Nothing is fixed in business. There is a moment when everything changes. Usually quite unexpectedly.
Ideas and practices in business and management often spread like a virus. Exactly like the Corona epidemic happened, at first you don’t believe it. Then it is everywhere, an upsetting daily reality, with everyone wondering: Where did this come from?
"The moment of critical mass, the threshold, the boiling point” is how Canadian writer, Malcolm Gladwell defined a tipping point in 2000, in his book by the same name.
Think of that moment, when water reaches the point when it becomes a gas, or when everyone seems to be talking about and using artificial intelligence – in a ‘cut and paste’ copy cat way.
Introduction of M-Pesa in 2007 was a tipping point. Roughly 59 percent of Kenya’s gross domestic product goes through M-Pesa.
A simple cell phone based money transfer mechanism, not dependent on having a bank account or credit card, that awarded a [bottom up] innovation gold medal to Kenya. Question is: What will be the next M-Pesa break-through?
Almost everyone is familiar with the Pareto Optimum, and the related 80/20 rule where it’s not unsurprising to find that 80 percent of the impact comes from 20 percent of the elements, mirroring a normal curve distribution.
Law of the few – asymmetric rules
Yet, how we think things work, is often wrong. Conventional wisdom can be misleading. Business reality is typically asymmetric. Meaning that a small number do all the work, have all the impact, good or bad.
For instance, past research in Denver in the US discovered that five percent of the vehicles on the road produced 55 percent of the carbon monoxide pollution.
That is what Gladwell calls the ‘law of the few'. Think of that moment, when water reaches the point when it becomes a gas, or when everyone seems to be talking about and using artificial intelligence – in a ‘cut and paste’ copy cat way, when a large number of problems, are caused by a very small number of actors.
In a British study, near the end of the Corona epidemic 36 willing young and healthy volunteers were deliberately infected with the exact same dose, exact same strain of Covid. Result was that 86 percent of all Covid virus particles detected in the air came from just two people – the super spreaders.
Imagine Acacia Bank with 2,500 staff. What one factor will likely drive operational and financial performance, for better or worse? What has an outsize influence on how any organisation performs? Who or what is the super spreader?
It usually comes down to one person, the big boss, the paramount chief, the managing director. Staff look not at what the CEO says, or preaches about, or writes in the annular report, but what they do day-to-day, how they behave when things start to get a bit difficult.
All those small tiny indications, like how they treat the staff ranked lowest on the organisational totem pole. Do they keep quiet and listen, or do they simply preach about the importance of listening?
Few know profitability by segment
Despite all the tools and software available, very few businesses know what products and services are the most profitable. The CEO and CFO may think they know, but analysis often turns up some surprises.
For instance, one might find that five percent of the customer base generates 25 percent of the profits, and that the last 50 percent contributes little to the bottom line. How the CEO interprets this would be revealing.
Ideally, your accounting system can provide this information, or can be modified a little to come up with the figures. However, it would not be uncommon to find that the system is not set up in a way to show profitability by segment.
What usually happens at this stage, is if you go to the accountant or book-keeper and ask them to provide the information they will say it is going to take some time to restate the accounts in this way. What now, do you wait and give up? Give it a go.
Once you look into segment profitability, allocating fixed and variable costs you are going to come up with some valuable insights and you will hopefully be on the way to generating profits.
Being infected with a virus of bright ideas may be the first step. A tipping point realisation may be that what we think we see, and the story we tell, may not be the actual business reality.
"As soon as you see something, you already start to intellectualise it. As soon as you intellectualise something, it is no longer what you saw," advises Shunryu Suzuki.
