In 2009, Jeroen Derynck started with an executive MBA at Antwerp Management School. On this blog, he wants to share his experiences, thoughts and reflections on the program with the crowd.
Yes, the second year of the MBA started last month. The dash before summer was quite tough: finished of with corporate finance which drove me completely wacc-ko. All that number crunching is not for this monkey.... one ground rule in corporate finance though is... it is not about percents, it is about common sense. Talking about sense - it has been a rough ride recently. At work full steam, a lot of lectures and seminars, the community and master consultancy projects really kicking in.... So where does the MBA fit in? Frankly my dear... it doesn't. It is a serious time investment - attending the courses, preparing stuff and writing the paper afterwards. On a monthly basis, this easily adds up to 8 days - that's is roughly the number of weekend days you get when doing the full monty i.e. 20 working days.
So where does this fit in the whole common sense scheme? Well, it is not about common sense here, it is about drive and passion. Learning is such a powerful catalyst - it broadens your horizon, it makes you see the other side, it helps you to engage in a conversation. Doing the MBA at Antwerp Management School has learned me that I am only half way. Making the journey is like being Alice in Wonderland.... you don't know where it will bring you. Curious by nature, it is this learning experience that justifies the hard effort. No pain, no gain... that's for sure. And I am not alone... I see Captain Starbucks, Trump, Mr. VC, Moneypenny and boywonder struggle as well. I see little Miss Havaianas who is raising her baby and doing the MBA at the same time. And if I see them, I know that common sense has got nothing to do with it. We all know that we are half way... we all know that soon we will jump the curve.... exciting times ahead of us.
I admit, marketing isn't an easy game... it is a game about vision, market and customer intelligence, segmentation, Cluetrain, business models, way-to-market architectures and pricing. And that is the easy part. Yesterday, I read that Apple has already sold one million iPads in just one month. This is what marketeers would call a "ticket to heaven" but then again, not every company is Apple and Apple is of course not an everyday company. Throughout its history, the company has been in the business of market making: the first personal PC, the design PC (iMac), the iPod (userfriendly MP3 player), iTunes (Online music store), the iPhone (the cell phone 2.0) and now the iPad (Funky tablet PC meets iPhone). And of course, when you are the first to enter the market, you can do it with a bang although I must be honest and say that others (Napster, Nokia and Microsoft) had already tried this years ago either miserably failed or launched their products when the market was not ready for it. So what is the game then? It's finding your cash cow and milking it, it is looking for operational efficiency to lower your production costs and increase your profit margins but mostly it is about finding new markets and being the first to launch your product. That's what we learned in this month's marketing module.
To begin with, we had a brilliant teacher (Prof. Dr. Rudy Moenaert) who taught us the ins and outs of marketing during the first part of the course. There was a nice intermezzo by the way from Steven van Belleghem who was presenting his new book"the conversation manager" and the art of starting up brand conversations by means of social media. The second part of the course consisted of playing the markstrat game - a simulation game where you are in charge of positioning your product (close to the customer) and conquering new markets. There were four teams and my partners in crime were Mr. VC, Donald Trump and Furrycoat. For two days we had to come up with strategies to defend our market space, launch new products, find out what our competitors were doing, digest enormous amounts of data and market research...basically we were body doubling the marketing department. How to be the winner in your segment is one thing but what we found out is that market making is where the big money is to be found. Being the first to enter the market gives you an enormous competitive advantage and puts you in a monopoly position. New markets are not price-sensitive because price reference and comparison effects are non-existing. This means that - whatever price you put on your product or service - there will always be a group of innovators and early adopters that will want to buy your product.
In the end, marketing is about bringing consistency in the organization: defining you ambition in terms of a "Big Hairy Audacious Goal" means that you align products and services, your business model and customer value proposition, your ABC segmentation, sales force and marketing efforts and bundle this into a unique proposition around one or more competitive advantages: Product/service, price, customer process and image (the so called CODA framework). That's the game of marketing and if you're not willing to go through the pain of putting effort in this, well there will be no gain. That's what we found out during the markstrat game and that's why we should congratulate Zappos, Miss Moneypenny, Mr. Oiseau, Boyscout and Beckham with winning the game and applying the ground-rule of marketing : don't get even, get everything.
Haven't written much lately but I have a valid excuse: Macroeconomics. Macroeconomics is the study of the national economy as a whole or its major components. It deals with the "big picture" of the nation's economic activity and explains the mechanics of BBP, economic growth, inflation, (un)employment and other economic indicators. That's the easy part - the difficult part is understanding the underlying principles as well. This means that you have to understand how the government's monetary and fiscal policies contribute or slow down economic growth. What happens to Demand when the interest rate increases or decreases? Why do Central Banks have to monitor money reserves? What happens to the money supplies when the Demand for Goods and Services increase and why people tend to save and put money on their bank accounts when you're heading for a recession?
The challenging part of this course is that we only have two days to assimilate a course which is normally taught over the course of a year. Wannabe economists spend an entire year on these topics - we get the crash course. And man, did we crash... Talking about crashes:
As with every module, we also had to write a paper and show that we can apply the theories and insights acquired during the course. Mine was on the economic growth of Ireland between 2005 and 2012. I had to look in the eye of the Celtic Tiger and explain how a booming economy headed straight for recession and deflation. How come that one of the poorest countries in the European Union turned itself into the fourth richest country in the EU over a period of ten years and all of sudden went bust? They didn't really go bust like Greece but still.... they are looking at a serious deficit now and yours sincerely had to come up with a couple of recommendations on how to run a balanced budget and stimulate growth again.
We'll see if I have convinced our teacher or rather confused him but I must admit I enjoyed this module. When I now hear on the radio that the Belgian citizens have put billions on their bank account in 2009, I know that this is because they are preparing for tough times. If the newspaper writes that running a balanced budget is key in 2010, this means that debt stabilization is on top of the government's agenda. And if you have to choose between running balanced budgets or fiscal policies, you must not ignore the system of automatic stabilizers.
Like the Russian playwright Checkhov put it so well: "knowledge is of no value unless you put it into practice". Let this be our ground rule for 2010 and may it be a year full of knowledge, wisdom, prosperity and happiness.
Just returned from a trip to London: business and pleasure that is. This Stan had a plan which was to run a two day workshop on the topic of business/IT alignment. Business/IT alignment is still a hot topic for CIOs and more importantly for CEOs. The sad thing is that the matter seems to be exclusively reserved for IT people. Business/IT alignment is not an IT thing, it is part of a sound enterprise governance eco-system. Technology is a board room imperative but I'm afraid many executives remain blissfully ignorant. Hence I was running the show for birds of a feather that - as Darwin would put it - flock together. And we had fun as well - the group dynamics were there and also some right-brain-training exercises: In this perspective I introduced role-playing games, brainstorm sessions and elevator pitches. The weekend was reserved for city-tripping and a museum day. Tip for London visitors, the Science Museum is a definite must for space explorers, computer nerds, families and curious monkeys. This is research but with a big "R". Went to see the differential engine by Babbage, saw the first Apple ever produced (it's just a wooden box with a tiny screen), tabulating machines and other technological game-changers.
And nowadays, it's all about changing the game right? Enterprises have to bend the curve in order to survive. It is not about predicting the future in this case but about common sense and seeing what is going on out there. Technology is ubiquitous and will penetrate our lives even more. Augmented reality is one example of this blending. Being digital is part of our identity: both on the corporate and personal sides. Linking this to taking up an executive MBA should equal a couple of courses on the following topics: Technology, sustainability, social responsibility, community building are key words that I will want to see in my course. The book I bought in the train station actually inspired me to write this post and at the same time reassures me on the topic of analytical thinking. After a... well tough three days and of course when the going gets tough... Nope, not looking forward to the exam I have to hand in next week. I am absolutely not convinced about the added value of analytics and the fact that the 80 minute book spends nothing more than 3 pages on the damned subject, gives me hope. The terms statistical significance, "what are the odds that ", P value and other correlated terminology have only one effect on me: number will be numbers.
Ground rule # N +1 : If today's and tomorrow's leaders will not include variables such as technology, demographics, globalization and the like in their scenario planning... well, then they are as dead as the dodo. The dodo is a typical case of being unresponsive in times of serious change. I see the Fords, GMs & company as preys for a new generation of game changers: they come up with sustainable solutions for a brave new world. Innovationalism as my dearest colleague would put it. That also means that you put in some more right-brain thinking in the business context. Bring in Creativity, Sociology, Communications into the Equation. And that's what this 80 Minute MBA is trying to tell you... and what statistics cannot tell you. Because the Internet, a greener world, fair trade or equality can never be converted into figures. Even Monkeys can tell you that.
Today the penny dropped - the reason why we use the case study method in the program is to make you curious. It is supposed to light your fuse and wonder which solutions are out there to solve the mystery.
We had to do two case studies for Integrated Performance management before the end of this week: Paper & Carton versus Detroit automobiles. The case study method was in fact introduced by Harvard Business School some time ago. It usually starts with a 2 to 6 pager you have to read on a given case - it is well built up, structured and has exhibits. Either you are to do the assignment yourself or in group but the purpose is to solve the problem before you really know how to solve the problem.
Case studies urges you to discover new ways of looking at information, facts or data. In fact, the student is faced with a murder mystery like situation and first has no clue who-has-donnit. Then you start analyzing, let intuition play a role, revive past experiences, talk to some people, apply some common sense, look for links and whatever is left as a solution - how irrational it may seem - is the solution.
But sometimes the course does not end in class - you have to put in some extra study hours at home to read and work on the cases yourself. Depending on the subject this might take from a couple of hours to a full day of hard work. Now, you still have your fellow MBA students as a safety net. See it as a buddy system - get in some feedback from the group, find the expert... leverage the knowledge of the crowd seems like an appropriate statement here. It's just like in the corporate jungle: you need a network that you can rely on - and on the flip side a network that can rely on you - it's all about reciprocity.
Now our class of seventeen is a network that is mainly composed of decision makers - in fact, it does not matter if it is on operational, managerial, executive, IT, sales or whatever level - we all have to take decisions in our daily professional lives. But nowadays we work with teams to analyze situations, dive into cases and prepare decision making. We don't do solo-slims anymore... we have to look for synergy - ever since ancient Greece, syn-ergos, συνεργός i.e. synergy has stood for: a situation where different entities cooperate advantageously for a final outcome. Our Greek philosopher friend Aristotle summed it up pretty well in 2300 before Google when he stated "the whole is greater than the sum of the individual parts".
That's what the case study method is all about - Ground rule # 4: case studies are about putting the individual parts together without the manual. And sometimes this implies old-fashioned RFTM work and do some self-study. This week, I had transfer pricing, incentive-based transfer pricing, marginal costs, optimal quantity, allocation of indirect costs, responsibility centers, equity considerations and the holy grail of management accounting: ROI and Economic Value added. Mighty residual if you ask me... but Yes - I get the point - I now see how I should investigate my murder mystery at Paper & Carton and Detroit automobiles! And Yes, my first ideas were pretty much aligned with the theories - it only needed a couple of ratios and formulas to calculate it - but hey, that's what Excel is for right?
Right, will have to put in some extra study hours and home work for the module on Corporate Performance. Frankly, I was a bit worried to see this as the first track on our 2-year agenda. On the flipside, this course is taught by Dr. Professor Werner Bruggeman who has a very refreshing approach to making you understand the ins and outs of management accounting. First, You have to see financial accounting, management accounting and long-term profitability management from a holistic point of view.
In this particular case, financial accounting is like the building plan of your house: in theory and on paper it looks fine. But when making short & long term decisions, FA cannot deliver the intelligence required to making the right decisions from a profitability point of view.
Mumbo jumbo in the basement
Management accounting focuses on getting the right information to the right people at the right time. Managers and CEOs make decisions based on a number of factors, parameters and hypotheses. Having the right data in terms of profitability, overhead costs, cost breakdown are essential for good decision making. The question whether you want to (dis)continue a certain product or service requires an understanding of the contribution management fundamentals.
Contribution management is the mumbo jumbo that managers do when making short-term decisions. They look at hedging the overhead costs of the organization with incremental orders. Thus they can consume unused capacity at a marginal cost: the variable cost.In order to reach your full capacity potential, you might want to hire some black-belt ninjas that deal with bottlenecks inside your organization. This "Theory of Constraints" was introduced in the Seventies by Goldratt and focuses on optimizing your production capacity. Obstacles along the road (overbooked people, jams in the througput, means,...) are skillfully removed in order to maximize your capacity.
This mumbo jumbo can go on until you have reached your full capacity.... producing more will become counter-productive. You need to make considerable investments to grow your capacity but your overhead costs now grow exponentially... Time for another approach I'd say.
No ABC without technology
Now, if you want to optimize and sustain long-term profitability, you're talking about Activity Based Costing. The principle behind ABC thinking is simple: allocate a ratio or percentage to each of your activities. The grand total of all activities can be expressed in hours or man days and that's the total (operational) cost. Now each activity will account for a given percentage of the overal cost et voilà: We have a cost per activity. That's OK if the process is straight-forward and you don't have Murphy wondering around the work floor.
Complex organizations rather opt for a time-driven ABC approach where you can include multiple parameters into the cost equation. These parameters are called drivers and they... euhm drive the overall cost per process, product or service up or down. This approach allows to identify new (structural) bottlenecks or efficiency accelerators. The problem I see with ABC is that it takes more than two to tango: you need ERPs, CRMs, BIs, BSCs and CIOs; If the going gets tough, the technology has to keep on going; There is a critical dependency on several core IT systems to make it all work - and still has to be easy on maintenance. Not easy of you are dealing with legacy systems or a lack in web service capability.
But then again, if you want to know: who is your most profitable customer, which products or services yield high margins or what is driving corporate overhead costs, organizations need Aayooh - technology.
I think that I have a grip on it: there's full costing but that's not the same as pricing, you have variable costs that can be fixed and fixed overhead costs that become variable. And in the long run, you end up with a whale in your showroom: Aha, so that's what management accounting is all about - if we can't convince them, we'll confuse them.
Will the real Jean Jacques Cousteau stand up!
Anyway, how I see it, optimizing profitability is for sissies. A true entrepreneur explores new worlds - these Jacques Cousteaus are constantly on the outlook for greenfields, unknown territories and blue oceans. They don't settle for a marginal profit increase, they go for the big kahuna with their innovative service offerings and unserved audiences. So ground rule #3 seems evident: Would Jean Jacques Cousteau take the plunge into the ocean or would he sit back and stay on board?
Ground rule #2 - I suggested to work around two mantras for my professional and personal objectives. Mantras are good to keep the focus and visualize your goals. For my personal life I have borrowed Guy Kawasaki's "don't worry, be crappy" to remind me that sometimes good, is good enough - as long as you keep churning yourself. The mantra driving my professional objectives will be Seth Godin's "small is the new big" - in essence, remain an independent thinker, survive the journey in the corporate circus and finally find my blue ocean... Who can do better?
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