a customer order.

There may be some vague relationship between the two, in that lead gen activity today will turn into clients in 9 months from now, at some expected conversion rate or other. But that’s a weak relationship and if you sell multiple products and services, actually not that helpful (although you should, of course, measure all those things for other reasons).

It’s much better to be clear that the “trigger” for lead gen spend is the marketing department deciding to do some lead gen activity.

Given the likelihood is most leads will not turn into customers anyway, it’s better to accept and understand that purchases of sheet steel are driven by customer orders and lead generation activity in your marketing department is not.

Each of those spends have different cost drivers, each of which needs tracking and managing in different ways.

3 – The “other stuff”

Once you’ve done that, you’ll find a couple of interesting things.

Firstly, if my experience is anything to go by, you’ll discover that when you assemble your products and services based on the individual cost drivers that go into them, you’ll have an entirely different way of looking at your product or service costs than you ever had before.

You’ll discover some wild things – it’s not uncommon to find that the product everyone thought was the most profitable is in fact the least profitable, and some unloved and largely ignored product is in fact a potential superstar hiding in the shadows.

Usually, you’ll also find that there’s an astonishing amount of cost in your business with no obvious cost driver at all. When you find them, ask some really pointed questions about why those activities is being carried out at all, because odds are you can stop doing whatever it is and not notice the difference…except to your cash flow and bottom line.

More importantly, you’ll discover where the inefficiencies in your business are.

Maybe a big chunk of activity, and therefore cost, in your HR Department is driven by the need to performance-manage out poor performers in your organisation.

While by the law of averages you’ll hire someone you wish you hadn’t every once in a while, if this is happening on a regular enough basis to account for a big chunk of cost in your HR Department, odds are your business is doing a poor job on the recruitment front.

Or perhaps the business isn’t paying well enough to attract people with the skills you want so the recruitment team is settling for people who can’t really do the job in the first place just to fill a recruitment quota.

Maybe the business is failing to take action soon enough in the early days of employment, or provide enough training, so that stores up much bigger problems down the line, requiring HR to get involved.

Every time you find yourself saying something like “we spend how much managing out poor performers???” that’s a sure sign that there’s an inefficiency in your business which, if you fix it, will result in a more profitable, smoother-running business, with lower costs.

Back to ABC

In an admittedly very brief way, what you’ve read so far is a high-level summary of some of the benefits of a cost accounting technique called Activity Based Costing, or ABC.

Done the right way, ABC brings a level of insight into the commercial and operational side of your business that’s vastly more insightful than standard management accounting techniques.

The way I do it, I mix it with a little bit of another costing technique, which I’ll talk about some other time. So I don’t use “out of the box” ABC exactly.

But if you’ve never tried this approach before, you’ll discover a lot about your business by just doing an “out of the box” ABC review.

A pretty good place to start is Robert Kaplan (the “balanced scorecard” guy) and Steven Anderson’s book “Time-Driven Activity-Based Costing”.

There are some who say Activity-Based Costing is a complex and expensive technique which doesn’t offer a high enough RoI. But, with the greatest of respect, I’d have to say that whoever came to that conclusion hadn’t seen a good ABC project up close.

Admittedly, I’ve done this loads of times, but give me a couple of hours with a set of accounts and a few people in the business to talk to and I can have an 80/20 model up and running pretty rapidly and inexpensively.

Yes, you can make activity-based costing long-winded, costly, and ultimately pointless. But the same is true of every management technique that’s ever been invented, if it’s done badly enough.

It might not be your thing, and you may, in time, develop your own favourite cost accounting technique – nothing would delight me more. But until then, I’d encourage you to give ABC a try.

I’ve never yet applied it in an organisation and not found at least one game-changing nugget of information or one life-altering perspective emerging from it.

You might be surprised what you find too.