I began working to prove the impact of the related process but in order to get buy-in from those that oversaw that process I needed to be able to explain what part was driving these differences.  The related process had numerous drivers and to identify the one (or more) responsible for the variability to justify a change meant lots and lots of analysis.  I spent days and days looking at numbers doing statistical analysis, working from a variety of hypotheses and proving them right or wrong.  The result:  Even after proving certain hypotheses wrong I still didn’t have my answer.

Every time I’d meet with the necessary people the end result of my meetings would be “what if you looked at it this way?  Maybe that will tell us someting.”  I’ve discovered that any time this is result of a meeting you are stuck in…..analysis paralysis.

To this day, while I know the answer, I still can’t prove it to a satisfactory level despite the insane number of hours I’ve spent looking at it.  As this relates to my last blog post, you need to follow your gut as well and before you start analyzing and pulling in different people you MUST BRAINSTORM what the likely problem is and develop an initial hypothesis.  If you begin with the analysis hoping it will drive you to the answer you are running the risk of paralyzing yourself and end up getting no where.  Learn from those of us that have fallen into this trap…it will save you time and frustration.

I had actually helped my friend with this very issue in the past where we cut their inventory while improving service in a matter of eight months, – so he came back to me and explained what these two partners wanted and to see if I could help.  We all sat down at a Starbucks and starting discussing their issues.  Their presumed solution of leveraging an IMS was derived from volatile spending.  Some months they would spend $1,000 in their inventory and other months they would spend $5,000.  They felt this was due to a lack of inventory management on their part.  They were busy with the service side (more lucrative side) of their business and thought this was an easy solution to a big problem and could build in some consistency to their outgoing cash.

However, after walking through the problem and solution with them, they were operating under a false premise.  They assumed that the volatility was driven from two things:  Their inability to effectively demand plan and that sales were just an “off and on” thing.

While both of these statements were true, these were not why they had a problem.  They had a problem for three different reasons.

• First, they didn’t understand their inventory.  What I mean is they couldn’t tell you which products were their best sellers and which products have sat on the shelf for 3 consecutive months.  This was a significantly larger problem than they anticipated.
• Second, they didn’t have a budget.  They knew how much of their revenue was driven from their front-end sales.  While the numbers were volatile from month to month, they could have easily set a budget based on peak sales or average sales or some other demand based methodology without getting into IMS that would essentially tell them what to buy and when weeks in advance.
• Third, their staff was not effectively selling their merchandise.  They were not trained or motivated to sell.  They told me they tried an incentive program where they were awarded gift cards for reaching some threshold.  Apparently their staff didn’t like the places where the gift cards were purchased.  They didn’t even think to ask their staff (4 employees) what would motivate them to sell.  The reason this contributed to the volatility of their outgoing cash is because during weeks when the owner’s clients would come in they would sell more merchandise than weeks when their staff was more heavily working with clients.

After I walked through this with them I explained that while an IMS could be simultaneously implemented and could solve the second issue I noted above, they needed to make other changes.  Setting triggers so they are flagged can help and was encouraged, but even with triggers, their spend may have been better managed but I guarantee their service level would have decined because the true issues were not addressed around sales training and understanding each product in their mix.

Don’t work under the presumption that a business owner or manager you are working with knows the true problem.  Instead, work with their ideas as hypotheses and do the analysis necessary to either prove or disprove the hypothesis.  While they may not know the real problem that doesn’t mean what they are saying won’t get you there.  Be intuitive, do your due diligence and stay engaged.

There was a project I was working on last quarter where we were trying to manage certain inbound costs.  Long story short, we discovered that there were both efficiencies to gain and dollars to save if we shifted our strategy 180 degrees.

We knew the solution once we identified the problem.  While I won’t get into specifics, just trust me when I say, there were no other alternatives.  The data showed it could be done successfully and we’d increase our productivity.

We’ll get back to this example, but take a moment to think of how easy it is to get caught up in the dollars and cents of a project – especially when the solution is already known.  It sounds like a slam dunk, even when applying six sigma methodology to it, it still makes sense.  Well, nothing of significance is EVER that easy.

When all was said and done, we abandoned the project.  The initial thought is that the data supported moving in this direction and the data was right.  However, we were not looking at all the relevant data.  It’s so easy to get caught up in a quick hitter that we can develop these “dollar blinders.”  All we see is the money, and nothing else.  Fortunately, the project team was good and we didn’t let this happen.  Had we implemented this change there would have been some major disruption to part of our channel and there was some liability involved with the change.  Again, without getting into details, there was risk of something occurring that is beyond unlikely and probably would never happen.  BUT, were it to happen, we’d be on the hook for at least $1mm.

While good data is always right, you have to keep the title of this post in mind.  It isn’t data science, it’s decision science.  Data is only one piece, albeit a  vital and probably the largest piece.  If we approach these issues from the decision science perspective you’ll rarely go wrong.

Anytime I work on a project I am always walking through this process in my head (or at least here’s a high-level view):

• Leverage the data
• Always ask why
• Work to challenge the data
• Ask why some more
• Prove your solutions with the data

I know that might be over-simplifying things a bit, but why complicate it.  This is decision difference.

The problem is that this is not a message issue.  It’s a comprehension issue that cannot be resolved by any iteration of the message of employee empowerment.  What is needed is a culture shock.  From the day we are born we are taught to listen to authority and we are conditioned to oppose any deviation from our routines.  Many individuals I’ve worked with over the years had never even considered why they do what they do.  When asked, almost every time, the answer is “I’ve always done it this way” and more often than not they resist to even consider alternatives to how they do what they do because “it just wouldn’t work” (sound familiar).

This makes it very difficult for those of us in the business improvement community.  If a company really wants to drive bottom-up innovation they need to find a way for bottom-up empowerment.  So what do your employees need to do to retrain themselves?

I was reading an article from he Harvard Business Review (yes, again) about “trusting your gut” and the author, Ron Ashkenas, had some great insight for how employees can empower themselves.  Here’s what they said:

“Stop and listen to your inner voice. Give yourself a moment to take a deep breath and consider what is going on. Ask yourself, “Are there other ways to approach this task or assignment?” Do your instincts and experience suggest alternatives to doing what you’ve been told? Is there data to support your position or is it just a hunch?

“Constructively question. If you think that doing things another way would make a material difference, talk to your boss (or customer or client). Why do we do it this way? Would you be open to different ways? What would be the payoff and the risk? Can we experiment with an alternative? Would it be worth doing some further analysis?

“If the result of this dialogue is permission to proceed, that’s great. If not, you might consider whether you’ve picked the right battle or presented your case effectively. You also could consider whether you have the courage to change course anyway and deal with the consequences later. In some cases it’s better to ask for forgiveness rather than beg for permission.

“Reflect. Finally, no matter what you’ve done, take some time to reflect on the experience. Remember the sensations and triggers that prompted you to push back against authority. How did it feel? What thoughts crossed your mind? Then, think about how you proceeded. What can you learn from the situation? How might you handle it differently in the future?”

Obviously this isn’t something you can successfully force your employees to do.  So what can you do?  Develop an environment that allows for these suggestions.  That is the best you can do.  Encourage these things, not through formal training, but through working individually with each of your people.  Take Mckinsey as an example:  They are a flat company.  There basically is no hierarchy.  Each team member works in an environment of pure empowerment where they are encouraged to not just think outside of the box, but to burn the box.  This type of organizational model is not feasible at most companies, but you can create an atmosphere within your group that is seemingly flat where the employees naturally feel invited to practice the ideas listed above.  This will make your group and your organization more dynamic and innovative.

Even basic things like a SWOT Analysis seem like a faint memory of some past “flavor of the month” in their work place.  Recently I was reviewing my project docket and I happen to be assigned a short-term (2 year outlook) distribution project that fits into a long-term directional concept distribution is pursuing.  The reason I don’t call it our long-term strategic framework is because it was just a concept and they had never taken it farther than side-conversations the hopeful intentions.

Even though this long-term “strategy” would improve service levels, improve productivity and potentially save millions and millions of dollars, no one would take it beyond concept.  Now, not only does that say something about the overall company’s strategy lacking departmental integration, but why would a transformation that conceptually could have such positive change not have some guidance?

Given a scenario like this in your workplace you have one of two choices.  The first, is likely the easiest.  You go along with the project and do your best to implement positive change that improves productivity or your bottom-line.  Considering if you’re my generation, you don’t plan on being in any position more than 4 years anyways, so why is a long-term outlook for you even necessary?

The second option, and the one you should choose, is to first work on the strategic framework of the long-term objectives.  This way you have constraints that ensure your short-term solutions maintain the integrity of the intended long-term outcome.  That framework is not just the overall company objectives/goals.  It’s sort of like designing one room of a home.  You have your physical constraints, meaning the space in which you have to work so you are aligned overall, but you have the flexibility to design that room.  To follow the first option would be like building a house room by room rather than starting with the frame.  It could work, but you’ll never be satisfied because something you decide early on can have significant implications later on.

The key issue you’ll run into (yes, I know this seems like common sense, but it’s not as common as you think) is that your short-term outlook, even if it’s wildly successful, can inhibit your long-term capabilities.  Without the necessary framework for your long-term outlook you can’t align the short-term transformational needs in things like capacity, throughput, etc  Acting too quickly and without the proper foresight you run the risk of making the full transformation impossible.  This is why, assuming you want a dynamic and innovative company, your employees should have the proper strategic framework that all of their projects support on every level of your organization.  Without this you’ll have a very difficult time managing any directional transformation whether it’s high level for the entire organization, within your department or even within your individual role.

There are two key attacks that irk me the most: the arguments that private equity kills job and earns their profits from extremely high levels of debt.  This at least seems to have been the mantra of Newt Gingrich’s attacks since December.  The base for their false claim is that private equity firms “feast” or “gut” these companies to make a dime, that is, 100 billion dimes.  Before we look at the data, just think for a second about the logic here.  If you’re an investor that is specifically looking for failing companies, what is your greatest incentive?  Your money is tied into this company so you could go one of two ways.  You could liquidate the company of it’s assets but let’s be honest, unless your picking the company up for cents on the dollar you aren’t going to be successful.  On the flip side, you could drive the company towards success and rake in profits through dividend payments and successfully exiting through the sale of the company or by going public.  While the first example is an alternative to RECOUP your investment if the organization cannot be fixed, this would have happened anyways.  You merely prolonged the organization’s life a while longer.  The latter scenario is your clear incentive.

To support this there are two great ways to look at this.  First, the employment rates at most companies that are invested in by private equity firms increases and decreases at similar rates to the rest of corporate America.  This helps counter the argument that these companies are gutted, left for dead and killing American jobs.  In fact, any of you that watched the docu-drama by Newt Gingrich would be pleased to know that some of those interviewed said they were taken out of context and that Bain actually provided opportunities for them.  In those few firms that do fail, the firm is able to leverage creative destruction and use what funds they can get to help another company.

The second piece you need to consider is where are these companies earning their profits.

A recent article from The New Yorker misleadingly alleges that these firms rape their investments by placing ridiculous amounts of debt, some times twice as much as a company’s value, so the firms can pay themselves special dividends.  They are half-right.  Many of these companies do have higher levels of debt than the average corporation, but you have to keep in mind that these companies, in many cases, are failing.  They aren’t your average corporation.  They are either close to bankruptcy or on the path.

The Wallstreet Journal decided to dig into Bain Capital’s history during Romney’s tenure as CEO and here’s what they found:

“The Wall Street Journal, aiming for a comprehensive assessment, examined 77 businesses Bain invested in while Mr. Romney led the firm from its 1984 start until early 1999, to see how they fared during Bain’s involvement and shortly afterward.

Among the findings: 22% either filed for bankruptcy reorganization or closed their doors by the end of the eighth year after Bain first invested, sometimes with substantial job losses. An additional 8% ran into so much trouble that all of the money Bain invested was lost.

Another finding was that Bain produced stellar returns for its investors—yet the bulk of these came from just a small number of its investments. Ten deals produced more than 70% of the dollar gains.”

There are three key points here.  First, one in four companies filed for bankruptcy reorginazation.  8% of the total completely failed and Bain LOST EVERYTHING THEY INVESTED, though contrary to what everyone would like you to think.  The second point is that over 70% of their returns were from 10 companies.  If they were pilliaging all of these companies and raking in dividends from debt than why are the bulk of their earnings from 10 companies.  The third thing to point out, which isn’t actually in the quote, is that bankruptcy is not a sign of failure.  It’s merely a reorganization and many of Bain’s companies that were reorganized were later on great successes.

Don’t let these attacks on private equity lead you to believe that they are hurting America, the economy or anything for that matter.  They provide jobs, save companies and help drive the economy as they continually invest in new ventures.

This doesn’t just occur online, these are just simple examples we can all relate to.  Somewhere in the middle though is where you’ll find companies like Apple.  So the big question is, how do you get there?

First, you need to understand that community building is often just as annoying as spammers or those that do nothing but sell and you’re likely going to get the same outcome.  Yet small companies still refuse to find the happy medium.  While they think that building an online community or “fan base” is a pull method, they are often pushing.  The only difference is they aren’t pushing their products, they are pushing their brand.

Recently, Anthony K. Tjan wrote a post in the Harvard Business Review, Business Needs More Judo, Less Karate.

“One is a bullhorn, the other a magnet. Or, as I like to say, one is karate and one is judo…So how do you shift to more of a pull mindset? Simple: think more judo and less karate. The word judo translates to “gentle way,” and this martial art focuses on using an opponent’s strength and weight to one’s advantage. Karate, in contrast, is characterized by punching and kicking. We need much more of a judo mindset in business. Not just in marketing, but in negotiations, product design, communications, and selling.”

The key takeaway is with your online marketing strategy, a bullhorn is a bullhorn regardless of what your blowing.  So keep your message clear, build awareness, but don’t get so caught up in your “branding” that we, your listening audience, get annoyed.