April 06, 2017

A Stunning Strategy Leads To A Winner!!

Here were the results after year one.

And after year two.

And after year three.

And after year four.

Ready for the final year ... and our winner??

Look at that!

Look at what Widgwon did to win the whole darn thing!!

  • Reduced the ad-to-sales ratio.
  • Greatly increased Widget pricing.
  • Greatly increased Bidget pricing.
  • Left Tidget pricing at average levels.
  • Kept discounting low.
Now, Widgwon didn't sell many Widgets or Bidgets ... but at a 76% gross margin level, they sold enough to nearly double the average level of profit and win the whole thing!!

In other words, Widgwon tried a unique strategy that nobody else tried ... and their strategy resulted in the win!!!

I ran a scenario where Widgwon did not change strategy ... that would have been a bad thing for Widgwon but a good thing for Pickaxe, who came in second but would have won otherwise.  Pickaxe made a late run for the title by making numerous changes.
  • Reducing ad-to-sales ratio.
  • Moving staff offline.
  • Shifting the marketing budget to equal online/offline.
  • Increasing prices.
  • Increasing the percentage off.
Their sales declined, but profit increased nicely, leaving Pickaxe in second place.

Awards were also given to teams that had the best total sales levels in year five by product category.
  • Widgets = Pickaxe.
  • Bidgets = Pickaxers.
  • Tidgets = Pickaxers.
PIckaxers were never in the running for the title ... but instead optimized their business to sell the most Bidgets/Tidgets by offering the lowest prices and allocating staff online.

Most important - of course - is the fact that all twenty teams were able to optimize overall average business performance over five years, even though the teams were given highly incomplete and correlated metrics.
  • Gross margins increased from 55% to 59%.
  • Ad-To-Sales ratios dropped from 22% to 15%.
  • Staffing levels generally didn't change much.
  • Prices increased over time.
  • Discounts/Promotions increased over time.
  • Shipping/Handling modestly shifted to free shipping 24/7/365 over time.
  • Earnings Before Taxes increased from 17% to 27% over time.
That's the point I wanted to make in this two-hour exercise.

With sub-optimal metrics, the teams were able to consistently improve financial metrics over time. 

With only five minutes to make decisions between rounds (not nearly enough time), the teams were able to consistently make good decisions.

Think about this for a moment.

With bad data and no time to make decisions, two-hundred earnest professionals were able to consistently make good decisions.

Now I get it ... this is just a business simulation, so it "doesn't mean anything". 

Of course it means "something"!!

It means that we, as business leaders, need to let staff make decisions.

It means that we, as business leaders, need to let staff make decisions faster.

It means that we, as business leaders, need to reward staff members who make mistakes and then change course quickly and then improve business results quickly.

It means that we don't have to wait for perfect data.

It means that we don't have to wait for perfect metrics.

I'm convinced that "we" are the problem ... we don't let our teams do their jobs. When a team runs tests that show that the organic percentage is 91% and we balk at their results, we hurt the business - why not give people a chance to see if their tactics work in the real world, reversing course if the tactics don't work?

I've learned that the more "traditional" the business is, the less likely the business is to let Managers/Directors make decisions. And the more "traditional" the business is, the less likely the business is to make decisions unless there is "proof" that the decision will be the "right" decision.

This means that I've learned that "traditional" businesses are killing themselves at the very time they need to be taking more risks. Our people are smart enough - even with highly incomplete data/metrics - to do the right thing.

So why aren't we letting our Managers/Directors do the right thing?

Interested in trying The MineThatData Academy Business Simulation? Give me a holler (kevinh@minethatdata.com).

P.S.:  Consider attending a VT/NH event in the future ... 

P.P.S.:  Two points to the two-hundred-plus attendees ... these people were "professionals" in every sense of the word. They spent money to attend, they were assigned to teams with people they didn't know, they collaborated, they had an open mind, they competed, and they were able to improve business performance with bad metrics and not nearly enough time to make decisions. Our business is in good hands if and only if we allow professionals to make decisions. Trust your Analysts, Managers, and Directors!

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.

Speaking of That Community You've Grown ... Known As Your Email List

I'm analyzing a business, and here's what I see. 27% of the sales come from items selling below the historical average price point o...