Thursday, 30 July 2015

Should the Royal Mail abandon the letter?

The Royal Mail, although no-longer state-owned, is a British institution. But it's struggling to deal with a world of email, text messages, Twitter, WhatsApp etc.

The number of letters it handles has been dropping, and its parcel business could be in trouble from competition with companies like DPD and big customers like Amazon jumping ship to set up their own services.

We think that the way the Royal Mail has tried to focus on the parcel side of the business is a smart move. It now makes up nearly half of their turnover. But there is undoubtedly still a need for letters - I actually got back into the habit of exchanging letters with a friend recently. There's nothing quite like hand writing a note to make a message more personal.

So how should Royal Mail operate its letter service? Well, we think it might make sense to run letters as a loss leader, or maybe with a very slim profit margin. We think putting up the price of stamps is only going to discourage ordinary people from sending letters. It could pass on price increases to corporate customers, who will probably send out mailshots regardless. (And, if they decide not to, I know I'd be happy to get less junk mail!)

Tied to this, it could run an advertising campaign on another relic of the pre-digital age - the television. A nostalgia-based message all about the personal impact a letter can have could resonate with a generation who've seen incredibly rapid changes in communication. I'm just about old enough to remember a time before mobile phones - when you would have to call someone and hope they were home, or else you wouldn't be able to get in touch. And with the current 90s revival in vogue, it might just work.

If the Royal Mail stuck to a good message and tried to make the process as efficient as possible by e.g. reducing the number of days that postmen deliver (after all, who cares if a letter is a day late. If you're in a hurry, you'd be using email) we think it could still turn its fortunes around.

Monday, 27 July 2015

How can you get your processes to fix your culture?

Last week Toshiba revealed that it had overestimated profits by more than £780m because senior management had been systematically altering their accounts. The scandal led to the resignation of its president and chief executive Hisao Tanaka and several other senior staff. The independent investigation which uncovered the fraud suggested the culture at Toshiba was partly to blame.

Sergiy Palamarchuk /
This culture included employees trying to keep their bosses happy by 'not going against [their] wishes', according to the fraud investigators. Bosses were worried about the impact of the Fukushima nuclear disaster in 2011. So they would set ambitious and even unrealistic targets and, because their employees felt they had to achieve them, would 'carry out inappropriate accounting practices' - cook the books, in other words.

This kind of culture is toxic and some hefty fines are probably not too far away. So how can Toshiba turn its fortunes around and stop any accounting problems from happening again?

Artur Oganov, our consultant, had this to say: 'Your processes can dictate your culture. You should set up and use Key Performance Indicators to work out what is realistic for your employees. These targets must be achievable - there is always room for improvement, of course. But it is very demoralising to employees if they can never achieve their targets. They should feel like they have input into the targets. Your conversations about targets should always go both ways. Japan has a different corporate culture, it's true, but I think they could learn from Western business here.'

Thursday, 23 July 2015

Was Amazon Prime day a flop?

I know some people who complain about 'artificial holidays'. They claim that there are days that are basically designed to sell greetings cards and gifts that are made up by companies.

Certainly Halloween and Valentine's Day were much less of a big deal in the UK 20 years ago, but what's the fuss about? Everyone likes an excuse to celebrate, right? And some 'imported' holidays like the American Black Friday have given us a whole new range of sales - admittedly at the cost of the odd undignified scene of people fighting over flatscreen TVs.

Frank Gaertner /
Well, Amazon recently decided that they'd add a new date to the sales calendar - last week's Amazon Prime Day. They're celebrating their 20th anniversary, in case you were wondering. By some reports, though, it was not a huge success.

We're sure that Amazon executives will be racking their brains and carefully analysing what they did to find out what when wrong and why. But we've made some educated guesses of our own below.

Firstly, Amazon restricted the sale to Amazon Prime users. This was possibly an attempt to get people who aren't signed up for Prime to join the service. Whether that's a great idea or not, we aren't sure - after all, Prime is famously a loss leader for the company. But the theory that Prime users are more likely to buy from Amazon in the first place is probably sound.

Secondly, Amazon had the sale on an otherwise-boring Wednesday. Without a holiday or anything else to tie it to, there wasn't much incentive for customers to log on and check things out when they'd normally be at work.

Thirdly, Amazon chose some strange products to put in the sale. While there were TVs and Kindles and other items that sold out quickly, there also seemed to be a large number of less-desirable items. Non-slip socks and knee braces and the like.

Finally, Amazon didn't market it properly. I spoke to a couple of Prime users who weren't really aware that it was coming up until the day itself, or just before. If they'd known things they were going to buy anyway were going to be on sale, they might have delayed purchases and boosted Amazon's turnover.

We'll see if Amazon Prime Day returns next year, but we'd be surprised if it does.

Monday, 20 July 2015

When's the best time to increase your prices?

John Lewis recently announced that it will start charging a £2 fee for customers to collect items they've bought on its website from stores unless they cost more than £30. And last week, Tesco said it's charging more for delivery too - it already has a minimum order of £25 and charges delivery fees on top of that. It's going to start charging an extra £4 if your order is less than £40. This also applies to in-store collection. These two recent changes come on top of Amazon raising their threshold for free delivery to £20 earlier this year.

These higher costs reflect the fact that having someone pick out specific goods for an order takes time and effort - there's a reason that grocers/supermarkets moved to a self-service model in the first place. The companies have calculated the costs involved and, even when trying to make them as efficient as possible, realised they couldn't afford it at the prices they were charging.

We don't think this is a cynical cash grab. They're simply changing their processes when they are no longer economical so they better reflect the costs involved.

So when is the best time to introduce a price increase? We think that John Lewis actually chose a great time. By doing it right after Tesco, it suggested that this was an industry-wide thing, and it was simply following a trend.

Our consultant, Artur Oganov, said, 'This is a good plan for John Lewis. They haven't increased prices by more than they need to so customers will continue to trust them. They're good at that. Tesco has lots of other problems, so I think this will slip through the net in terms of how people think about them. Amazon, as always, sings from its own hymn-sheet. Predicting what it's going to do or trying to copy it is a risky business.'

Thursday, 16 July 2015

Why new processes need everyone on board

We're based in London, so naturally we had a lot of hassle getting into the office last week thanks to the Tube strikes. And we weren't alone - around four million people use the Tube each day.

We're not going to get into the thorny issue of who's right and wrong, but we think there are some important lessons that both sides can learn.

William Perugini /
We think this is a good example of a company (TfL in this case) designing their processes top-down, without properly consulting their people. An all-night weekend service on the majority of the network is an exciting prospect for customers. And it's no mean logistical feat to organise on one of the oldest underground rail systems in the world.

They've clearly planned all that out very well in terms of maintenance, technology and trains, but not in terms of their people. The service was announced without proper consultation with the transport unions about what would be expected of their members, and the compensation they'd get for the extra night shifts.

For the unions' part, it seems like they had reservations about whether TfL were acting in good faith in their negotiations. We think they could have tried harder to establish a dialogue.

Both sides really need to be more flexible and willing to compromise in order to get the system up and running - and, crucially, fully staffed - by September. At the moment, it seems like TfL and the unions are both looking to paint the other side as the problem, and themselves as blameless.

Protobase Labs consultant, Artur Oganov, said, 'It's a classic mistake: management decides something, then expects everyone to fall in line. That might work in some businesses, but when you have workers in unions that are that powerful, it never will. Let's hope they resolve their differences in time to stop the next strike, scheduled for August.'

Monday, 13 July 2015

How should Greece manage the biggest change in a generation?

The latest on the story of the Greek economic crisis is that they aren't leaving the Eurozone. But that hasn't stopped us speculating on what would need to happen if they did.

Ververidis Vasilis /
We think the first order of business would be to organise re-denomination. The new Greek central bank would need to set a suitable exchange rate for Euros to neo-drachma (or whatever they end up using) - presumably one-to-one. Then they'd need to start the printing presses, both figuratively and literally. There are nearly 3000 bank branches in Greece that handle cash. They'd need cash, and quickly, to distribute to Greece's population of 11 million. After that, they could change things like vending machines (which would need to be reconfigured for new coins) more slowly.

Next, they'd need to determine what, if anything, they intend to repay to their creditors, and when. While the Greeks will obviously be intending to devalue the new currency as quickly as possible, there is the risk of hyper-inflation and long-term economic depression if they're reckless.

And they'd need capital controls to prevent a bank run - we already saw that a couple of weeks ago when the Greek government closed its banks for a week and restricted withdrawals (still in place as of this writing). All told, it's a lot to organise, but they managed to convert from the drachma to the Euro back in 2001, so it's obviously possible.

Change management on this scale is expensive, but, for all its economic troubles, Greece can't afford to cut corners here. It will only lead to disaster further down the line.

Our consultant, Artur Oganov, said, 'It's always a big thing to change currency - even if a lot more money is electronic now. We think the Greeks should have a plan for 'Grexit', just in case. It's better to have it and not need it than need it and not have it. The plan must have clear goals, a proper legal framework and be prepared for every possibility. For me the big question is how long should the capital controls last before they devalue?'

If you're planning your own smaller-scale change, give us a call and we'll see how we can help.

Thursday, 9 July 2015

Why does the leap second matter?

Did you know the clocks went back on the 30th of June? No? Well, maybe that's because it was only by a second, instead of the usual hour in autumn when British Summer Time ends.

Ever since 1972, scientists have been adding extra time in the form of leap seconds to the clock, to help compensate for the Earth's irregular rotation. Our days are exactly 86400 seconds long, but the planet moves at a rate that's a bit more variable. You probably know that there aren't 365 days in a solar year, but closer to 365 and a quarter. That's why we have a leap day every four years.

Now, you may be thinking, 'that's all very interesting, but what does it have to do with my business?'

There are some downsides to having leap seconds. For starters, most computer software isn't programmed to deal with time appearing to stand still or go backwards. In fact on the 30th, internet access was briefly disrupted in Australia, and the NYSE had to shut down to prevent problems too.

But we think the leap second is a good example of how important accuracy is. If scientists ignored them, or decided to make a year exactly 365 days and never added any extra, it would take a while, but eventually our year would get messed up. You'd have no idea what season it would be in July in any given year. It could be boiling hot on Christmas day.

You can take this message and apply it to how you measure and examine your data - a more precise measurement adds up to a more precise business. Accuracy matters, down to the second.

Friday, 3 July 2015

Did KFC really sell a deep-fried rat? Don't be so sure

Just a quick one today. Remember the 'deep-fried rat' that was in the news a few weeks ago? You know. This one:

Well, it turns out that, no matter what it looks like, it was apparently perfectly normal chicken. No, really.

We think this is a great real-world example of why our unofficial motto of 'Assume nothing. Test everything' is so important. Do you have any similar stories? We'd love to hear them in the comments.

Thursday, 2 July 2015

Will there be an Ikea on your high street?

A few weeks ago, we wrote about how Amazon might approach launching a series of high-street shops. Well, it might be Ikea's turn next.

The Swedish company has long stuck to its successful model of having large warehouses out of town, often near motorways or other locations that don't seem much like conventional retail spots. But there are only 18 Ikea stores in the UK and they're worried that this makes them inaccessible for a lot of people. Although the company do offer a delivery service, it's only within a comparatively small area around their stores.

To fix this, Ikea are going to trial a smaller order and collection site at a retail park in Norwich. This follows successful similar models in Spain, Norway and Finland. And Norwich is just the start - plans for having a shop that could fit on a normal high street might not be too far behind.

As with Amazon, a big change in Ikea's business model will require a lot of planning before the first lease is ever arranged.

Ikea has obviously considered expanding its online store and setting up a distribution network to offer delivery throughout the UK and decided that the atmosphere in its stores is an important part of its customer experience. Or maybe they don't feel they can compete with Amazon online. So clearly they've started the process to manage the change, and it will be interesting to see where it will lead.

Our consultant, Artur Oganov, said, 'It's a bold move for Ikea. The idea of having just a few large stores is very 90s. I think their decision reflects a broad trend in retail to move away from large stores that are out of town and back to the high street. The big supermarkets have done it and, while Ikea's model is necessarily a bit different, I think they could benefit too. Maybe the next step will be a chain of meatball cafes!'