Wednesday, January 3, 2018

"Your company's age predicts its managing style"/ Stewart Lamont

Sept. 25, 2017 "Your company's age predicts its managing style": Today I found this article by Harvey Schachter in the Globe and Mail:

Do you want to understand innovation, compensation, marketing, strategy or a host of other management issues? Look to the age of your organization.

University of Toronto Professor David Foote sensitized us in the 1990s to how demography can explain – and predict – a great deal about societal change and marketing. Tamas Koplyay, a University of Quebec at Outaouais professor and research director for the Canadian Advanced Technology Alliance, feels the same way about organizational life cycles’ predictive powers.

“The life cycle explains and predicts – not just the future but the past. It helps companies understand why they did what they did and where they are headed,” he said in an interview. So wherever you are in the corporate hierarchy, it’s important to understand this evolution as it likely determines your focus and flexibility.

Organizations start with an idea – an idea that becomes a product. So in many ways, the organizational life cycle is a chronicle of innovation, as shown in Prof. Koplyay’s paper with two colleagues on ResearchGate.

But it goes beyond product. He notes there are three other types of innovation: marketing, production process and financial. They occur – and become necessities – at the four different stages ( startup, growth, maturity and decline) of the organizational life cycle.

At the start, product innovation is indeed at centre stage. As the company starts its rapid growth – stage two, the product now being of interest beyond early adopters – marketing innovation is key, to help determine the groups to appeal to and channels to exploit.

“Marketing starts to dictate the product changes it needs,” he emphasized in the interview.

When the next stage – maturity – comes, cost advantage becomes vital and process innovation should top the agenda through such approaches as buying competitors to take advantage of economies of scale.

And then, as the company reaches full maturity, with no other opportunities for the product and associated offerings, the fourth stage, decline, sets in and the firm needs financial innovation, figuring out how to put its funds to best use, which usually means beyond the current firm.

Behind this evolution is, of course, revenue, expenses and profits. In the early stages of the organization’s life, the entrepreneurs are trying to build the top line – revenue – faster than the competition.

“Nobody cares about margins,” Prof. Koplyay notes. That is done, he says, because revenue growth best correlates with stock price and investor interest. Build the product, sell it, find new groups to interest and refine the product as needed for what will be rapid expansion.

Once the exponential- growth phase is exhausted, investors want operational discipline to maintain the share price. So the focus shifts to margins, which in turn require cost controls.

It’s around now that professional managers become important. Competitors are also trying to improve their margins and a shakeout looms as each figures the best way to cut margins is to buy the other.

Technology is no longer the key; financial strength will determine who wins. But of course, he notes, only 30 per cent of mergers and acquisitions – a hallmark of this phase – succeed. However, adding to their lustre is the fact, he says, that “executive compensation is totally correlated to corporate size – not profitability or whiz- bang innovation.”

At some point, the firm stops investing as much in the company’s expansion, since growth prospects dim and returns profits to investors in terms of dividends. This is an important admission: Decline is on its way. But Prof. Koplyay stresses good money can still be made. Some competitors will fold and you can move into their terrain. “The risk is that suddenly the market will disappear and you can be left with sunk costs. It could happen years down the road or tomorrow,” he notes.

The company is treated as a cash cow. The money is directed to other investments that can return the best returns – it’s time for financial innovation, not product, marketing or process innovation. He cites Microsoft as an example of a company that failed at this stage, unable to make much money beyond their original core products. On the other hand, “Cisco did this extremely well. In a candid moment they admitted they were an acquisition company not a technology company.”

At each stage, the four types of innovation not only change place at centre stage but each has its own different role. For example, marketing innovation moves from product
awareness in the early stage; to brand development and price reductions to spike sales; to promoting customer loyalty and other methods to defend your market share; then in decline to either market rejuvenation or market exit.

Financial innovation evolves from lines of credit, angel investors and other financing to get off the ground; capital acquisition and handling cash flow as growth occurs; capital asset management in maturity; cost controls, reinvesting profits and portfolio management in decline.

Each firm handles those stages differently. But each firm hits them, including yours.

The Ladder: Stewart Lamont: Today I found this article in the Globe and Mail:

Stewart Lamont, 62, managing director of Tangier Lobster Co. and founder of the Lobster Council of Canada, represents the lobster sector in the Nova Scotia Seafood Alliance.

I was born in Halifax to two school teachers, so education was sacrosanct. I did a bachelor's degree at Dalhousie University, went to law school, then did a masters in public administration – but my goal was journalism. I'd been accepted at Columbia School of Journalism. An editor friend said, "If you can write, you can write effectively now; if you can't, 17 degrees aren't going to help."

Law wasn't like I thought. I'm more interested in philosophical issues, love public policy, love the big picture – law school was minute detail. I enjoyed it and the background it gave me but the practice of law wasn't for me. I then, briefly, was a legislative assistant for a federal minister, hired because I was allegedly bilingual. There's very little occasion to speak French now, so I only dare after a couple of glasses of wine.

My cousin, a friend and my mentor, had a lobster export business. He recruited me in 1981 saying we'd work six months with six months off; I could do the two things I wanted – travel and write. It sounded superb. I didn't want to go into the real world anyway. We'd operate six months, shut down, come back six months later. Increasingly, clients would give us a blast – "where were you in February when we needed a good lobster?" We decided we had to run year-round.

We're in the relationship business – we sell lobster on the side. That's my value system.

I used to be a loner. When I started, I thought we could do this on our own if we worked hard enough. I quickly learned that wasn't a mature approach, so we develop relationships where it's not about the sale, but a long-term relationship – how we can add value to clients and our business model.

It's absolutely critical for us that a sustainable market has the right relationship. If we don't, everything else will probably fall apart. We see more visitors in my village of 167 people, on our turf. We can show exactly what we offer. We have a gazebo by the ocean; we've done more good business in that gazebo than anywhere.

I went from running our company to being a sector spokesperson because nobody else wants to be. The council brings all stakeholders to the table. Lobster is Canada's most valuable seafood export: 75 countries for close to $1-billion in 2016. The assumption is the vast bulk goes to America. It's still a huge market. The growth is Asia, all over the Pacific Rim. Now the Canada-European Union Comprehensive Economic and Trade Agreement has zero tariffs on live lobster, so it should be a platform for more sales.

Lobster prices are transparent. I can't find out what (a store) paid for a washer they're selling me, but anyone can find out what's paid for lobster. Harvesters are anxious to know what we're getting. From McDonald's McLobster – $6.49, no longer on the menu – to Bellagio Hotel (Las Vegas) advertising lobsters for $122 (U.S.), somewhere in between is what lobster sells for in Thunder Bay on Saturday night.

My fear is we're kicking customers to the side assuming Asia will pay us more. I don't want to see governments simply fall in love with China. Our seafood is for sale, but our resource isn't; it's the glue in this entire (Atlantic Canada) region.

Seasonality is based on geography, fixed times of the year, in 30 or so lobster fishing areas in Atlantic Canada. The genius of that system is, to the Department of Fisheries &Oceans' credit, lobsters are harvested essentially throughout the year, facilities store lobster beyond normal production periods to offer them when hard-shell lobsters aren't caught.

Advice I give is, we all need a mentor, we all need a friend.

Technology is wonderful when it works. I keep twentysomethings around me for the troubles I'm going to get into. I would get a Most Improved Award over the last 10 years, only because I was dismal before – I'm still dismal.

Canadian hard-shell lobster is a superior product biologically to American hard-shells. We get $2 to $5 a pound more for Canadian lobster 90 per cent of the time; the market isn't silly and it's not that Canadians are slick talkers and convince people to pay more.

As told to Cynthia Martin. This interview has been edited and condensed.

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