We often have more than one lever that can affect how a key resource is changed:.
Recent briefings urged us to focus on the direct impact of decisions, rather than following simplistic rules based on ratios or overall performance outcomes, especially profits. But many decisions, such as various spending choices, include a direct profit impact, as well affecting the resources and operating performance in their particular part of the system. In practice, then, many decisions have to balance conflicting aims.
Take the case of an established power company, supplying electricity to a large number of homes. ...
Continue Reading → ShareBriefings 68 and 69 showed the dangers of decision-rules based on simple ratios or on overall performance outcomes. For the consumer brand’s marketing-spend decision from recent Briefings, for example, either “Spend x% of revenue on marketing”, or “If profits fall, spend less/more on marketing”.
So what do we need instead? Well, the basic problem is that neither of these approaches focuses on the direct consequences of the decision – winning customers! So a decision on marketing spend should surely respond ...
Continue Reading → ShareSimplistic and static policies decision-rules, such as ‘spend no more than $X per month‘ or ‘spend Y% of revenue on marketing‘ are clearly way off what is best in most cases, so what exactly is wrong with them? We have repeatedly emphasized that our main aim in commercial cases should be to grow profits or cash-flow, so perhaps our policy on advertizing spend should be based on that measure? Neither of our simplistic policies above takes any account of profit, ...
Continue Reading → ShareGiven the very wide range of performance outcomes that can arise from small differences in key decisions in examples from earlier briefings, a disciplined approach to decision-making would seem valuable. We previously described the strategic architecture of resources as “the machine” designed to fulfill the organization’s purpose, and like any machine, this one too needs a control system if it is to perform well.
The machine analogy is more complex when human behaviors are involved, because unlike the physics of mechanical ...
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