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Always forecast

I write many blogs. I do this, on the one hand, to share the benefits of my Bitsing method and on the other hand to inspire people who are on the way to achieving their goals. The blogs are widely read. And one of them drew an unusual response: “Bitsing remains impressive in its simplicity and accuracy“.

It came from Sven Kramer, Senior Strategy, Planning & Performance Management Lead at one of the world’s biggest companies, Shell.

The positions Sven has occupied during his long career at Shell could fill their own chapter in this book. Rarely have I seen such an impressive career. So I am not surprised that Sven is responsible, at general management level, for ‘global business performance management in support of capital investment decisions worth billions’.

And I expect this makes him a source of inspiration when it comes to the business of making difficult decisions.

So I am pleased and surprised when the subject of this impressive resume responds to my request for an interview with an immediate ‘yes’. More so when he continues, “I have great confidence in your method. In fact, a smart colleague recently applied the theory to show that a large-scale, international initiative was not all that profitable”. I was, of course, flattered – and keen to know more.

Join me, as I learn a few things from a conversation with Sven Kramer.

We’re in the room in which Sven once attended one of my Bitsing Master Classes. “I still remember attending that inspirational master class here”, said Sven. “Your method has had some great successes. You will continue to grow, of course, if you just continue to apply your own model”, he smiles.

Sven has been inspired by Bitsing, in a number of ways. But what has intrigued him most is the method’s ability to detect answers to complex problems using fact-based models. “It’s this factual aspect that I find so special. It’s what occupies Shell each day; making things … factual. We don’t just take action. Everything is tested, made fact-based, as it were. Because what we are doing represents investments of billions.”

“In my role as international Strategic Advisor”, says Sven,  “I received a question requiring the full attention of my colleagues and myself – as unprecedentedly large investments are involved, with equally large risks if it all goes wrong. The question concerned a new energy source – one that is hidden deep in the earth. (I’ll just use the general term ‘new energy source’ here, to avoid a long technical explanation.)”

“This new energy source had seen a lot of growth in some parts of the world, and the question was where else we could grow this new energy source? So they engaged my department to find out.”

“At the outset you think of the big financial potential; the resource is everywhere. But this quickly narrows to: ‘But where, precisely?’ So yes, we search, worldwide, at the locations where we think we’ll find it. And we went for it. We invested. We searched. But it gradually became apparent that it wasn’t going all that well. A kind of awareness dawned: We think we’ll find it somewhere … but how factually correct is that thought, in itself?

“Then you arrived, with the Master class on your Bitsing method. Your approach to making choices, in the form of the pencil philosophy, was particularly relevant to this problem, and we applied the model to our situation with the new energy source.”

“The issue is that we work in many different countries, all over the world. And the size of the investments involved and, indeed, of the world as exploration area, are a cause of concern. The investing starts with the first geological analysis, which of course costs money. Then there are the next steps, each of which cost even more money. I’ll keep it simple for the reader, but think of drilling a well, or a number of them; the amount of money you invest without knowing what it’s going to yield, grows with each step. And if there are, ultimately, cautious, positive signals, you’re not there yet. You must then build a whole lot of facilities and pipelines, and invest an even larger amount.

In short, all the stages you pass through and all the investments must at least be repaid. However, you don’t know in advance whether those cost will be recovered.”

Sven remains quiet for a moment. “Do you know that only a minority of the pilot projects are ultimately successful? Yet the investments in the majority of the unsuccessful attempts, or where we should have stopped projects earlier, must also be recovered?

This corresponds to those experienced in product innovation in general. Only about one innovation in ten is successful – and that one success must cover the investment in the other nine innovation attempts.

“That means”, continues Sven, “That this, single, successful project, that will undergo full development, must pay for all the projects, worldwide, that are not successful. And that is a lot of expense.

If you do the sums you quickly conclude that you need to raise your strike rate. Partly on the basis of your pencils model and the philosophy behind it.

We started costing out all aspects of the new energy source; using numbers which, as your model says, must be based on hard financial facts. This showed that our focus model actually wasn’t so great,” said Sven, his tone reflecting the negative impact of this discovery.

“The focus on this new energy source was out of proportion – far too big in relation to its expected turnover, to its capacity to produce a positive yield. That yield appeared more marginal than what we can make on traditional oil and gas – in other words from our ‘sharp pencils’, to use your terminology”, said Sven.

“So the new energy source was a ‘blunt pencil’, but one that got an amount of attention comparable to that given to our sharpest pencils, namely oil and gas. And we had to use its much smaller margin to cover a very large investment, with a much lower chance of success.

So, yes, as often happens with the Bitsing model, we had to conclude that our initial approach didn’t look too good from a commercial point of view. The degree of focus, of course, had to change.

So we did that.

We first looked at making a more intensive version equivalent to your model; at how we could refine the model and adapt it to our complex processes. By applying a more factual focus, based on financial facts, we aimed to increase the success rate of our selections.

We started identifying criteria, which raise the chance of financial success. We called them the Big Rules. If a project didn’t sufficiently match the criteria, we immediately stopped it. We stopped earlier than before, in this way keeping the costs as low as possible.

We applied this. And it then appeared that the new energy source had more chance of succeeding if you prospect in areas in which you already produce, areas that represent sharp pencils – where we have a firm handle on the models.

In contrast, if you explore in a totally new area, you have to set up everything without knowing whether the project is going to be profitable. To keep within the pencil metaphor, you have to sharpen that pencil from the start, but without knowing if you’ll ever manage to get a sharp point on it.

The selected areas, on the other hand, the pencil is already sharp [there is no perfection in underground oil & gas]. And so, working together, we arrived at the Big Rules: What do we have to take into account to increase our chances of success? In so doing, we had actually created a predictive model for future projects, with all the positive implications of such a tool, such as significant savings in terms of efficiency and an increase in effectiveness and success rate”, says Sven.

He follows this fascinating account with how they are now applying the approach in practice.

“We are therefore making increasingly critical evaluations of whether a project matches the Big Rules. If the answer is ‘yes’, we have a big chance of continuing the process. If not, then we must be disciplined enough to stop applying it, before it goes wrong.

I do operate at mega high level. One shows a number of slides and makes a proposal and then the people in the country take that and get to work. And once I see that happening I step out of it. But in the case of the strategy for the new energy source I hung around, because I found what happened there very special”, says Sven.

“It’s so great when you see a result. They were using the sharpened approach, which was something in itself, and there was a positive result for our business, for our employees and for the surrounding area.

What I could recommend to everyone is focus on your current source of business. Look at the facts: Do not just go out and start the adventure anywhere and then go for it, full on. Things could go very wrong. The chance of things going wrong is much larger if you’re in areas that are new to you, than in those where you already know all the ins and outs.

The risk of something going wrong in unfamiliar territory is many, many times bigger – and that is the risk we have now reduced, with this new approach.”

“You’ve been with Shell for a long time?” I ask.

“Yes”, says Sven – in the manner of one contemplating this for the first time. “In fact, for my whole working life. The funny thing is that when I had interviews at Shell there were people who’d worked for the company for ten, twelve, fifteen years – and I was amazed that they could have been with the same company for so long. I didn’t understand it. Now I can identify with them completely – the international opportunities, job rotation, leadership development and travel are all things I’ve now also experienced and, indeed, have enjoyed very much. So I would now give the same answers if young people asked me why I’ve worked for this company for so long. I have had many different jobs. I have worked in different countries. I work for one of the largest and oldest companies in the world. In fact a company like this is a world in itself. It has everything. Yes, it has everything and, as a result, evolves and continues to re-invent itself as time passes. Which fascinates me no end.

Somewhere in our company smart men and women are busy right now, just like you, discovering their own Bitsing method and, in the process, applying it. Using it to develop smart things and trigger better and different ways of doing things. They also help drive the entire company, by continuously improving themselves. It’s what we at Shell do, we’re always improving ourselves.

These people are spread throughout Shell, they are to be found in every department and country. And that is very inspiring.”

“Looking at the Bitsing method as a strategist, at Shell, I think it has wide applications”, says Sven. “I was also recently thinking about its application in searching for a job or career, and in the achievement of many other kinds of goals. This methodology automatically makes you think about the choices you are offered. You ask, ‘Does this job offer fit the overall picture?’ Instead of just taking any job. The whole career process could be approached more thoroughly and systematically. I haven’t developed this any further yet. But there, too, lie many opportunities. There are so many applications. I think it’s a great opportunity to investigate all these other applications and apply them.”

 

Nothing would please me more than to tackle these tasks, together with Sven. Instead, I ask my last question: “You responded to my blog with, ‘Bitsing remains impressive in its simplicity and accuracy’. It’s great to hear this from someone who works for a company the size of Shell, in a complex area, and who has so much influence in the world.”

Sven: “What we’re after isn’t something that’s available off the shelf. Gigantic sums of money are involved and a lot of uncertainty. And one has a lot of responsibility then, to the world. Because no one knows exactly what is under the ground. There are huge uncertainties, with many different aspects, in which a lot of money is involved. And a lot of responsibility – for instance to your employees and to the environment, to take just two aspects.

I would like to pass on the following advice: Keep making forecasts – and use that information to populate a financial model and a planning model.

Try to keep this as fact-based as possible. For us at Shell, this is not an easy process. We don’t know what is under the ground, or in a reservoir. And, to re-visit my example of the new energy source: whereas we originally invested in areas just because we thought we could be successful there (with investments that quickly rise to tens of billions), our forecasts are now significantly more fact-based, also using a Bitsing-like method.

So what I am basically saying is, don’t just start up a project. At least make sure that you estimate the risks you’re going to take, based on the facts to hand and taking all possible risk factors into account.”

Eddy Assies is General Manager bij ToysXL Nederland (het huidige Intertoys). Voorheen is Assies werkzaam geweest bij ondermeer Bas Group en Dexcom en Dixons. Eveneens speelgoed, maar vooral mannen speelgoed, aldus Assies.
Hierna heeft Assies de overstap gemaakt naar speelgoed en rapporteert aan de Blokker Holding en De Hoge Dennen, beiden eigenaar van het concern ToysXL.

Wij hebben Eddy een aantal vragen gesteld hoe hij als General Manager de aanpak van BiTS ervaart en wat de gevolgen hiervan zijn geweest voor de organisatie ToysXL.

Vraag: Je bent nu enkele maanden bezig met het uitvoeren van het Bitsing Masterplan. Merk je verschillen ten opzichte van voorgaande aanpakken?

Eddy: “Bitsing brengt structuur, efficiency en richting. We weten dankzij het plan wat we moeten doen”.

Eddy: “Alle keuzes die wij maken doen we aan de hand van de so called potloden strategie van Bitsing. De potloden strategie is een aanpak die ervoor zorgt dat je altijd de juiste keuzes maakt als organisatie”.

Vraag: Zou je iets meer kunnen vertellen wat de ‘potloden strategie van Bitsing’ heeft gedaan voor ToysXL?

Eddy: “Een van de Bitsing focus producten bleek bij ToysXL Lego te zijn. Of wel deze domineert in de omzet. Bitsing zegt dat deze dan de juiste aandacht moet krijgen. Het is daarom dat ToysXL heeft gekozen om een 100% Lego store te realiseren. Ook worden alle winkels heringedeeld conform de juiste verhoudingen die Bitsing methodologie als uitkomst geeft. Niet langer zoals de traditionele winkel formules die voorschrijven dat je ‘moneymaker’ achterin het filiaal moet liggen om zo de consument door je hele winkel te ‘lokken’. Bitsing voorschrijft dat je de juiste verhoudingen moet toepassen. Lego domineert dan zie je Lego meteen bij binnenkomst. Playmobil maakt na Lego de omzet van ToysXL vandaar dat je na de Lego sensatie in de wereld van Playmobil komt gevolgd door alle andere producten die naar rato domineren.

Vraag: Wat sprak jou nog meer aan van de Bitsing aanpak?

Eddy: “Het risicoloze aanbod. Bitsing zegt dat wanneer je bezoekers naar je winkel wilt krijgen je hen risicoloos en vooral niet commercieel moet benaderen. Zij moeten een aanbod krijgen die voor hen drempelloos is en aantrekkelijk genoeg om hen in beweging te krijgen naar een van onze winkels. Dat doe je niet met een korting.
Bitsing noemt dit een risicoloos aanbod. Wij claimden ‘de verlanglijst’ tijdens Sinterklaas en Kerst. Kinderen konden hun verlanglijstje invullen en deze in onze, speciaal voor deze gelegenheid gemaakte, wens put gooien. Iedere winkel was voorzien van een kartonnen wens put waar de verlanglijstjes in gegooid konden worden.
Kinderen konden direct bij de voordeur hun verlanglijstje in de ‘wensput’ gooien en wij trokken daar een winnaar uit. De winnaar won alle producten op zijn verlanglijstje. De kinderen brachten hun verlanglijstje met een van de ouders en daarmee steeg ons bezoek aan de winkels enorm. Natuurlijk konden de verlanglijstjes ook digitaal ingeleverd worden hetgeen gezorgd heeft voor meer online verkeer naar onze webshop”.

Vraag: Waren er nog verrassende elementen die ToysXL heeft toegepast?

Eddy: “Ja zeker. Wij dachten altijd dat de moeder of groot ouders het geld uitgaven bij onze winkels. Dit was een aanname. De Bitsing analyse wees uit dat het de vader was. Dit bleek feitelijk zo te zijn. Vader betaalt de producten bij de kasse en moeder en kinderen beïnvloeden de vader tot het aansporen van de koop. Wij zijn ons in de communicatie meer gaan focussen op vaders”.

Vraag: Welk element van de Bitsing is het meest wezenlijke dat je toegepast hebt en voor verandering heeft gezorgd?

Eddy: “Bitsing hanteert een analyse dat exact naar voren weet te halen wat jouw organisatie, volgens Bitsing, niet-kopieerbaar maakt. Geen sterktes en zwaktes analyses zoals we deze kennen, maar een methode die ervoor zorgt dat ToysXL haar markten onverslaanbaar bewerkt. Met onverslaanbaar bedoelt BiTS dat wij als ToysXL iets naar de markten communiceren wat onze concurrent nimmer kan zeggen. Dat is een gave exercitie. Immers als je iets zegt of doet wat een ander ook kan dan maakt dat jou niet aantrekkelijker. Bitsing vond bij ons iets wel erg bijzonders. Wat maakt ons niet kopieerbaar? Na de Bitsing analyse kwam naar voren dat wij een ‘Nederlands kind zijn met Amerikaanse Ouders’. Wij stammen af van Toys ‘R’ us. ’s-Werelds grootste speelgoedzaak en komt van origine uit Amerika. Op Time Square, waar beter, staat ’s werelds grootste Toys ‘R’ us speelgoedzaak. Onze concurrenten in Nederland zijn Intertoys en Bart Smit en komen uit Volendam.
Time square vs. Volendam…zegt u het maar.
ToysXL heeft de ‘niet-kopieerbaarheid’, gevonden door Bitsing, toegepast. Omdat wij handelen met de oer Hollandse nuchterheid en zakelijk inzicht en het grootse denken en de service gerichtheid van de Amerikanen dat als geen ander kunnen, hebben wij gekozen voor een communicatie aanpak waar typisch Amerikaanse tradities zijn toegepast zoals een Black Friday en een Cyber monday. Dit zijn dagen waar Amerika helemaal los gaat en zich gek koopt omdat de winkels 24 uur open zijn met speciale prijzen”.

Vraag: Zijn er nog meer succesverhalen die mede te danken zijn aan de Bitsing Methodologie?

Eddy: “Ja. Een interessante vond ik zelf bij de meet & greet in Nurnberg bij de Spiellmesse was Lego onder de indruk van onze aanpak dat zij ons op een voetstuk hebben geplaatst. Dat wil zeggen dat wij als ToysXL alles van Lego eerder geleverd krijgen dan de andere speelgoed winkels in Nederland. Wij sluiten dan ook niet uit dat er zich Apple taferelen zullen voltrekken voor onze winkels met kinderen in slaapzakken voor bijvoorbeeld de nieuwste items van een Lego Chima of Lego Ninjago!
Wegens dit succes zijn we bezig onze tweede Lego store te openen en willen eind 2013 4 Lego stores hebben”.

Vraag: Hoe zou jij de Bitsing willen in een zin voor ToysXL willen omschrijven?

Eddy: “…magie op de werkvloer!”.