From Time Poor to Time Rich

In my years in marketing, I saw a lot of segmentations. You divide a market into groups with more or less similar characteristics, and then target your product at one or more groups. In Shell, marketing our petrol stations, we always struggled with this. Since location and habit are such dominant factors in that purchase, we really had little choice but to target everyone – at least all drivers. Over the 1990’s we recruited professional marketers from Fast Moving Consumer Good (FMCG) retail, and I often ended up fighting their ideas. I remember a beautiful segmentation into five groups that they came up with, seemingly to work globally. It was very neat, yet I could never work out what we were supposed to do with it.

More basic segmentations, for example by price consciousness, age, gender, with or without kids and so on, have obvious application but little competitive advantage. The segmentation that had the most resonance with me was always between time rich and time poor. I bought the theory and saw how to use it.

Increasingly, we are divided between people who never have the luxury of time and those who have too much. People in urban employment with any sort of social life tend to be time poor, in that life is usually a rush and anything that saves time is a blessing. Over the years this segment has grown and the extent of their time poverty has grown too. This mega-trend in society has led to self service and the convenience revolution in many sectors, and has been further fed by the internet. Marketing to this group is a worthwhile challenge, since convenience and speed are attainable goals and the group is ready to pay for them.

In parallel with the growth of the time poor segment, much of society has remained time rich. Retired people, rural people and the unemployed are often time rich. Some others have a time rich life by restricting their activities, either through choice or some lack of alternatives. In marketing, these are people who value an experience, read the small print, and go for coupon offers. They are loyal but can be price conscious too and some lack the funds to be an attractive segment for many products.

Think of some people you know. I expect you’ll find the segmentation works, in that you can place most people clearly in one group or the other, and can relate to the behavioural generalities of the segments. Walk into a supermarket and you’ll see the segments at work. Time rich people often try to spin out a visit, consciously or otherwise. They will use the café, and walk up every aisle and check out alternatives and offers. Time poor people will get their list and escape. The supermarket will often be laid out cleverly to cater well to both groups, though there may be a leaning to one, for example in the time-poor focused urban convenience store model.

The segments reinforce over time. The adage that you should always ask a busy person to do any job for you rings true, since they will often have mental processes tuned to getting things done rather than putting things off or spinning things out. Once unemployed for a period of time, it becomes hard to find the energy and efficiency to present oneself credibly to the job market.

It is a bit of a sad fact of life that we often wish were in the opposite category of segmentations. Think single or partnered off. Time poor people really miss time, yet struggle to find ways to create it, instead filling up any space with new activity. Many of them don’t even know how to relax on holiday! Conversely, time rich people are sometimes anxious for their day to end and cannot appreciate the gift of time through loneliness or lethargy.

It is also true that transitions from one group to the other are stressful, since they challenge our routines and even our values. Retirement is the most obvious such transition, and it is the change of time status that creates the problem for many people. I’m in this transition now – in truth it started a year ago, and I’ve had the big advantages of handling the change gradually and of this being my choice.

The key, I believe, is finding ways to cherish the time you have created. Not by running out and filling it with more frenetic activity, but in other ways. This happens automatically to some extent. For example, I’ve always walked a lot, but now I find myself going a bit more slowly, taking more scenic routes, stopping to breathe and admire and observe and be diverted. I love it. The brain is not switching off, but is learning to cherish the gift of time. Meditation, siestas, really listening to music, and, maybe most important of all, really listening to people are also new gifts.

Will this work long term? I don’t know yet, but I’m optimistic. Perhaps I’ll grow to resent the time, feel challenged by relative inactivity, and even slow down in thought process. I hope not. As with many things, awareness of yourself and the issues playing around you should be the first part of a solution.

If you are time rich, I guess my advice is to cherish the gift of time and use it consciously. I’m open to other advice. Do you have any for me?

What if you are time poor? There are many courses and books about time management. In each case, the starting point is to gain control of your own life. What really matters to you? What is important, and what is merely urgent or habitual? If time is important, how are you going to create it and then not fritter it away? These are good questions to consider, and of course if you are time poor you probably won’t find the time to consider them properly! But I suggest you do. Today, not tomorrow, or when you’ve settled into the job or partnership, or when the latest crisis is over. Summer is a good time for reflection, as even time poor people can slow down a bit then. What is certain is that if the first day you consider the issue is the day you suddenly become time rich, you will find the transition very tough indeed.

Lessons from the World Cup

I love following sport, and I support a team in many sports. I have always found this to be better than a zero sum game. When my team wins I am lifted high, in a good mood for days. When they lose, I convince myself it is only a game and the dip is much smaller. As a long term supporter of West Ham United, I am used to small dips!

This net gain effect works for towns or even nations as well. I witnessed much of the World Cup in the Netherlands, and got caught up in a national mood of excitement and joy as the tournament progressed. Yet this Monday, after the defeat in the final, Holland collectively shrugged its shoulders, tidied up the streets and moved on with no residual gloom. A true tonic for a nation.

The tournament just finished had its normal share of great games and great drama interspersed with rubbish, cynicism and frustration. And we can take some lessons into our everyday lives as individuals and managers.

Success requires a combination of talent, motivation and tactics. You need a team of good footballers, at a peak of teamwork and desire, and marshalled by smart tactics. The Spanish had all three. Under tactics, I cite their performance against the Germans. Unlike England or Argentina, they realised the strength of Germany was the counter attack with pace, and played with some caution to counteract it. Smart. The Dutch had great motivation and tactics, yet in the end not quite enough talent. Argentina failed hopelessly with tactics. England, France and Italy somehow missed critical motivation. Brazil’s strange demise came from 45 minutes of madness against the Dutch which stemmed from a gap in both motivation and tactics. Uruguay had great tactics (and a lucky draw). Even teams of modest means could get further than their talent would indicate, notably New Zealand. Remember, even North Korea held Brazil at bay for a while through tactics and motivation.

Looking into motivation, what is amazing is how a 10% shortfall somehow leads to a 50% performance gap. Peak performance is a fragile thing, easily disturbed. Torres and van Persie were not quite fit and weakened greatly as a result. Hats off to the Spanish coach for dropping Torres. No doubt the camp problems for the English and French started as minor things, but somehow they undermined the whole performance as confidence and spirit drained away. Confidence is so critical.

As for tactics, it is often the more subversive methods that work best. It may not seem pure football to favour a counter attack approach or even an overtly aggressive one, yet such tactics often beat their sexier alternatives. Red Star Belgrade once won the European Cup Final by playing for penalties from the opening kick off. You have to play by the rules you face and deploying the talent you have. The best coaches deploy most of their effort on countering the opponent. One sensed Argentina barely considered the opponent in devising tactics, and paid the price. In Europe, Mourinho is an undisputed master at this dark art.

All of these observations have clear parallels in business. Motivation is woefully underplayed in work. How many days in your working life are you performing at 100%? And do you and your company realise that 90% motivation equates to 50% performance? As a manger, how much effort do you spend on building the confidence of your team? I believe it would pay back more than anything else you do. Under tactics, the winning companies generally exploit the murkier parts of their environment, whether that stems from indifferent customers or favourable regulation or hidden segments. When you read in Harvard of some wonderful innovation or practice in a company, be suspicious. Often the success comes from something altogether more mundane. And, above all, understand and play your competitor. Most businesses are run by the equivalent of Maradona rather than Mourinho, and weaker for it.

Turning now to the running of the tournament and the game itself, I believe there are other broad lessons.

Letting one department exert too much influence is always a mistake. How could FIFA let Adidas sponsorship become so central that they allowed, once again, their greatest showcase to be played with something like a beach ball? In business, the balanced scorecard was a great innovation, enabling purpose and goals to be clarified and each contributor to be given appropriate weight.

What about rule changes? The best sports have moved with the times, recognising trends that matter and fads that don’t, respecting history yet showing courage, wisely using experimentation. For my money, US Football shows the way. Although it is not everyone’s cup of tea, they have used technology wisely. I love the refereeing of that sport. There are many specialist umpires, and discipline is rigorous. Are you listening football? Apart from using technology, why not have several referees? And the lack of discipline by players and coaches is a scandal that detracts from the spectacle. My solution to that would be to introduce a third (more minor) tier of card and a sin bin, to punish dissent ruthlessly and to allow retroactive punishment. Why should the Spanish player who dived shamelessly (against Portugal? ) be allowed to play again in the tournament? After some time for players and coaches to adjust, such rules would help a lot.

Football is behind the times in technology, rules and discipline. Chaotic governance is a blocker, especially with so much power in the hands of the press and media and powerbrokers with vested interests. Even tennis has Hawkeye now, for goodness sake! Even in football, things can be achieved. Jimmy Hill changed the back pass rule for the better almost single handed, via credible campaigning. But there are limits - Rugby Union may be an example of a sport that has changed too often, sometimes with unintended consequences.

Again there are lessons for companies (or even individuals). Be ready to evolve a vision and internal rules, especially those responding to genuine long term trends. But also respect your legacy and brand and move with due caution and using experimentation to try to avoid those unintended consequences. And make sure you have a governance structure that can make decisions and doesn’t unduly favour some interests.

More fundamental than all its lessons, let us just celebrate the joy of sport. Those who belittle it just don’t know what they are missing. The World Cup was excellent, and in September we have the Ryder Cup. That is more show business than anything, but so compelling to watch. And what greater demonstration of the requirement for motivation and tactics as well as talent?

How to avoid the Curse of Size

Over my career, I’ve seen far more examples of diseconomy of scale than of economy of scale. Large in my experience tends to mean slow, vulnerable, lacking in incentive or drive, remote from customers. There are for sure some advantages in scale. In manufacturing, a large plant will have cost advantages over a smaller plant with the same purpose. So will a retail outlet of higher volume. Scale often comes with brand power, which can be decisive in driving growth. Yet these advantages are often swamped by the problems of scale above.

I believe a more useful concept nowadays is economy of momentum, or of growth. Brand strength often relates to a belief among customers and partners that they are dealing with a winner, and this is symbolised by momentum rather than scale. Talent flocks to winners, places with a good story of potential, space to grow.

Often it is unit scale rather than total scale which drives cost. A retailer with 10 outlets of 100 unit volume will always outperform one of 1000 outlets with unit volume 10. As an example, Tesco and other hypermarkets were the cost leaders in UK petrol retailing even when their market share was less than 1%. They achieved this through high unit volumes from excellent locations leveraged with low prices.

This leads to my first rule. Use a cost advantage in the form of volume not margin. That way lower costs, better customer offers and still higher volumes will create a virtuous growth cycle. Take a cost advantage in the form of margin and sooner or later the cost advantage will vanish. The economy is thus one of momentum rather than scale. This explains why lazy players favour regulated or price controlled markets, as their vulnerability and defeat will be delayed. The industry acting together as one to create barriers is a lazy industry – luckily nowadays competition law is often very effective in challenging this.

One other reason why scale is less of an advantage than pure theory dictates comes from the fact that costs tend to rise over time to match incomes. Profitable companies can’t resist the lure of creating excessive functions, increasing pay for bosses or pursuing value destroying diversification. Growth hides all these sins. Yet these weaknesses erode cost advantages, invite competition, and eventually create a cycle of decline. Accumulated pension liabilities often administer the fatal blow. It is tough indeed to reduce unit costs at a faster rate than unit volumes, and still harder to reverse the cycle of falling volumes itself.

Years of success make responding to this challenge tougher still. Arrogance creeps in. You hear terms like “the majors” creep into the language (as a means of ignoring nimbler “minors”). GM spent years trying to beat Ford while ignoring Toyota. BA fought Lufthanza and ignored Easyjet.

It is hard to escape this curse, and scale itself gradually becomes a killer. Belief in immortality is usually fatal. This is not just restricted to companies, but applies to empires, whole economies (watch out USA) or even sports teams.

So what can companies and their managers do about this disease? Plenty, and in my opinion a lot of it goes against perceived wisdom and the sort of advice you receive from McKinsey and their friends.

Always have growth as a goal with as much emphasis as profitability is my second rule. And growth via acquisition or diversification doesn’t count. Measure growth in the unit that matters to your business, such as throughput per plant or same store sales. Indeed, be very careful with acquisitions generally, especially ones justified lazily by synergy or scale economy. It is much better to keep growing the core or give money back to shareholders.

It is also important to choose an industry offering growth. Porter’s five forces is the best model for this. If in a bad sector, use some years to create a new core (and don’t stifle it, let it manage itself through growth) or just exit gracefully by selling up.

Within the company, I believe it is generally right to keep units small and relatively autonomous. You don’t want mindless duplication, but it is much more critical to maintain incentives and customer focus than it is to standardise. When Shell Global Solutions wanted to grow in Asia I recommended that we created some competition by allowing each region to set its own tariffs and compete for the same internal customers. Since much of our business had other parts of Shell as the customer, I felt that the most important priority was to create incentives to understand and improve value for money, and this could have been an effective vehicle. It would have been fun, but it never happened so we’ll never know if it would have been successful.

In choosing units, make sure the type of business is basically compatible, for example with the same targets, customer type, or required culture. By all means provide services centrally, but keep them low cost and market challenged. Then keep the corporate simple tiny. Easy. It just seems to be too hard for most senior managers to achieve, as they strive to build their empires and follow false mantras.

On the same theme, too few companies break up. Actually you rarely see it, yet I believe it would invigorate company after company. Years ago, BT and O2 was a good exception. Of course, few CEO’s will voluntarily downsize their corner offices except under enormous pressure. But it disappoints me that boards and markets don’t apply that pressure. This especially applies to companies with parts that have very different maturities. How many big players were successful in incorporating e-commerce divisions? Few, and the ones that did were smart enough to keep distance between the divisions and to encourage competition between them. For others, the curse of scale often strangled their new babies at birth.

As an individual manager in a large company, my favourite advice is to “get out of the way”. Find some talent, and set it free. It is so easy to get caught up in the bureaucratic jungle, managing one’s place in the hierarchy.

Here is a short checklist for you to work out if you are in the way.
Do you spend more time checking the work of others than doing your own work?
Do you stop or modify activities more than you start or enable them?
Do you only let your staff communicate with your boss with your blessing?
At the moment, how many activities are waiting for your input or approval? How often are you the bottleneck?
How often do you send something back for minor changes or polishing, or demand another meeting before approving, or sit on a while before sending to your boss?

If you find these questions hard, have the courage to ask your staff their opinion.

Is Big so Beautiful?

I very much enjoyed the obituary of Norman MacRae in the Economist, which you can find on http://www.economist.com/node/16374404?story_id=16374404 . I had never heard of the man, despite being an avid reader of the publication. The obituary whined that no other publication saw fit to recognise his death, but then accepted that one reason was the anonymity of Economist contributors.

After reading the excellent piece, I felt I knew the man well, idiosyncrasies included. And then I could recall his presence in so many of the articles I had read, since he clearly made a large footprint on the style and opinions of his paper right up to his death. Hopefully, beyond death as well, as the Macrae strengths are the Economist strengths.

Macrae had great faith in progress driven by individuals, small teams and technology. He felt passionately that the main role of the state should be to get out of the way. This came from a positive belief in human power, rather than the negative selfish or class-based motivation for a small state you find among some conservatives.

Over time, this anti-state view has become mainstream, and its zenith came with the fall of communism. The current mini comeback of the state after the financial crisis will probably be a blip against the wider trend.

Yet the line that most struck me in the obituary was where it stated that Macrae had almost as much disdain for big corporations. He apparently predicted that by now such beasts would be in retreat, beaten away by small, nimble, focused enterprises with few staff. After all the large corporation suffers all the weaknesses of the state – remote from customers, slow moving, self serving, mired in bureaucracy, lacking in genuine incentive for staff. I agree, I have seen it close up.

It is strange when you think about it. The strident capitalists running and advising big companies disdain the public sector, yet try to make their own enterprises so big that they share many of the same characteristics. Hmmm. Perhaps we should not believe everything these people say. Maybe some other factors are at work, such as their own greed or ego?

So why have such beasts not died? Should they? Will they?

Many actually have died. Manufacturing has died in many sectors, only to be reborn like Doctor Who in different guises on different continents. Detroit basically died, only it happens slowly like in the movies. Large airlines are all basically dead. If you are British, remember ICI? GKN? Hanson? The main survivors have been in sectors with special relationships to the state and hence regulation inhibiting competition, such as Energy, Pharma, Utilities, Banks, Military Equipment or Mining. Who is to say any of these sectors are actually efficient? It is interesting that the big players in all these sectors tend to vulnerable on their flanks.

One story from Shell tells all you need to know. I was sitting in a meeting earlier this year when we were looking at bench mark results for one part of our industry. Lo and behold, the majors mainly seemed to be in the pack. The leading player was a small supplier. Someone in the meeting stated “well we can’t really compete with them, they are small”. Everybody nodded sagely. Somehow, the small player seemed to have some unfair advantages. Wow. Diseconomy of scale demonstrated in a sentence.

Another factor of growing importance even in protected sectors is the problem of deep pockets. In former days, one advantage of scale was the ability to take more risk and hedge more. Now markets scarcely value this at all, since capital is generally so freely available. And those with deep pockets can be attacked, by lawyers, lobby groups, or even states. Look at BP just now. They are a sitting target, while their equally culpable suppliers can duck and weave. It is the scale of BP that makes this so.

At first glance, an exception to my rule could be computing. Even there, the first incarnation of IBM died from size, and Microsoft seems at last to be suffering rather than benefiting from scale. But Google or Apple don’t, yet. Indeed in these younger industries there is a clear benefit in scale, as customers and partners seek to choose winning platforms.

So, back to my own questions. Why not? Well, some have, most that haven’t are in protected, somewhat distorted sectors or emerging sectors. Should they? In the distorted sectors, yes, I believe Macrae is right and the world would be better off with more, smaller players. Will they? Yes, but too slowly, because of interference and greed. Even Google will get too big one day.

I have a parallel theory. In the post manufacturing age and with the exception of emerging or distorted industries, scale is a net disadvantage. What is good is growth, or momentum. Many things we see as economy of scale are actually economy of growth or economy of momentum. The player on a roll has an advantage over the player in decline, whatever their relative size.

I’ll explore this more next time. It has implications for how to manage companies. Creating internal competition might be just what big companies need, contrary to the belief in vogue.

Do you agree? Big is bad, momentum is king?