Monthly Archives: August 2015

Making decisions in hindsight

 

I was working with a client who asked my advice on a new service offering, something to add to the portfolio of services they offer.

The question was “Do you think we should do this?”

I responded by asking a series of questions to gather further information, making sure I really understood the pros and cons of the situation.

My client was struggling to make this decision, but really that was the symptom. The cause was that the business did not have enough knowledge. Someone had a bright idea, and it seemed attractive.

They knew they could add this offering at a fairly low cost.

My client wanted to make the decision on that basis, but was not sure.

I wanted to know how the clients would value this new offering, whether the sales team thought it would help them win more deals and if there was an opportunity to leverage this new and different offering to create a market advantage – a USP.

If you look at any business decision – the ones that went right as well as the ones that went wrong – there is a key phase where you gather information about the potential rewards (those were the questions I was asking my client) and the potential risks (which my client had assessed)

I’ve found in my business career that all the poor decisions I’ve made can be traced to poor information; either I didn’t have the right info, or perhaps I had not asked the right questions. Once or twice I can say I asked the right questions but the answers were not as truthful as they might have been, but that is a tiny minority.

The reverse is true of the good decisions. Yes, sometimes I have been lucky, but more often than not it has been a case of asking the right questions, weighing the evidence and making a prompt decision.

Hindsight is a wonderful thing; we can all make the right decisions in hindsight but that’s because we have all the facts! Ask the right questions, then make a timely decision.

 

The numbers are the answer, now what’s the question?

 

In The Hitchhiker’s Guide to the Galaxy  by Douglas Adams one part of the story is the creation of a super computer to determine the “Answer to the Ultimate Question of Life, The Universe, and Everything”. This takes the super computer 7 ½ million years and the answer turns out to be 42.

I was helping a contact understand some accounts the other day. My way of looking at financial analysis is fairly straightforward, I look at the movements between the two years and against the budget / plan and try to understand what has happened in the business to create those movements.

Like the answer in HHGTG, the absolute numbers are not very helpful. They answer the question, but the trick is to work out what the question really was!

Apply that thinking to your planning process whether that is for a new project, a market entry or the overall businesses next quarters plan.

That means you start with the activities that will generate the numbers, not the numbers themselves. If you take sales as an example, the temptation is to take what you did last time and add on a bit.

That can leave you completely unaware, until you fail to make the plan, that you don’t have enough marketing leads for the sales team to convert.

You could apply the same thought process to customer service, or delivery or manufacturing – in fact, throughout the business.

So start with (for example) lead generation. You know (of course you do, you’ve done the analysis haven’t you?) what percentage of leads convert to sales. You have a certain level of capacity for lead generation, so you know what is achievable with the present level of resource. That gives you the first constraint, and the first question – are we investing enough in lead generation?

Now we know how many leads we are generating, let’s look at the sales conversion. Do we have enough sales resource to convert those leads, or too much? We don’t want sales people with idle time, so perhaps this element causes us to reconsider the lead generation question.

When you have those two questions, you have the answer – that’s your revenue number. Perhaps it’s not big enough? Revisit the two questions.

This approach to planning, effectively from the bottom up, allows you to spot opportunities (sales team not fully utilised) and identify constraints that you will never see by just taking last quarters numbers and adding a bit!