Dupont Analysis – Understanding what factors affect your profitability

By Patrick Mayoh

A lot of you guys had a look at my article on cloud computing and I really appreciate that. I Hope you agreed with me that, this was a must-have IT applications for organizations wishing to save on capital investments, willing to improve their team’s flexibility and mobility, mindful about the environment and overall desiring to be trendy.

This week I am going to talk about something quite different. But it is still about efficiency, that is focussing on the elements around your organizations or units that really matter to your profitability and productivity overall.

The Dupont model or analysis is one of those frameworks that allow you to see the big picture, compare yourself to competitors in your industry and make informed decisions regarding where and why you allocate financial resources as well as how you can improve those elements that add value to your organization.

The big picture

Traditionally organizations across all industries and sectors measure profitability using such key indicators as ROCE (Return on Capital employed), ROE (return on equity – for investors and shareholders) and ROA (return on assets – how well your company uses its assets relative to its overall performance). While each of those ratios provides analysts with key figures or proportions regarding their organizations, they fail to tell the whole story. This is with regard to individual factors affecting each of the ratios. Take for example the ROE, which is obtained by simply dividing the net income from the income statement by the owner’s equity from the balance sheet. What you end up getting is simply a single figure that does not tell you much apart from how well or bad your company is doing. A Dupont analysis will break down the same figure and give you a clearer picture of what affects (positively or negatively) that measure of your organization.

Say you want to understand what affects your shareholders’ profitability using the ROE, the dupont analysis breaks it down in the following manner:

ROE=Net profit/Equity=Net profit-pre-tax profit x Pre-tax profit/EBIT x Ebit/Sales x Sales/Assets x Assets/Equity

The good thing is you do not need to calculate each of the elements that can be found in either your balance sheet or income statement, so just playing with the same figures around means you will understand which of those between EBIT, Sales, Assets or Pre-tax profits affect the performance of your organization and in this case the profitability of your shareholders.

This equally works when you want to look at those elements affecting your return on investments say for one of your flagship product.

ROI= Net income/Total Assets= Net Income/Sales x Sales/Total Assets

Lastly the profit margin that helps you to know how much sales affect your net income can be decomposed in the following manner:

ROE= Net profit/Sales x Sales/Assets x Assets/Equity

Conclusively each of those figures helps you and your team to understand what individual factors between assets, sales, EBIT, Equity, Net profit affect your performance.

Comparing yourself to competitors

In an age of free access to financial information, it is easily possible for you to gain access to key financial information of your competitors. The Dupont analysis will actually help to make a comparison between what affect your performance and theirs. In terms of benchmarking, you have the opportunity as a business to understand how the leaders positively affect the performance of their organization. As a rule of thumb for example, retail businesses have high turnovers and very low profit margins while service industries like banks make high profit margin with very few assets. Looking at such elements will likely make you understand what you need to improve on or what you need to work on within your organization to do just like or if not better than your competitors.

Assuming your shop does not turn any profit at all. Maybe the problem lies in your sales, although you make good turnover, there is the possibility that you could improve your sales or that your assets are underutilised. Likewise if you are in a sector that need very few assets to turn a profit and assuming you are not getting much return, maybe you need to invest just a little bit more in assets in terms of IT applications or machinery to name just a few. All these appear clearer when you use a Dupont analysis.

Decision making

You only want to invest money where it really matters. Therefore the Dupont analysis is a good starting point when you want to decide as an organization where money should go and why. Also it is a good framework when you have to decide what elements to scrap or maybe those ones which need more attention from your team. Maybe weak sales affect your profitability because of a weak marketing strategy or it is possible your assets are underutilised which explains why you still cannot make the most out of them.

Informed decision making is possibly one of the greatest benefit this model yields to manager when they have to decide where to invest, how and why.

To conclude you always need to understand as a manager why organization makes or does not make profit and the Dupont model is a good framework for that.

References

Bodie, Z., Kane A and Marcus, A.J. (2004) Essentials of Investments, 5^th edition New-York, Mc Graw Hill

Groppello, A.A. and Nikbakjt, E. (2000) Finance, 4^th edition New York, Barron’s Educational Series

Ross, S.A., Westerfield, R. And Jaffe, J. (1999) Corporate Finance, 5^th edition Mc Graw Hill

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The Era of Cloud Computing – Five reasons why your organization needs to adopt it

Patrick Mayoh

I cannot tell why I am turning geeky these days. I had to choose between writing on cloud computing or web 2.0 technologies. The reason I guess is because I believe those two topics just show how much, more efficient IT systems in the future will boost productivity and increase profitability. Cloud computing is one of those IT applications that your organizations should be thinking about for five reasons:

· It is trendy

· It is cost-effective

· It is sustainable

· It is Accessible

· It boosts your team productivity

What is it?

Simply put according to Jacques Bughin et al (2010) in the MC Kinsey Quarterly, cloud computing consists of “accessing computer resources provided through networks rather than running software or storing data on a local computer”. Mell and Grance (2009) of the National Institute of Standards and Technology NIST provide a more comprehensive definition as they define it as “a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction”. Let us see why you need it in your organization and how this will change and possibly improve your business as a whole.

It is trendy

This is one of the hot IT topics nowadays. It is one of those applications that will set the pace of the future and will be widely used by organization for its many benefits. It is gaining such momentum that the MC Kinsey Quarterly devoted a section to it in its article on the top “ten-tech enabled business trends to watch”. Big pharmaceutical giants like Genentech have begun to reap the benefits of cloud computing, as this enables them to design and create documents and spreadsheets from enabled web browsers like Google for example.

IT is cost-effective

Your company spends a lot of money on a yearly basis just to acquire software licences and purchase or maintain computer servers. Cloud computing means your business has a unique opportunity to save in capital investments. If your organization invests in a private cloud, the need to renew say your Microsoft Office licence or your Anti-Virus every year will become irrelevant. Likewise the need to buy servers to support your internal network will also disappear. Cloud computing simply means that if you invest in a private cloud for example, all you need is a reliable and fast enough working Internet connection to access all your files and documents on the “cloud” from your laptop or smart phone. So you can even think about getting rid of all your licences and servers now cloud computing is the new way.

It is Sustainable

Sustainability is one of those terms everyone has become so passionate about in the business world. It is all about how we use natural resources without preventing next generations from doing the same. I think Jim Wallis (2010) gets it better than anyone else. In his book “rediscovering values” he introduces a concept called “the seventh generation” principle whereby American Founding Fathers in the past would make decisions based on how these would affect the next seven generations. According to MC Kinsey Quarterly, the Electricity needed to power IT structures around the world generates greenhouse gases emissions of the scale of countries like Argentina or the Netherlands. This is set to increase by fourfold in 2020. This alone is a good reason why cloud computing is necessary for your business. No need to make capital investments in items such as USB drives, CDs, Servers and paper to name just a few. Because all IT applications can be organized, shared, processed and saved on the cloud using your normal Internet connection; there will not be any need to invest in hardware equipments anymore.

It is accessible

It just used to be something people vaguely knew about but just as Jimmy Harris, Managing director of Accenture Cloud services observes, “More and more money is being allocated to exploring and implementing cloud services; believe it, it is gonna happen and it is gonna continue to evolve”. This is because major software companies like Microsoft and Google to name just those two giants have already developed solutions for clients enabling them to access cloud computing services. Microsoft has devoted a whole platform on its website explaining and clearly outlining the benefits of the cloud for organizations. This just shows that nowadays this is an investment many organizations can venture to make.

It boosts your team productivity

Cloud computing means the IT applications containing your files, spreadsheets and documents can be accessed from anywhere and faster than before. Therefore enhancing your team mobility, flexibility and speeding up the way you deliver services and products to customers or clients.

Maybe you will even cut capital investments in infrastructure like buildings. Because data can be accessed anywhere some of your staff might not have to come to work Monday to Friday. Most of their tasks could be completed from the comfort of their sofas at homes just using their normal internet connection to work on projects.

Also projects could be treated simultaneously as staff can access the same files and documents from the cloud boosting the flexibility and productivity of your team while increasing the speed at which you deliver your services to clients. In an ideal scenario you could get team members from Europe, Asia and Central America to work say on a service or project that is meant for a client in Africa. And this could be done simultaneously using just the cloud and provided those team members can access it from where they are using a normal internet connection.

In a nutshell this is why you can benefit from using cloud computing services. Feel free to leave any comment (I would really appreciate if you did as it only helps me to improve and write about more relevant topics).

References

Jacques Bughin, James Manyika and Michael Chui (2010) ten-tech enabled business trends to watch MC Kinsey Quarterly

Jim Wallis (2010) rediscovering values: on Wall Street, Main Street and your street Howard Books New-York

Peter Mell and Tim Grance The NSIT definition of cloud computing

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Does your organization/department think 20/80?

By Patrick Mayoh

I don’t know if like me you felt disappointed about the last World Economic Forum in Davos, Switzerland. I waited for the whole event to conclude, hoping I would have something really interesting to write about. The theme in itself “turning risk into possibility” was very evocative of Davos’ organizers’ willingness to map the way out from a fragile to a steady recovery. Instead the summit ended on a very strange note. Really what is the use of a week of discussions and debates if all in all what we learn and already know is:

· The recovery will continue to be fragile throughout the West, uncertain in Spain, Portugal and Italy and steady and gaining even more momentum in emerging markets (China, India Singapour, Malaysia, Indonesia.....)

· That unemployment continues to grow and needs to be reduced in the West

· That we cannot speak of a G20 anymore but rather of a G0 where individual countries cater to national economic interests to the detriment of regional or global ones

· Finally that the rising food/commodity inflation will only continue to affect many nations in emerging countries possibly resulting in mass riots across many countries

So I will write about something different and hope you guys find it useful because this is a principle that I particularly enjoy using when faced with a complex situation and I guess this is one of those principles that make problems easier to solve and to understand. So let us speak about the 20/80 principle.

What is 20/80?

According to Rasiel and Friga authors of “The MC Kinsey Mind” this is one of the “greatest truths of business”. 20/80 simply means that 80 percent of an event under study will usually be generated by 20 percent of the examples analyzed. The Italian economist Vilfredo Pareto is traditionally considered the father of this rule. While undertaking a study of the economy of his country he realized that 20 percent of the population possessed 80 percent of the land. Subsequently he observed that 80 percent of his peas just came from 20 percent of his plants. Following from those observations he concluded that “for any series of elements under study, a small fraction of the number of elements usually accounts for a large fraction of the effect”. The same applies to life. 80 percent of the clothes you wear just account for 20 cent the total clothes contained in your wardrobe; and 80 percent of the information you get from TV, Radio, Internet or the papers just come from 20 percent of available information.

Actually when analysing a problem or a situation you will always find some cases of 20/80 that explain why your sales are up, why your team is under performing, why you are underutilizing your resources or why you cannot increase your market share just to name a few instances.

Besides the 20/80 does not necessarily always mean 20/80, it could be 40/60 or something else, what it does mean is that a large proportion of an event can usually be attributed to a smaller proportion of the elements accounting for it (the event).

Benefits of the 20/80 approach

There are many possibilities you could think about when reflecting on the possibility of applying the 20/80 approach to your organization, department or unit. Here we will just look at a few cases and see how the 20/80 rule can be applied and used to drive and increase performance.

For Marketing

When it comes to marketing 20/80 might just mean that 20 percent of your customers account for 80 percent of your revenues. Losing those critical customers might mean a disaster for your business. The one-size-fits-all approach in this sense becomes meaningless as your marketing department should devote its most critical resources on the customers that matter. In fact Curry J. And Curry A. Came up with a marketing model that perfectly exemplifies the rule of 20/80; the Curry Pyramid is a marketing model that recommends segmenting customers according to their profitability to the business.

It is built around the premise that companies that can attract and retain their most profitable customers are likely to be the winners. Traditionally marketing is all about attracting specific clients but the Curry Pyramid actually emphasizes on attracting the most profitable ones not just the most relevant. Therefore, supposing your marketing department thinks about adopting a 20/80 approach, a good point to start will be to investigate where your profits come from and who are the generators of those profits. Say you are a business selling consumer electronics.

Although you have panoply of customers ranging from teenagers to mums at home, you need to find out which of those categories of customers bring more revenues to your store and allocate marketing resources accordingly. In a nutshell 80 percent of your marketing budget should be ideally devoted to 20% of your customers, not literally though as I said before, what it signifies is a marketing department cannot devote the same attention to all customers, actually some customers actually make you lose rather than win money!

How you use your resources

Also what you really need comes into question when you think of the 20/80 rules. Have you considered the possibility of saving cost when you really look into the resources that are actually needed say to manufacture a product or provide a service to customers? Is it possible that you don’t need certain resources in your company at all? Are there elements you could simply get rid of to achieve cost saving? Do you actually need more computers? Have you considered the possibility of cloud computing or cloud networking? When you begin to critically look around your organization, department or unit it is possible that you will begin to see the big picture and possibly spot a few occurrences of 20/80 that need to be addressed to increase profits.

Getting more out of your staff

When you think of the 20/80 principle you can also think about the possibility that maybe 80% of your work gets done by only 20% of your workforce. In which case the first question that comes to mind is “why?” and following from that what could be done to increase the productivity of the underperforming workforce. Maybe you do not need all the people that work for you currently and the opportunity to adjust and retain those that really matter to your organizations while motivating and encouraging those who could bring more to your business will usually present itself.

Dealing with the information overload

I was bemused by the title of one of MC KINSEY’s article “recovering from the information overload”. The article suggests that multi-tasking is actually counter-productive rather than beneficial to an individual. Actually according to a study conducted by Bawden and Robinson (2010) two-third of managers under study have admitted that information overload have actually lessened their job satisfaction while damaging their personal relationships. Another study conducted by Asplund et al (2010) have discovered that when we switch from tasks especially those of a particular complexity we take 30% longer to complete them and make as twice many mistakes. In a world overloaded with information, analyses and report, applying the 20/80 principle definitely make sense. Your organization does not need to have access to all possible information, they are too many out there, and instead you should decide what you think is really relevant to your Business rather than trying to know everything. Do you really need to have a look at that report or figures? How do they even relate to your department or organization? Will they help your business at all? Those are some of the questions needed in the 21 st century overloaded with all sorts of information. MC KINSEY review suggests the 3Fs:

· Focus on what is relevant

· Filter out what you do not need to know

· Forget what is totally irrelevant to your business

That is proper 20/80 actually.

References

Curry, J. And Curry, A. (2000) The Customer Marketing Method: How to implement and profit from customer relationship management, New York: Free Press.

David Bawden and Lyn Robinson, “The dark side of information: Overload, anxiety, and other paradoxes and pathologies,” Journal of Information Science, Volume 20, Number 10, pp. 1–12.

Christopher L. Asplund, Paul E. Dux, Jason Ivanoff, and René Marois, “Isolation of a central bottleneck of information processing with time-resolved fMRI,” Neuron, 2006, Volume 52, Number 6, pp. 1109–20.

Ethan M. Rasiel and Paul N. Friga (2002) The MC KINSEY MIND Mc Graw Hill

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A case for more females up the corporate ladder! (part 3)

By Patrick Mayoh

At last! This is the ultimate part of my series on gender diversity in top management positions. There is a strong case to articulate around the need for major corporations to make it much easier for female workers to climb the corporate ladder in major corporations.

The need to increase the workforce in Europe order to maintain or increase current productivity levels, the increasing roles women play in affecting purchasing decisions across households in Europe and the world and improved corporate images are just some of the main reasons that were highlighted in the previous posts about the need for more women to lead.

This last post is going to reveal that companies that are more diverse gender wise have achieve the following:

· Greater operational performance

· Greater financial performance i.e. Greater ROE, Greater EBIT and Greater Stock price growth

Greater Operational performance

MC Kinsey traditionally measures performance in corporations against the following nine criteria:

1. · Direction: vision, mission statement, sense of purpose in general
2. · Accountability: evaluation and proper reporting of results as well as clear guidelines to assess individual responsibilities
3. · External orientation: interactions with customers, suppliers and other external stakeholders
4. · Capabilities: the process of creating and sustaining competitive advantage
5. · Environment and values: organizational cohesion and understanding of shared values by employees
6. · Motivation: Inspired and driven employees
7. · Innovation: thinking ahead of the competition and the industry in general
8. · Coordination and control: evaluating performance
9. · Leadership: how leaders shape and encourage employees to achieve

MC Kinsey posits that organizations that achieve high scores on the following criteria equally achieve greater profitability and market capitalization. But more interestingly was the survey carried out by the organization to assess how much gender diversity affects performance within a specific organization. Out of the 101 companies from America, Asia and Europe and out of the 58,240 respondents it was found that organizations that achieved the highest on each organizational criterion outlined above had three or more females on their corporate boards than those who had fewer females on their corporate teams.

Greater financial performance

In conjunction with Amazone Euro Fund MC Kinsey conducted a study on 89 listed European companies to investigate the effect gender diversity had on the financial performance of companies. The companies were selected on the following criteria:

• · A market capitalization of €150 million
• · The share of women on the executive committee (CEO or CFO)
• · The presence of more than two women on the corporate board

Results indicate that companies that have higher proportions of women on their committee outperform their competitors and have financial performances above the industry’s averages. The Average ROE for the companies selected in the survey was 10, 3% while company with higher proportions of females on their corporate boards achieved an average ROE of 11.4%; this is equally the case with EBIT of 5.8% versus 11.1% and stock price growth of 47% versus 64%.

Conclusively although higher performances in the companies identified in the study cannot be directly attributed to having more females on the executive team, the correlation appears to be quite striking in this case and should therefore be taken into consideration by CEOs and change management professionals within organizations.

Best practices for Gender Diversity

MC Kinsey to conclude the study outlined four best practices that companies could implement to encourage and create gender diversity in their organizations. The case for more corporate female leaders in this series has been made quite clear, and the data as well as the information made available by MC Kinsey are compelling enough. Therefore the following four points are necessary to generate gender diversity:

• · Gender diversity KPIs
• · Measures to facilitate the work-life balance
• · Evaluation of the HR management process
• · Support to leadership

Gender diversity KPIs

This is assessing or investigating the proportion of women within an organization against the following performance indicators:

• · Pay levels
• · Recruitment
• · Turnover
• · Training
• · Satisfaction
• · Promotion

How many women as opposed to men have been promoted in your organization say on a yearly basis? And how does it affect gender diversity in your organization?

Measures to facilitate the work life balance

Measures to facilitate the work life balance should revolve around the following:

• · Work flexibility: how the organization adapt its culture and work environment to be more supportive of females
• · Career Flexibility: the support given to female workers before, during and after their breaks say like Maternity leaves

Those two central elements could be progressively modified to encourage and help women to climb the rungs of the corporate ladder.

Evolution of the HR management process

The HR management process to encourage gender diversity should be articulated around the following:

• · Making sure recruitment sessions both have female candidates and female interviewers
• · Ensuring the neutrality of the appraisal process within HR department
• · Supporting and individualizing career management
• · Making sure women are equally shortlisted for promotion
• · Caring and helping high potential achievers (both males and females)

Support to leadership

This will take place through the following:

• · Mentoring
• · Coaching and training
• · Networking
• · Role modelling

I started this series with the conviction that females were necessary and could be the future of business. I still hold the same belief and I hope more corporations will increasingly see the need to appoint female CFOs or CEOs. Of course this is not to say we don’t need men anymore. I advocate for balance, an equilibrium that could change many organizations across the world.

References

Georges Desvaux, Sandrine Devillard-Hoelinger and Pascal Baumgarter (2007) Women matter: gender diversity, a corporate driver

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What 21st century company should know about change management!

"In the introduction to my last post I mentioned an article I had read from the latest edition of Reader's Digest by management guru Belden Menkus a former employee at management consultancy powerhouse Mc Kinsey about Change Management. Hope you enjoy it and leave a few comments about how you think change should be implemented within organizations today"

Remember when a change was as good as a rest? When life stayed pretty much the same, year in, year out? Back then, if you wanted to perk things up a bit, you’d just shift a few elements around—maybe have a break or take up a hobby. But these days it feels as if life is in a constant state of change, with very little staying as it was. The last thing you probably need is yet more change.

What’s more, because so many things are changing at the same time, they often combine in unexpected ways. Who’d have thought, for example, that steps taken by governments to promote home ownerships, and businesses offering ways to make that affordable, would lead to financial meltdown, the credit crunch and the nationalisation of major banks?

Or that an ash from an Icelandic volcano most of us had never heard of would cause the Europe-wide disruption to everything from food exports to taxi services?

Or that Apple, once just a computer manufacturer would become a major player in the music business, mobile phones, and now e-readers—all in just a few years.

These are examples of what I call the Age of Discontinuity; when what happens next feels almost disconnected from what has gone before.

As a result, the future seems increasingly unpredictable. This can create problems for businesses—lost opportunities, misguided investments—which is why so many of them, big and small, are wrestling with the issues. But how did we get to this point?

The Age of stability: 1920s-early 1960s

For businesses, this was a slower, simpler time. Business was mainly local, because life was local. Information processing tools—from typewriters to adding machines—were mechanical. Record keeping and communications were largely paper-based: letters, newspapers, memos, forms, files. It was a time when someone could have fallen asleep at their desk for two decades and woken up to find that the way business was done hadn’t changed much.

The Age of change: mid-60s – early 1980s

Somewhere around the mid 1960s, things shifted. Computers and photocopiers became widespread, making it faster, easier and cheaper to create, manipulated and communicate information. Business leaders had to deal with social change and shifting values. Japan and other countries, started to make their presence felt in the global economy, not just as sources of raw materials and cheap labours but as competitors and innovators, too. At the same time—both driving and driven by these changes—came academic theories about strategy, organization, and change itself: theories that in many cases are still influencing how businesses operate.

The Age of Acceleration: Mid-80s – early 2000s

By the mid-1980s, change—once difficult and time-consuming—had become easier: something we knew how to do and did all the time. Computer no longer remote, were now on your desk and in your home. Mobile phones broke the link between work and workplace. Mass containerisation of shipping and road transport made fast global supply chains possible. New business models—such as First Direct’s online banking—started to bypass traditional methods of sales and distribution. Not surprisingly more new theories arose to address the new challenges—and again many are still in use today.

The Age of Discontinuity: mid-00s – now

More recently, things shifted again—with the internet at the centre of the change. For many people, a laptop has become where they work, much more than any other physical place. The Internet is also where more and more of us shop, learn and interact. Thanks to Broadband access, we can now become “experts” in medicine, law, culture, and politics. Innovations such as the IPod have changed how we acquire, use, and pay for music and other entertainment. Meanwhile, globalisation continues, as China and India become major players in the world economy. The recent financial meltdown demonstrates how rapidly things change and what an unpredictable world we live in.

So where do we go from here?

Most current middle managers started work in the age of acceleration and most senior leaders started in the age of change—but the organisations they joined were often built on practices from the age of stability! Many management patterns established in all these periods are still in use today. But the challenges of the age of Discontinuity are very different, and very different approaches are needed.

Update your mind models

Everyone has a “mind model” of how the world works, which we create from what we see around us and what people, tell us. We can’t often explain the model to others and rarely question it ourselves. Yet every day, we make decisions based on it, usually without much conscious thought.

In a time when things didn’t change, this wasn’t a problem. Now our thinking can soon become out of date. Most of us, for instance can recall when photographic evidence was conclusive enough to convict. But now that we know how easy it is to manipulate photos, a “seeing is believing” mind model is out of date.

Or take a straightforward business example. I once worked with some clients who wanted new customers for their core product. They believed they made most of their money from that product, and everything else they sold had been introduced to keep core customers happy, rather than to make money. But when the market took a downturn, we took a hard look at where their profits really came from. It turned out very few were from the core products, and most were from the add-ons. They’ve now shifted their focus.

In earlier times, businesses could survive with a top team that didn’t examine whether their mind models matched reality. Things changed slowly enough to allow these models to be updated in the same way they’d been constructed in the first place: bit by bit.

But that drip-feed approach will no longer work. Businesses need once clear, up-to-date view of the world—which means re-examining their approach and seeing where it needs refreshing.

Create new meaning

“Meaning” might sound a bit fluffy, but it’s vital for making sense of what’s happening. Many businesses have some sort of mission statement, which is meant to create a sense of purpose of the organisation as a whole. But a different level of meaning is needed in today’s uncertain times.

It’s what I call “Us, plus”, and it’s more manifesto than mission statement: “The world is this way, but it could be that way, which is better, so we’re going to help make it that way. Oh, and we think can make some money while we’re doing so. We’re doing something valuable, so we ought to get rewarded”

In fact when old certainties are breaking down, creating new meaning is the key to leadership. With it, employees, customers and suppliers will be engaged and supportive—even when mistakes happen. Without it, a business can end up like BP: attacked by politicians and public because it’s seen as having focussed on profit at the expense of the bigger picture.

Be quick on your feet

Businesses won’t survive if they can’t respond to a fast changing world. Yet most use an inherently slow approach. Management ask a small group to figure out what to do (usually in secret). Sometime later, they hear the recommendations and decide what to do. They then tell the staff.

If you’ve ever been in an organization that’s had consultants in, you know how it works: months of data-gathering and huge reports, before the answer is communicated from on high. But employees often resist change if they haven’t been part of developing the solution. Besides, information often now often changes faster than it can be gathered and analysed.

Some business leaders are using better approaches. They accept that you can’t analyse everything. They involve more people inside their company. They reach out to anyone, anywhere, who can help identify workable solutions and move them forward.

In today’s world, you don’t have the luxury of figuring it all out first, then implementing the answer. In the age of Discontinuity, an agile, open mind is the biggest asset of all.

1. Belden Menkus has advised business leaders around the world for 25 years
2. Republished from the January 2011 edition of the Reader's Digest (page 131-136)

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Why your marketing department should seriously be thinking about mobile advertising!

By Patrick Mayoh

Apologies

I was going to conclude my series on the need to have more corporate female leaders in organizations when I was distracted (I believe for the good reason) by interesting and edifying reports about the Consumer Electronics show in Las Vegas last week end and a very fascinating article I read in the last edition of the Reader’s Digest by management guru Belden Menkus on the “age of discontinuity”.

As a result, I am sorry to say that those of you guys that have been following with keen interest my reasoning on the need for more corporate female leaders will be disappointed as I have chosen to discuss in my post this week, the need for marketing departments or consultancies to seriously consider the possibility of introducing mobile advertising to their portfolio of promotion activities.

The main reason why I have chosen to discuss about this topic is to highlight the ever-fast growing influence of technology especially how it affects the promotion and distribution of product and services. The Consumer Electronics Show reinforced this fact with hundred of futuristic new gadgets that will change the way we do business in the future and mobile advertising our topic for this week is just one of the many ways in which technology continuously revolutionize our business processes and activities.

Now about Mobile Advertising

Reading about the Consumer Electronics Show in my copy of the CITY A.M last Monday I was quite struck by what marketing and advertising guru Martin Sorell C.E.O of WPP declared about traditional advertising strategy processes. In his words he revealed “we used to perform three fundamental tasks: work with our clients to develop strategy, execute the strategy and distribute it. While we still perform these functions we are now far more focused on the application of technology and how we can use to interact with clients and their customers”. Sorell then went on to declare that mobile advertising had become the most important trend in the industry minimizing the traditional roles played by TV advertising and Internet advertising via personal computers. I fully agree with Martin Sorell for the following reasons:

• · The fast growing number of mobile phone users on the planet
• · Cheap internet access on mobile
• · Smarter mobiles

Fast growing number of mobile users

Approximately 4 in 6 people use a phone today on planet earth that is about 4 billion people around the world according to data by the Mc Kinsey Global institute. Sorell estimate that 600 million mobile users have access to internet in china while half a billion can access online contents in India. Those figures are just reflective of the dizzying figures that pertain to mobile phone usage across the market. Actually reaching customers through their mobile phone seems to be even more effective than other traditional means of advertising. Advertisers should take notice!

Cheaper Internet access on mobile

Most major network operators today, usually offer some form of internet access usually through packages that include free minutes, sms and free internet. Virtually all phones are built with the possibility for users to access all major social networks and the cost of going online via a mobile phone is cheaper than other traditional methods. The UK for example contains 2 million free Wi-Fi locations which means many Iphone users for example can directly connect to the Internet without any special subscription. Therefore it is even more likely that a growing proportion of individuals will likely access the internet from their mobile phones than their personal computers or laptop.

Super Mobiles

I was quite amused by the term used in the Economist this week to describe the new generation of phones about to enter the market. One of the sections in the report about the Consumer Electronics Show was actually entitled “from smart phones to super phones”. I believe the last thing you want to do with a phone nowadays is just to make, receive a call or send a text. New phones allow so many more possibilities that laptop or computers are increasingly appearing to be obsolete in. As I earlier said, the challenge of reaching out to people for any advertising message will have to consider the assumption that people spend more time using their mobiles than any other gadgets they possess. I will actually be curious to know the amount of time people spend utilizing their mobile phones as compared to other items. The reason why people actually spend more time with their mobile resides in the fact that those have become smarter and provide the possibility of doing what you would normally do with other gadgets. You can network, play games, work, email process your banking transactions, organize your diary and so much more on your mobile and therefore having other gadgets are not as necessary. The Economist actually noted “Jen-Hsun Huan, the boss of Nvidia which makes chips for smart phones and other devices, claims these will have enough capabilities to make them plausible alternatives to some kind of computers and the first ones could make their debut at next year’s show”; food for thought.

So what

If I was heading a marketing department I would seriously consider the following:

• · Obtaining data about mobile phone users from major mobile network operators
• · Analysing them to identify emerging patterns and
• · Delivering relevant contents to specific mobile phone users

The first move would be to approach major mobile network operators to obtain specific figures about your target groups. Say you are targeting teenager boys for your new video game, the first step would be to contact say Vodafone and possibly obtain figures about mobile phone use (about male teenagers) from their network.

Then you can analyse those data for example to differentiate between those who access Internet through their mobiles from those who do not. Possibly you could look at the website they are most likely to visit when they use their mobiles and possibly contact those companies to discuss the possibility of advertising your products on their webpage say on Facebook for example or YouTube.

You could then finally design your advert to be visually appealing and attractive on mobiles and therefore draw attention from users. You can then monitor the whole process and evaluate for improvement. I hope to do a more detailed article on that.

For now, see you next week, with this time my conclusion on female corporate leadership.

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A case for more females up the corporate ladder (part 2))

By Patrick Mayoh

Following from last week, this will be the second part of my entreaty to have more women up the corporate ladder

Why women matter

There are three reasons why women do matter in our society. Integrating more women not only into corporate quarters but also within the workforce is likely to deliver the following benefits:

1) Averting the scarcity in the workforce in Europe especially

2) Generating a better understanding of households purchasing decisions in the world

3) Improving the corporate image of an organization

The study from MC Kinsey mentioned in the previous post outlines some interesting statistics about the shortfall likely to affect Europe in the future. If the figure were to remain the same in Europe in terms of labour or the workforce, then the continent risks losing 24 million active workers by 2040. However if the number of women in the workforce could be raised to the same level as for men, the expected shortfall will only amount to 3 million. I have already indicated that European Universities produce more female than male graduates. Assuming more women had access to employment, the potentials for a workforce shortfall will be substantially less than they could be in the future. Such a compelling figure in itself is enough to bolster initiatives regarding gender diversity in corporations across the many businesses in Europe. Keeping the big picture in mind that could mean encouraging gender diversity not only in Europe but across the world. It is not guaranteed that the workforce shortage experience in Europe will not occur in other parts of the world like China whose one child policy might be detrimental to its economy in the future.

Secondly and very interestingly women seem to influence purchasing decisions in many households in fact according to the MC Kinsey study women alone account for 70% of purchasing decisions in Europe. It would be therefore precarious for a Multi National Corporation in Europe not to include a female in its board. More females in corporate quarters would mean a better and more accurate understanding of consumer behaviour and elicit better customer relationship management programmes across organizations. The old cliché holds that men are usually the master, dominating and imposing decisions in all areas of household management. But this figure alone suggest that this old pattern of thought is completely depassé and is clear enough to indicate the fact that with more women at the top corporations could rip more benefits. Understanding customers is definitely central to marketing and branding. More interestingly MC Kinsey went further to reveal that women influence purchasing decisions even in industries that are predominantly dominated by male like the car or computer industry. 60% of car purchases in Japan are influenced by female and 47% of computer users in Europe are women.

Lastly although it might seem obvious to some, increasing access to corporate quarters for women is likely to improve if not change the traditional perceptions external stakeholders have about different organizations. According to a study by the European Commission in 2003 on "cost and;effectiveness of diversity"; companies that have implemented gender diversity across their boards have ripped substantial benefits in such areas as motivation with 58% of organizations acknowledging the fact that gender diversity had generated more motivated employees across the organization. Also 57% thought gender diversity had a direct impact on customer satisfaction while 69% noted a real improvement in their corporate image.

Next week I will be looking at the correlation the MC Kinsey study established between gender diversity and financial performance across different organizations. Also I will be suggesting some thoughts on how to design and implement a gender diversity programme within an organization. CIAO

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