Of course there are exceptions. Government agencies tell companies that they need to remit payroll taxes for each employee and buy a certain amount of compliance services. But the proverbial exceptions prove the rule: Costs imposed on the company by others make up a relatively small fraction of the overall cost picture, and most are derivative of company-controlled costs. Payroll taxes, for instance, are incurred only when the company decides to hire an employee.
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Costs are comfortable because they can be planned for with relative precision. This is an important and useful exercise. Many companies are damaged or destroyed when they let their costs get out of control. The trouble is that planning-oriented managers tend to apply familiar, comfortable cost-side approaches to the revenue side as well, treating revenue planning as virtually identical to cost planning and as an equal component of the overall plan and budget.
All too often, the result is painstaking work to build up revenue plans salesperson by salesperson, product by product, channel by channel, region by region. For costs, the company makes the decisions. Except in the rare case of monopolies, customers can decide of their own free will whether to give revenue to the company, to its competitors, or to no one at all. Companies may fool themselves into thinking that revenue is under their control, but because it is neither knowable nor controllable, planning, budgeting, and forecasting it is an impressionistic exercise.
Of course, shorter-term revenue planning is much easier for companies that have long-term contracts with customers. For example, for business information provider Thomson Reuters, the bulk of its revenue each year comes from multiyear subscriptions. The only variable amount in the revenue plan is the difference between new subscription sales and cancellations at the end of existing contracts. Over the longer term, all revenue is controlled by the customer. Companies in many industries prefer a small slice of a huge market to a large slice of a small one.
The thinking is, of course, that the former promises unlimited growth potential. But all too often, the size of the opportunity encourages sloppy strategy making. Anybody is a potential customer, so just go out and sell stuff. But when anyone could be a customer, it is impossible to figure out whom to target and what those people actually want. This is when crisp strategy making and clear thinking about opportunities are most important.
The bottom line, therefore, is that the predictability of costs is fundamentally different from the predictability of revenue.
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This trap is perhaps the most insidious, because it can snare even managers who, having successfully avoided the planning and cost traps, are trying to build a real strategy. In identifying and articulating a strategy, most executives adopt one of a number of standard frameworks. Unfortunately, two of the most popular ones can lead the unwary user to design a strategy entirely around what the company can control.
In Henry Mintzberg published an influential article in Management Science that introduced emergent strategy, a concept he later popularized for the wider nonacademic business audience in his successful book, The Rise and Fall of Strategic Planning. By drawing a distinction between deliberate and emergent strategy, he wanted to encourage managers to watch carefully for changes in their environment and make course corrections in their deliberate strategy accordingly. In addition, he warned against the dangers of sticking to a fixed strategy in the face of substantial changes in the competitive environment.
All of this is eminently sensible advice that every manager would be wise to follow. However, most managers do not. Notice how comforting that interpretation is: No longer is there a need to make angst-ridden decisions about unknowable and uncontrollable things. A little digging into the logic reveals some dangerous flaws in it. If the future is too unpredictable and volatile to make strategic choices, what would lead a manager to believe that it will become significantly less so?
And how would that manager recognize the point when predictability is high enough and volatility is low enough to start making choices? Any company can build a technical sales force or a software development lab or a distribution network and declare it a core competence. Executives can comfortably invest in such capabilities and control the entire experience. Within reason, they can guarantee success.
Only those that produce a superior value equation for a particular set of customers can do that. But customers and context are both unknowable and uncontrollable. Many executives prefer to focus on capabilities that can be built—for certain. Discussion in management and board meetings tends to focus on how to squeeze more profit out of existing revenue rather than how to generate new revenue. The principal metrics concern finance and capabilities; those that deal with customer satisfaction or market share especially changes in the latter take the backseat.
Probably: You have a large corporate strategic planning group. Probably Not: If you have a corporate strategy group, it is tiny.
Probably: In addition to profit, your most important performance metrics are cost- and capabilities-based. Probably Not: In addition to profit, your most important performance metrics are customer satisfaction and market share. Probably: Strategy is presented to the board by your strategic planning staff. Probably Not: Strategy is presented to the board primarily by line executives. Probably: Board members insist on proof that the strategy will succeed before approving it. Probably Not: Board members ask for a thorough description of the risks involved in a strategy before approving it.
How can a company escape those traps? This involves ensuring that the strategy-making process conforms to three basic rules. Focus your energy on the key choices that influence revenue decision makers—that is, customers. Two choices determine success: the where-to-play decision which specific customers to target and the how-to-win decision how to create a compelling value proposition for those customers. Characterizing the key choices as where to play and how to win keeps the discussion grounded and makes it more likely that managers will engage with the strategic challenges the firm faces rather than retreat to their planning comfort zone.
As noted, managers unconsciously feel that strategy should achieve the accuracy and predictive power of cost planning—in other words, it should be nearly perfect. But given that strategy is primarily about revenue rather than cost, perfection is an impossible standard. Managers must internalize that fact if they are not to be intimidated by the strategy-making process. For that to happen, boards and regulators need to reinforce rather than undermine the notion that strategy involves a bet. Every time a board asks managers if they are sure about their strategy or regulators make them certify the thoroughness of their strategy decision-making processes, it weakens actual strategy making.
One time I was organising a fashion show in London, and I had an agreement with Wowcher to sell tickets on a discounted rate and the event would have ran 2 days in a row.
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It took me months to organise it and find the perfect venue. Two months later I found the perfect venue by accident and decided to organise a different fashion event.
It worked out even better than the first round as I teamed up with international fashion company Fashion United and had celebrity Noelle Reno speak at my event and people travel across the world! The subject matter was really interesting — cyber security and hacking.
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But, the event had a wordy, vague title that would put anyone to sleep. It was my job to market it, and the corporates did everything else. They provided a person space, ordered drinks and snacks, and put together these wonderful, insightful presentations. And then, in the end — 18 people showed up.
Completely my fault. It was my own personal nightmare sitting there watching these presentations in a sea of empty chairs.
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Now I always put as much effort into the marketing, messaging and communication as the logistics so the organisers get the audience they deserve. After a cracking first event with fine weather, year 2 was a different story. But with persistent rain in Yorkshire and national news reports showing the whole of York was flooded the event numbers halved, even though it was an indoor event, people just did not venture out.
Less then 24 hour before an event there was a problem with the venue and we had to do a complete venue change. In less than 24 hours we had to find a new venue within budget that was suitable for the event, notify every company, every guest speaker and every actor planning to attend. It was absolute mayhem but with forward planning and a bit of luck we turned it around. We found a venue that worked the first one on Google , and we went on to use this venue for 2 years running after this.
The staff there were actually amazing. We were up to all hours emailing and printing maps and on event day we had a member of staff stationed at the old venue to direct anyone that turned up to the new venue. Something which was key in our being able to turn the event around was having a list of mobile numbers for out of hours contact, this meant we were able to efficiently update people.
Can you imagine what a mess it would have been trying to contact companies out of hours on a Friday night. Also via Eventbrite we were able to message every single attendee with the click of a button! Therefore, it was a smart budgeting decision to actually build a booth to use at each of these events. As I was based in the UK, I had the booth built here, and then just thought we would be able to ship it anywhere we needed.
Well, we ended up making such a beautiful booth of long-lasting materials that it weighed a huge amount and was impossible to ship. So my poor facilities person outsourced had to drive that booth wherever we needed. I remember him driving it to Copenhagen and Monaco both! The first ever large-scale event I hosted was within a branch of a chain of bars in Central London. I arrived at the venue with a car full of goody bags, only to discover it locked up.
Luckily the building manager was on hand to direct guests to an upstairs bathroom while negotiating with the person refusing to leave; he eventually opened the door from the outside and escorted him from the building. At another event I organised I had 5 small businesses talk about the tools that had made them successful. Not good! While the presenter managed to fill the awkward moments while we tried half a dozen options to get it running, we could not get it to work and the hardy speaker ended up having to ad-lib without slides. Sometimes success can become a problem.
People get very upset quickly. It turned ugly, near a punch-up, as they vent their frustration on our staff and each other. It was stressful.