What is Purchasing Power Parity?

Purchasing Power Parity (PPP) is an economic theory that posits that the exchange rates between currencies are in equilibrium when their purchasing power is identical in each respective country. 

Why Use Purchasing Power Parity?

In short… because it can increase revenue and profit.

Purchasing Power Parity is especially useful to businesses with a low marginal cost wanting to sell their products or services internationally, for example, software as a service businesses (Saas).

Using PPP, these businesses can set their prices to take into account the economic reality of each country in which they sell their product, making their product affordable and competitive with local competitors.

Rather than reducing revenue through reduced prices, PPP can help businesses increase sales and maximize revenue.

Understanding Purchasing Power Parity

Let’s look at an example to make sense of purchasing power parity.

Imagine that the exchange rate between the US and UK is £0.60, meaning that $1 is worth £0.60. This is known as the nominal exchange rate, and in a perfect world, it would reflect the difference in purchasing power between the two currencies.

Suppose you’ve bought a basket of goods that cost $1,000 in the US, and you wanted to buy that same basket of goods in the UK.

In an ideal world, using the nominal exchange rate of £0.60, your $1,000 basket in the US should cost £600 in the UK.

However, we don’t live in an ideal world, and nominal exchange rates can fluctuate wildly for all kinds of reasons, such as trader speculation, interest rates, inflation expectations, etc.

Because nominal exchange rates can fluctuate so much, they don’t always reflect purchasing power. This is why economists and businesses prefer to use real exchange rates. This real exchange rate is also called the purchasing power parity between two countries.

The real exchange rate and purchasing power parity are exactly the same thing.

Now imagine you actually went to the UK with your $1,000, which you converted into £600 using the nominal exchange rate or nominal exchange rate, and you wanted to buy that same basket of goods.

If you discovered that it would cost you £800, you’d be £200 (or $333) short.

This is the real exchange rate. This is purchasing power parity.

The reality of the situation is that you need $1,333 to buy the equivalent of your $1,000 basket of goods in the UK. We can say that the real exchange rate or purchasing power parity is actually £0.80.

This means that the dollar’s nominal exchange rate (£0.60) is undervalued, as it is not buying you as much as you might expect. An undervalued dollar means it holds less purchasing power than the pound.

Similarly, we could say that the pound is overvalued. An overvalued pound means that it has more purchasing power relative to the dollar.

Example

Imagine you run a U.S.-based software company that develops productivity tools. This company, let’s call it “EfficientSoft,” charges $100 annually for a subscription to its product, which it sells online.

EfficientSoft primarily focuses on the US market, but because it sells online, it also has customers worldwide. A simplified breakdown of its global sales breakdown might look something like this:

The main things to note from this example are that:

• You charge the same price, $100, in all countries.
• The US is your biggest market, and India is your smallest. Also, note that you sell substantially less in China and India than you do in the US and UK.
• The total revenue generated by the Chinese and Indian markets is $40,000

EfficientSoft realized that the average income in China and India is significantly lower than in the U.S. 

For China, while the direct currency conversion rate would suggest setting the Chinese price at 700 Chinese Yuan (assuming an exchange rate of 7 CNY/USD), the average income data and local purchasing power data indicate that such a price would be prohibitively expensive for most Chinese consumers. Instead, using PPP, EfficientSoft decided to price the subscription at 350 CNY, which is more aligned with the local economic environment.

This price adjustment makes the subscription more affordable for Chinese customers and helps EfficientSoft remain competitive against local providers, increasing its market share in China.

EfficientSoft also adjusts its prices for the Indian market using purchasing power parity exchange.

One year later, assuming no changes in the US and UK, the net result of these changes can be seen in the sales table below:

As you can see above, by adjusting their prices for China and India using purchasing power parity, EfficientSoft has dramatically increased its sales and revenue in both China and India.

Not only that, but despite the price dropping in these two markets, the revenue generated from these two countries has increased substantially, from $40,000 before the change to $222,500 after the change, an increase of over 500%.

Without any contribution from the US or UK, EfficientSoft has increased its total revenue by over 12%, from $1,290,000 to $1,472,500.

Another benefit of this change is that the company, while still heavily reliant on its US market, is now less reliant than it was before.

The Big Mac Index

Let’s examine the Big Mac index, which is based on purchasing power parity.

Created by The Economist in 1986, the index uses the price of a Big Mac hamburger in McDonald’s restaurants across different countries to determine whether currencies are at their “correct” level according to PPP.

The Big Mac was used for this because it is sold in over 100 countries. The basic idea is that a Big Mac should cost the same in all countries when the price is converted into a common currency, typically the U.S. dollar.

The index compares the actual exchange rates with purchasing power parity, providing a simple and intuitive measure of currency under or overvaluation.

If a Big Mac is more expensive in one country compared to another when prices are converted at current exchange rates, the currency in the first country is considered overvalued and vice versa.

As you can see in the above example, using purchasing power parity rather than the nominal exchange rate, the Swiss franc is 43.5% overvalued against the US dollar, while the Brazilian real is 15.5% undervalued.

Advantages & Disadvantages

Advantages of PPP

1. Simplicity and Intuitiveness: PPP provides an easy-to-understand framework for comparing different economies.
2. Inflation Adjustment: It offers a mechanism to adjust for inflation differences between countries, helping compare economic output and living standards more accurately.
3. Long-term Economic Planning: PPP benefits strategic planning, investment decisions, and long-term forecasts for businesses and policymakers.

Disadvantages of PPP

1. Market Distortions: External factors like tariffs, taxes, and trade barriers can skew PPP calculations, leading to inaccuracies.
2. Non-Uniform Availability of Goods: The absence of identical goods across markets or significant variations in quality can compromise the effectiveness of PPP.
3. Services and Non-Tradeables: PPP often struggles to accurately reflect the value of non-tradeable services, such as healthcare and education, which can vary widely in quality and cost.

Our Take

Purchasing Power Parity (PPP) is an essential analytical tool for understanding cost-of-living differences across countries. While PPP has flaws, it remains a powerful model for economic analysis.

For business strategists, policymakers, and global investors, PPP offers insights into where currencies stand in terms of real economic value, which is invaluable for making informed decisions. Companies like EfficientSoft, in our example, can use PPP to strategically price their products in international markets, ensuring competitiveness and affordability while accounting for local economic conditions and ultimately maximizing revenues.

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What is the Profitability Index?

The Profitability Index, or PI, is a financial metric used to evaluate the attractiveness of an investment or a project. 

It’s calculated by dividing the present value of future cash flows by the initial investment cost. In simple terms, the PI helps you understand how much value an investment will generate for every dollar spent.

It’s a tool that’s often used for capital budgeting.

What Is Capital Budgeting?

Capital Budgeting involves planning and evaluating major investments or expenditures. The main goal is to determine which projects or long-term investments should receive funding and how these investments will impact the organization’s financial future.

When assessing potential projects, you’ll often utilize financial metrics such as:

• Net Present Value (NPV)
• Return on Investment (ROI)
• Payback Period
• Profitability Index (PI).

Why Use Profitability Index?

To understand why you might choose to use the Profitability Index over some of the other tools available, look at the table below, which shows the differences between them.

So, you might choose to use the Profitability Index because, apart from not telling you how quickly your investment is paid back, it covers all of the bases in the above table. It accounts for the time value of money, cash flows over time, and quantifies your return relative to your initial investment.

Another reason to use it is that it instantly tells you which investment provides the best return per dollar invested.

What is the Profitability Index?

The Profitability Index, or PI, is a financial metric used to evaluate the attractiveness of an investment or a project. It’s calculated by dividing the present value of future cash flows by the initial investment cost. In simple terms, the profitability index helps you understand how much value an investment will generate for every dollar spent.

How to Use the Profitability Index

To use the profitability index, you need to follow three steps:

1. Estimate the future cash flows expected from the project.
2. Calculate the present value of these cash flows using a discount rate.
3. Divide the present value by the initial cost of the project.

Upon doing this, your profitability index will tell you whether your project is profitable. A profitability index:

• Greater than 1 indicates a potentially profitable investment, suggesting the project’s returns exceed its costs.
• Less than 1 indicates that the project will lose money, and it might be wise to reconsider the investment.
• Equal to 1 indicates that the project is expected to break even. There is no reason to start a project that will only break even unless it provides some strategic benefit to your organization.

Profitability Index Example

Imagine your company is considering purchasing a new piece of equipment for $100,000, expected to generate additional cash flows of $30,000 per year for the next five years. Assuming a discount rate of 10%, let’s calculate the profitability index.

Step 1: Estimate future cash flows.

You already know that you expect the project to bring in $30,000 annually for five years. This is represented in the image below.

Step 2: Estimate present value

As you can see, you’re spending $100k, which returns $50k profit, meaning you’re making a 50% profit on your investment. Another way to say this is that you’re making an ROI of 50%.

Now, a 50% return might initially sound pretty good, but what you’re not taking into account is the fact that the value of money is eroded through inflation every year. So $100 dollars in five years’ time isn’t going to buy you anywhere near what $100 can buy you today.

This is why we have step 2. It’s there to calculate what the future cash flows you expect are worth today. So, let’s take a look at how you calculate them.

Tip: There’s more to calculating NPV than we show you here. So, if you’d like to learn more about calculating net present values, look at our dedicated NPV article.

To calculate the present value of your year one cash flows, you simply divide 30,000 by 1.1, with 1.1 representing your hurdle rate of 10%

If your hurdle rate were 20%, you’d set this to 1.2. If your hurdle rate were 35%, you’d set this to 1.35 etc.

To calculate the present value of your year 2 cash flow, you use a very similar calculation, except this time, you multiply the 1.1 by another 1.1 because you need to discount your year 2 cash flow by two years’ worth of hurdle rate.

Basically, we take our 30,000 for year 2, discount it by 10% to get its year 1 value, and then discount it by another 10% to figure out what it’s worth to us today.

Repeating this for all five years, we get:

If we then calculate all our present values, we end up with this:

Now, if you add everything up, that gives you an NPV of $13,723.

The good news is that your number is positive, which means you’ve made a profit. If the number were negative, then you would have made a loss.

The not-so-good news is that by translating your future cash flows into what they’re worth today, you’ve only made a profit of $13,723 against your initial $100k investment. Nowhere near as good as what the ROI figure you’d previously calculated would have led you to believe.

You’re now ready to calculate our profitability index, which is the final step.

Step 3. Calculate the profitability index.

The profitability index is then calculated as adding up all the future cash flows (note that we exclude our initial investment from this), and then dividing by the initial investment.

For our example, that gives you 113,723 divided by your initial investment of $100,000

That gives you a profitability index of 1.13723

That’s good news. A value greater than 1 means a project is profitable, whereas a value less than 1 means the project is unprofitable.

The big advantage of PI is it allows you to compare the relative profitability of multiple projects quickly, even when they differ significantly in scale and investment required.

Advantages of the Profitability Index

The Profitability Index offers several advantages:

• Efficiency in Comparing Projects: PI helps compare the relative profitability of multiple projects quickly, even when they differ significantly in scale and investment required.
• Value-Oriented: By focusing on the value created per unit of investment, PI aligns closely with the goal of maximizing shareholder value.
• Useful in Capital Rationing: It is particularly beneficial when resources are limited, helping prioritize projects that provide the highest value return per dollar invested.

Disadvantages of the Profitability Index

However, the PI is not without its drawbacks:

• Dependence on Accurate Cash Flow Forecasting: Like any tool based on discounted cash flows, the accuracy of PI calculations heavily relies on the precision of future cash flow estimates.
• May Ignore Absolute Profit Sizes: PI does not consider the total profit volume. A project with a high PI but a relatively small total profit might be less desirable than a larger project with a slightly lower PI.
• Complexity in Calculation: Calculating present value involves assumptions about the discount rate and future cash flows, which can complicate the process.

Our Take

The Profitability Index is a practical and effective tool for making informed investment decisions. It provides a quick and straightforward metric that helps compare the potential returns of different projects relative to their costs. However, like any analytical tool, its effectiveness is contingent upon the accuracy of the input data and the context in which it is used. When you understand its limitations and use it in conjunction with other financial metrics and qualitative factors, the PI can significantly enhance your decision-making process in project evaluation and capital allocation.

By integrating the PI into your financial toolkit, you can better navigate the complexities of investment opportunities, ensuring that your capital is deployed in the most profitable ventures possible. Whether managing small projects or large-scale investments, mastering the Profitability Index will empower you to optimize your returns and achieve your business objectives more efficiently.

References:

1. “Principles of Corporate Finance” by Richard A. Brealey, Stewart C. Myers, and Franklin Allen.
2. “Corporate Finance” by Stephen A. Ross, Randolph W. Westerfield, and Jeffrey Jaffe.

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Have you ever wondered why people react differently under similar circumstances? Or why certain tasks and environments seem to suit some individuals better than others? Understanding these nuances can significantly improve both personal and professional relationships. This is where the Big 5 Model of Personality comes in. It provides a robust framework to help decipher human behavior and personality traits, aiding in better communication, job placement, and personal development.

Overview of the Big 5 Model of Personality

The Big 5 Model, also known as the Five-Factor Model, categorizes personality into five broad traits: Openness, Conscientiousness, Extraversion, Agreeableness, and Neuroticism. Each trait represents a spectrum where an individual can score low, high, or somewhere in between, providing a versatile tool for understanding human behavior.

History of the Big 5 Model

The origins of the Big 5 Model can be traced back to the 1940s and 1950s when researchers began systematic efforts to categorize descriptive terms for human behavior. The real breakthrough came from the work of several independent groups in the 1960s and 1970s who, through factor analysis of personality descriptors, identified similar underlying factors, which were later labeled as the Big Five. It has since been refined and validated through decades of psychological research and is now considered one of the most reliable and accurate measures of personality.

Note that the model was not the work of a single individual but rather the result of cumulative research and development by several psychologists over many years.

Detailed Breakdown of Each Trait

1. Openness to Experience: This trait features characteristics like imagination, curiosity, and a broad range of interests. Individuals who score high in openness are often adventurous and creative. They are open to new experiences and enjoy exploring novel ideas and cultural events. Conversely, those with low scores may prefer routine, have more conventional interests, and be more resistant to change.
2. Conscientiousness: High scorers on conscientiousness are often organized, mindful of details, and responsible. They plan ahead, strive to fulfill their duties, and follow norms and rules. This trait is a reliable predictor of effective performance at work, as it influences how diligently someone plans and carries out tasks. On the other hand, those with lower scores might display spontaneity and flexibility but can also tend towards disorganization and procrastination.
3. Extraversion: This involves the extent to which individuals are outgoing, sociable, and energetic. Extraverts enjoy and actively seek out social interactions and are often perceived as talkative and assertive. They generally feel energized by being around other people. Introverts, or those low in extraversion, might find social gatherings draining and prefer solitude or small groups, often perceived as reserved or reflective.
4. Agreeableness: This trait reflects attributes like trust, altruism, kindness, and affection. High scorers on agreeableness are typically cooperative and compassionate towards others, making them well-liked in social and work settings. They tend to avoid conflicts and strive for harmony. Conversely, individuals scoring low may be more competitive or challenging, often skeptical of others’ intentions.
5. Neuroticism: This trait measures emotional stability and the degree of negative emotions. Individuals who score high on neuroticism may experience stress, anxiety, and mood swings more frequently and intensely than those with lower scores, who tend to be more emotionally stable and resilient to stress.

Tip: How to Remember the 5 Traits

The Big 5 Personality Model is also commonly called the OCEAN model. This acronym stands for the five major dimensions of personality:

• Openness to Experience
• Conscientiousness
• Extraversion
• Agreeableness
• Neuroticism

The OCEAN acronym can help you easily remember the five traits that the model describes. Some sources also refer to it as the CANOE model, which is just another rearrangement of the initials of the same five traits.

Advantages & Disadvantages

1. Advantages of the Big 5 Model

One of the significant benefits of the Big 5 Model is its universality and reliability across different cultures, making it a valuable tool for global applications. The model’s traits are stable over time, providing consistent insights into an individual’s behavior. Additionally, it is empirically driven, with a strong foundation in research, making the results predictable and valuable for personal and professional uses.

2. Disadvantages of the Big 5 Model

The Big 5 Model is not without its limitations. The main criticism lies in its simplicity and the high-level nature of its categories, which can overlook nuanced aspects of personality. Furthermore, the model focuses on general dispositions and does not account for personality changes that can occur due to external circumstances or internal growth.

The model focuses on traits, which are long-term, stable characteristics. It’s important to distinguish these from states, which are temporary and situational. The model primarily helps you understand the enduring aspects of personality rather than short-term emotional states or reactions.

The Big 5 model does not encompass all aspects of personality. Other models, like the HEXACO model, which includes a sixth trait called Honesty-Humility, or various models of personality disorders, provide additional dimensions that can complement the insights provided by the Big 5.

Example: Workplace Team Formation

Imagine you are a manager tasked with assembling a project team. With the Big 5 Model, you can strategically assign roles that align with individual personality traits, fostering a balanced and effective team. Here’s how you might apply it:

• Openness: Choose someone high in openness to lead efforts on creative tasks, such as designing a new marketing campaign or brainstorming product innovations.
• Conscientiousness: Assign a conscientious person to manage the project’s timeline and details, ensuring that milestones are met and standards are upheld.
• Extraversion: Appoint an extrovert to handle client interactions and team presentations; their energy and sociability can enhance communications and energize the team.
• Agreeableness: Engage someone high in agreeableness to mediate team conflicts and help maintain morale, ensuring smooth interpersonal dynamics.
• Neuroticism: Be mindful of those high in neuroticism by providing support in high-stress situations or roles that match their coping capacity without overwhelming them.

How to Determine Your Big 5 Scores

To determine your Big 5 personality scores, you have several options:

1. NEO Personality Inventory (NEO-PI-R) – Developed by Paul Costa and Robert McCrae, this is one of the most widely used instruments for assessing the Big Five personality traits. It provides a detailed analysis of each trait, including sub-traits.
2. International Personality Item Pool (IPIP) – The IPIP offers free, public-domain scales that measure the Big Five personality factors. It provides a broad range of items that mimic the questions found in more proprietary tests like the NEO-PI-R.
3. Big Five Inventory (BFI) – This is a shorter test typically consisting of around 44 items that measure the five major dimensions of personality. It’s widely used in psychological research and is praised for its brevity and effectiveness.

Our Take

Despite some criticisms, the Big 5 Model of Personality is a powerful tool for understanding human behavior. It is practical and useful in various settings, including workplace management, education, and personal growth. By leveraging this model’s insights, you can enhance interpersonal interactions and optimize team performance, making it a useful resource in your toolkit.

By incorporating the Big 5 Model into your everyday interactions, you gain a deeper understanding of yourself and others, paving the way for more meaningful and productive relationships.

Personally, I don’t find assigning tasks by personality to be that beneficial. I prefer to assign the most important tasks to my best people, usually those with the strongest work ethic. However, it can be a good way to approach task assignment for non-critical tasks.

References

1. Goldberg, L. R. (1993). “The structure of phenotypic personality traits.” American Psychologist, 48(1), 26-34.
2. Costa, P. T., & McCrae, R. R. (1992). “Revised NEO Personality Inventory (NEO-PI-R) and NEO Five-Factor Inventory (NEO-FFI) professional manual.” Odessa, FL: Psychological Assessment Resources.
3. McCrae, R. R., & John, O. P. (1992). “An introduction to the five‐factor model and its applications.” Journal of Personality, 60(2), 175-215.
4. Digman, J. M. (1990). “Personality structure: Emergence of the five-factor model.” Annual Review of Psychology, 41, 417-440.
5. John, O. P., Naumann, L. P., & Soto, C. J. (2008). “Paradigm shift to the integrative Big Five trait taxonomy.” In O. P. John, R. W. Robins, & L. A. Pervin (Eds.), Handbook of personality: Theory and research (pp. 114-158). New York, NY: Guilford Press.

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In a crowded marketplace, most businesses are being ignored. StoryBrand says that this is because they aren’t communicating clearly. Lack of clarity means not only that your customers don’t know what you do and what you stand for but that your salespeople don’t know how to differentiate your products in the marketplace.

The StoryBrand 7-Park framework aims to fix this problem. Once you have implemented the framework, you’ll be seen, heard, and understood in the marketplace.

The StoryBrand BrandScript framework is based on the principles of storytelling.

What You’ll Learn

At the end of this article, you’ll be able to create marketing material that positions you uniquely in the marketplace, connects more deeply with your customers, and ultimately increases revenue. You’ll know how to apply StoryBrand to all marketing material, including:

• Websites.
• Email campaigns.
• Your physical place of business.
• Your talks and keynote speeches.
• Promotional videos.
• Staff training materials.
• Your product packaging.

The Big Picture: The StoryBrand Framework

The underlying premise of the framework and something to keep in mind as you develop your SortyBrand is, “If you confuse, you lose.” 

Let’s jump in and take a brief look at the seven elements that make up the StoryBrand framework.

1. A Character: In StoryBrand, your story starts when the hero (a character) wants something. Your customer is the hero, not you or your brand.
2. With a Problem: A story starts to get interesting when the main character encounters a problem. In StoryBrand, by defining your customer’s problem clearly, you cause them to move towards you.
3. Meets a Guide: In a typical story, the main character can’t just sort out their problem; otherwise, they’d have never gotten into their predicament in the first place. They are looking for a guide to help them.
4. Who Gives Them a Plan: The plan makes it easy for customers to see how to work with you by showing them the baby steps they can take to work with you.
5. And Calls them to Action: Customers need to be called to action. If you don’t make it crystal clear what you want them to do, they won’t take action.
6. That Helps Them Avoid Failure: Every human is motivated to avoid failure, so you must define and articulate what they could lose if they don’t take action (take action = engage your business in some way).
7. And Ends In Success: You need to clearly define what your customer’s life will look like if they engage with your brand.

These seven steps are the exact same ones used in countless stories and movies. For example, in Star Wars, Luke needs to defeat the evil Empire by becoming a Jedi. But how? Fortunately, he meets a guide, Yoda. Yoda presents him with the steps and training to become a Jedi and defeat the Empire. If he fails, his friends die. If he wins, the Empire is defeated.

The One-Page BrandScript

The image below shows a One-Page BrandScript template.

Let’s walk through each of the seven steps so you can fill it in, thus creating new and effective messaging for your brand. Then, we’ll look at how to apply your BrandScript to your marketing materials.

Before we begin, remember that stories are at their best when they are simple. For this reason, avoid adding too much information to your BrandScript.

As we run through this section, don’t worry if it seems a little abstract; it will become much clearer when we bring it to life with an example.

1. A Character

Here, you write down what your customer wants. Limit yourself to just writing one thing. Yes, you might offer 200 products, but remember that you’ll lose your reader if you try to talk about too many wants.

By articulating what the hero of your story wants, you introduce a story question in your customer’s mind: can this brand really help me get what I want?

When you identify something your customer wants and communicate it simply, the story you’re inviting them into is given definition and direction.

Too many businesses try to speak with too many audiences because they are afraid of missing out. If you do this, your message will become diluted. Choose your best or favorite customer and write everything directly to that one customer.

2. With a Problem

Now that you’ve entered into your customer’s story, how do you increase their interest in your brand? You start talking about the problems your customer faces.

In this section of BrandScript, you write down the external, internal, and philosophical problems hindering your customer, defined as follows:

• External problem: a problem outside the control of your customer.
• Internal problem: how the external problem makes them feel.
• Philosophical problem: why is it fundamentally wrong that they are having to deal with this problem?

While it’s fine to solve multiple problems for customers, your marketing should focus on one main problem. Talking about too many problems creates confusion and it dilutes the power of your message.

3. Meets a Guide

Step 3 is the first point in the BrandScript in which you talk about your brand. There are two characteristics of a guide: that they empathize with your customer’s situation and that they have the authority (ability) to help.

Here, you write down how you can empathize with what your customer is feeling. You also write down your authority: testimonials, awards, statistics, etc., that show you can help them.

4. Who Gives Them a Plan

In this section, you write down how easy it is to do business with you. StoryBrand recommends you write this as a simple three-step process. For example:

• Schedule a call -> get a customized plan -> Let’s execute it together.
• Download our software -> Try for free -> Enjoy stress-free financial reports.

5. And Calls Them to Action

In this section, you write your primary call-to-action and your transitional call-to-action.

Your primary call to action should be how you ask for a sale, for example, “Buy Now.”

Your transitional call to action works when your customer isn’t ready to buy immediately. Just because they aren’t prepared to buy right now doesn’t mean the story or the relationship should end. Transitional calls to action contain less risk than direct calls to action and usually offer something for free, for example, “Download a Case Study” or “Try Our Software For Free.”

6. That Helps Them Avoid Failure

In this section, you should articulate what failure will befall the customer if they don’t choose to do business with you. What are you helping customers to avoid? What are the stakes?

It’s important only to state one or two negative consequences; if you overdo it, you’ll repel potential customers.

7. And Ends In Success

Never assume that potential customers understand how your brand can change their lives. Tell them!

Write down what your customer will experience after doing business with you.

8. Transformation

The final section is for you to write down the transformation your customers will have gone through once they’ve done business with you.

Here, you write down what their status, average day, or how they felt was like before the transformation and how it is after the transformation.

StoryBrand Example

Let’s create a BrandScript for a real-world business. In this case, we’re going to look at an orthodontist business.

Here’s what their BrandScript might look like:

A Character:

• A parent. They want their child’s teeth put right.

With a Problem:

• External: Their child’s teeth need work.
• Internal: They want their child to have more confidence, to get more opportunities in life, and to be more successful.
• Philosophical: Everyone deserves the best start in life.

Meets a Guide:

• Empathy: As a parent, I know how heartbreaking it is when kids have to hide their smiles.
• Authority: Testimonials from our happy clients.

Who Gives Them a Plan:

1. Schedule an appointment.
2. Get a customized plan.
3. See your child’s confidence grow.

And Calls them to Action:

• Direct: Schedule an appointment.
• Indirect: Download testimonials.

That Helps Them Avoid Failure:

• The text implies that if they don’t take action, they will go through life with less confidence and be less successful.

And Ends In Success:

• More confidence.
• More connections.
• More opportunities.

Notice how you don’t show the different procedures or prices offered. We keep our communication simple and focused on the transformation.

Now let’s look at a website for this BrandScript, starksmiles.com. Not all of the website is visible in the image below, so please visit starksmiles.com to see for yourself.

So, how does this website reflect the BrandScript we’ve created? Well:

• The headline is written in a very character-driven fashion.
• The call to action is above the fold.
• The images used show a successful outcome. They also show the orthodontist’s office as a friendly place, which helps alleviate some of the fear of visiting an orthodontist.
• The benefits of more confidence, connections, and opportunities are clearly highlighted.
• The empathy is displayed in the “Meet Your Orthodontist” section.
• The three-step process is displayed.
• Authority is shown through testimonials.
• Finally, the transformation is described at the bottom of the homepage with a final call to action.

Ultimately, this website is a clear communication of this business’s BransScript.

Applying StoryBrand In Real Life

We’ve just looked at an example of how to apply the StoryBrand BrandScript to a website, which should help you apply it to your own website.

But StoryBrand BransScript isn’t just useful for positioning your website; you can use it in all your marketing materials, such as:

• Email campaigns.
• Your physical place of business.
• Your talks and keynotes.
• Promotional videos.
• With your team.
• Your product packaging.

Below you’ll find the checklists you need to help you apply StoryBrand to all aspects of your marketing.

StoryBrand Checklist: Website

StoryBrand Checklist: Email

StoryBrand Checklist: Place of Business

StoryBrand Checklist: Speech

StoryBrand Checklist: Promotional Videos

StoryBrand Checklist: With Your Team

StoryBrand Checklist: Product Packaging

StoryBrand BrandScript Template

If you’d like to create your own StoryBrand BrandScript, you can download the template below here.

Our Take

You can think of a StoryBrand as a recipe for clear communication with potential customers.

To get the most out of StoryBrand, ensure that you:

• Take the time to create a very focused and clear BrandScript.
• Ensure it is embedded within all your marketing materials and staff training.

All in all, using and implementing a StoryBrand BrandScript provides clear and easy steps to communicate with your customers in a straightforward yet profound way, making it more likely for you to stand out in the marketplace and for them to want to do business with you.

The post How To Create A StoryBrand appeared first on Expert Program Management.

This first article of the series will lay the groundwork for what’s to come. The contents of this article may seem basic, but even if you’ve managed projects before, you might still find something of value here.

Why Do We Need Project Management?

You may think that project management as a discipline is a relatively new phenomenon, only having come into existence during the Industrial Revolution, but you’d be wrong. 

The history of project management goes back over 3,000 years. Almost all great human projects would have necessitated project management to ensure their coordinated and successful completion, including:

• Stonehenge (circa. 3,000 BC.)
• The pyramid at Giza (circa 2,560 BC.)
• The Great Wall of China (206 BC.)
• The Colosseum (70 AD.) 

The Great Pyramid at Giza was built as a tomb for the Egyptian pharaoh Khufu. It is made of 2.3 million blocks of stone, weighing over 5.9 million tonnes. It was built over 20 years, requiring 100,000 workers to complete. 

Even though it may not have been known by the name project management at the time, project management would have been required to ensure the pyramid was built in a systematic and controlled manner by all 100,000 people involved in making it. 

The same is true for all the other human achievements listed here. 

The project management fundamentals for all of these structures would have involved lots of the tasks we would recognize today from project management, including: 

• Planning the work and the order in which workers should do it. 
• Ensuring that the quality of work is as expected.
• Rectifying problems as they arise.
• Communicating progress updates to the person who commissioned the project. 

The takeaway is to realize that project management isn’t something corporations or MBA graduates invented to add bureaucracy and slow initiatives down, but something that is necessary and vital for certain complex undertakings to be completed successfully. 

Project Management Accreditations

Before we go any further, let’s look at the professional qualifications for project management. While each of these qualifications is different, there is much similarity between them. 

For our purposes, it is not important to understand the differences between these qualifications, but it is important to know that these qualifications exist. The main ones are: 

• PMP: Project Management Professional. This qualification is provided by the PMI (Project Management Institute) and is the most widely recognized project management qualification globally. 
• PRINCE2: PRojects IN a Controlled Environment. A UK project management qualification jointly owned by the UK Cabinet Office and Capita Ltd. 
• PMQ: Project Management Qualification. A project management qualification overseen by the Association of Project Managers Group (APMG).

What Is A Project?

All kinds of initiatives can be projects, for example:

• Creating a new product or service.
• Running a political campaign.
• Constructing a building.
• The purchase and integration of another business.
• Sending a man to Mars. 

Given such variety, what do all these projects have in common? 

To answer this question, let’s examine the definition of a project. There is actually no single definition of a project, but some of the common definitions are: 

• The PMI defines a project as “a temporary endeavor undertaken to create a unique product, service, or result.” 
• In PRINCE2, a project is defined as “a management environment created for the purpose of delivering one or more business products according to a specified business case.” 
• The Oxford English dictionary defines a project as “an individual or collaborative enterprise carefully planned to achieve a particular aim.” 

Characteristics Of A Project

Although there isn’t a shared definition of a project, by examining these definitions, you can see that some characteristics stand out. 

1. Projects are Temporary

Projects are temporary, meaning they have a start and end date. When the work of the project has been completed, the project team that worked on the project is disbanded. In this way, projects differ from business as usual, which is concerned with day-to-day operational tasks. 

2. Projects are Unique

If you look again at the PMP project definition, you will see that projects are undertaken to create a unique product or service. Because the project or service you’re creating is unique, then so is the project. 

This may be stating the obvious, but the fact that projects make something unique means that the project hasn’t been undertaken before. 

This uniqueness introduces risk – unforeseen issues that arise during the project, threatening to delay it, or worse. 

3. Projects have Defined Deliverables

Deliverables are the measurable outputs that the project delivers. They may be small, such as in a project to fit a new kitchen, or large, such as a project to provide a new nationwide unified healthcare system. 

Tools such as a Product Breakdown Structure (PBS) and Work Breakdown Structure (WBS) (which we’ll look at soon) will often be used here to help identify the deliverables and the work needed to create them. 

4. Projects Bring about Change 

Because projects produce something unique, the world that exists after the project is completed will be different from the world that existed before the project was started. 

This change to the world might be small, such as after we have fitted a new kitchen in our home, or it might be huge, such as after the completion of the project to provide internet access to all people in the developing world. 

5. Projects Consume Resources 

Someone needs to do the work of the project as it isn’t going to do itself. A small project might have one or two people working on it, whereas a large project could have thousands of people working on it. 

6. Projects have a Business Case 

A project is not worth undertaking unless its deliverables achieve some useful aim. 

There are many reasons to undertake a project. The reason can be tangible, such as to increase revenue or reduce costs. Equally, it can be intangible, such as to better prepare for the future or align an organization with its new strategy. 

Business Cases will vary in formality from project to project and organization to organization. A startup initiating a project is probably operating in a very simple environment – often only running one project, and the project manager has direct access to the founder if they have questions. In this environment, perhaps no formal business case will exist other than the founder’s authorization to start. This is very different from a large organization trying to achieve many simultaneous objectives. 

What is Project Management?

Now that we understand what a project is, we can see that project management is the processes, techniques, and skills to achieve the project’s objectives. 

The aim of project management is to deliver the agreed deliverables predictably, on schedule, on budget, and to the agreed quality level. All of these components of the project combined define the scope of the project. 

This diagram is known as the project management triangle, or sometimes the triple constraint or iron triangle diagram. What it is showing you is twofold. That: 

1. The scope must be specified in terms of the project schedule, the quality level required, and the budget available to complete the work. 
2. If a significant issue occurs and you can no longer complete the project as planned, then you must compromise on the timeframe, the budget, or the quality level. 

If we cannot compromise on these three values, then the only option remaining is to compromise on the scope itself. 

It should be obvious that delivering complex projects that deliver unique things that have never been undertaken before can go wrong. This is why the word “predictable” is important. 

We’re trying to manage delivery in a predictable way to an agreed scope. When things go wrong, which is natural and sometimes unavoidable, we must agree to a scope change if we’re going to continue to deliver the project predictably. 

This could mean increasing the time available to deliver the project or reducing the deliverables, for example. 

It can sometimes be easy to be overwhelmed by the complexity of different project management techniques, different project management methodologies, and different tactics for managing teams and projects, so it is worth remembering that at its heart, there are just four simple steps to project management: 

1. Ensure you understand why the project is being done and what the project will produce. 
2. Plan the project to understand how long it will take and the cost. 
3. Manage the project to ensure it meets its scope (deliverables, budget, timescale, and quality). 
4. Close the project once everything delivered by the project is of the required quality.

Project Management Fundamentals: Our Take

Project management can often seem as though bureaucrats invented it during the Industrial Revolution, but in fact, its use dates back over 3,000 years.

There are many approaches to project management and many different tools associated with project management, so it can be easy to think of project management as being very complex. But at its heart, project management needn’t be complicated. It’s about creating something unique to achieve an aim in a controlled way.

The post Project Management Fundamentals appeared first on Expert Program Management.

Imagine you are the owner of a small e-commerce company. You hire a freelance web developer, Mike, to build you a new website, which you want to launch on January 1st, in the hope of skyrocketing your sales over the next year.

The deadline to launch your new site is getting close, and Mike has failed to respond to an email you’ve sent within 24 hours for the third time in a row. You have to call Mike each time this happens to follow up.

You’re frustrated with Mike’s repeated failure to respond to your emails. You’re worried you’ll miss your deadline, and your big plans to boost sales next year will be immediately behind schedule.

You decide that you will have some strong words with Mike about the importance of professionalism. If that doesn’t get him to perform better, you’re going to fire him and find someone who understands the importance of responding promptly and being professional.

Doing this seems perfectly reasonable to you as a frustrated business owner, but what if you had avoided jumping immediately to “action” and instead taken the time to uncover more facts?

In that case, you’d have discovered that Mike is having email problems, and your emails are being inexplicably and automatically moved to his spam folder. Mike is a one-person business and is stressed because his email is playing up while he’s working hard to try and launch your website on time.

Would you still choose to read the riot act to Mike if you knew this? Probably not.

If this example is familiar to you, and you’ve been annoyed with someone’s behavior only to realize later there were extenuating circumstances, then you’re guilty of climbing the “ladder of inference.”

The ladder of inference is a framework that can help you avoid making this kind of mistake. It’s particularly useful to stop yourself from making rash decisions or when making more significant decisions, such as setting your business strategy or even buying a house.

In this article, we’ll explain the model, show you how to use it, and look at an example so that you can make better-informed decisions in the future.

What Is The Ladder of Inference?

The ladder of inference, sometimes called the “process of abstraction,” was developed by Chris Argyris, a business theorist. It’s a tool that can help you understand how you think and make decisions, and understanding how you think can help you to make better decisions.

You can think of the ladder of inference as a ladder made up of seven rungs. For every action you take, you progress through all seven rungs, usually without realizing it.

At the top of the ladder are the actions you take. You take these actions based on all other ladder rungs, starting with the lowest rung, “Observe.”

Each of us performs these steps almost instantly, without realizing it, multiple times per day.

Let’s walk through what happens on each step of the ladder. We’ll do this quickly and then look at an example to bring the ladder to life.

Step #1: Observe

You observe the world around you, which is the reality and facts of a situation.

Step #2: Select Data

You filter out the data you think is irrelevant to your situation. You cherry-pick what’s important based on your beliefs and experience.

Step #3: Add Meaning

You interpret your selected data by adding meaning to it. 

Step #4: Assumptions

Now that you’ve added meaning, you can make assumptions or apply your previous assumptions or beliefs.

Step 5: Conclusions

You can now draw conclusions about what the situation means by combining your facts, meaning, and assumptions.

Step 6: Beliefs

Based on the conclusions you draw, you begin to form beliefs. You carry this embryo of a belief into future situations, and each time you draw a new conclusion using this belief, you reinforce it.

In this way, you create a negative cycle, called a reflexive loop, whereby you make decisions based on your beliefs, and each decision you make reinforces your beliefs.

Step 7: Action

Finally, based on the culmination of all the previous steps, you take what you believe to be the right course of action for you.

Unfortunately, you often act based on your beliefs and assumptions rather than seeking out and considering all the facts. Ultimately, this results in you choosing the wrong course of action.

Ladder of Inference Example

In this example, imagine that you’re meeting your friend, Niamh, for lunch. Here is how you move up the ladder in this example. 

1. You agree to meet Niamh for lunch at 1 pm (“observation”). 
2. Your “selected the data” is that Niamh has arrived fifteen minutes late but hasn’t apologized.
3. You “add meaning” by noting that this is the third time in a row that Niamh has arrived late for lunch. 
4. You “assume” that Niamh doesn’t care about you enough to bother being on time. This is “an assumption” because you don’t actually know what Niamh thinks about you.
5. You “conclude” that it’s not a good use of your time to meet Niamh again because she doesn’t value your friendship.
6. Your conclusion that Niamh doesn’t value you becomes a “belief.”
7. Finally, towards the end of lunch, when Niamh asks when you’d like to meet for lunch again, you take “action” by informing her that you’re really busy at the moment, so you don’t think it’s a good idea, right now. Here, you’ve taken the best “action” for you based on all the previous steps of your ladder of inference.

At the end of lunch, you’re not going to meet Niamh again, and Niamh doesn’t know why.

You’ve climbed the ladder of inference and probably haven’t even realized it. Because the truth is that there could be any number of reasons why Niamh was late meeting you for lunch.

How to Avoid Climbing The Ladder of Inference?

There are three simple steps you can take to stop yourself from climbing the ladder of inference:

1. Reflect: take time to reflect on the soundness of your logic before making decisions. Do this from a position of understanding that your reasoning may be flawed because you’re missing some facts.
2. Share: take the time to share with others the decision you’re about to make and the logic behind it. Doing this will trigger a conversation and allow others to provide input you may not have been previously aware of.
3. Ask: take the time to ask others what they are thinking.

Let’s return to our original example, where you’d ended lunch without agreeing to meet Niamh again.

How could you have used the techniques above to reach a better decision?

Well, you could have asked Niamh any one of these questions to find out what she was thinking:

• “You’re a little late. Is this a bad time for you generally?”
• “Did you have any problems getting here today?
• “You know, if it’s a struggle for you to get here, I’m totally fine if you’d prefer to cancel next time.”

Any of these questions could have opened up the conversation and helped you discover why Niamh was late for lunch.

Our Take

The ladder of inference outlines the sequence of mental steps we all go through multiple times daily. To get the most from this tool, you don’t need to remember any of the steps from the ladder of inference.

All you need to remember is to make the logic behind your thinking and the reasoning behind the thinking more obvious to others.

So, if you’re thinking of taking action, let people know what action you’re thinking of taking and why. This will improve communication by opening a dialog, helping you discover if your proposed action is indeed the best course to take or whether other facts emerge to make you change your mind.

The post The Ladder of Inference appeared first on Expert Program Management.

Imagine that you run a large global company, such as Microsoft, consisting of many different divisions, each selling a different product. 

You are responsible for setting the overall strategy and long-term vision of the company, but how do you ensure that every single employee is working towards that vision every day? Still more challenging, how do you make each employee care about your strategy?

This is the problem that Hoshin planning is designed to solve. It is designed to keep everyone within the organization working towards and aligned with your strategic objectives. It eliminates inefficiencies resulting from a lack of communication or alignment between different departments of an organization.

Ultimately, Hoshin Kanri bridges the gap between strategy and execution by ensuring everyone is bought into the strategy, aligned with it, and focused on achieving it.

Continuous Improvement Built-in

Before we go through the Hoshin planning process, be aware that Hoshin Kanri isn’t just a top-down approach, as it has two built-in feedback mechanisms to increase the model’s effectiveness.

These mechanisms are called catchball and the PDCA cycle.

1. Catchball

Catchball is a back-and-forth technique for improving goals and ideas.

It begins when a manager shares their goals, objectives, ideas, and concerns with their team and then “throws” them to their team for feedback. The team then “throws” their feedback back to their manager.

You repeat this process until there is general agreement, creating a bi-directional feedback loop, which ultimately improves the quality of the goals and objectives, along with achieving buy-in from the team.

Suppose you cascade catchball through all levels of your organization. In that case, everyone at all levels of the organization will have had the opportunity to provide feedback on your organization’s strategy.

2. PDCA Cycle

PDCA stands for Plan-Do-Check-Act and is a structured approach to help you move towards to any goal you’re trying to achieve. You use it by iterating through the cycle repeatedly, with each loop bringing you closer to your desired destination.

The four stages of the PDCA cycle are:

• Plan: Decide what it is you’re going to try and do and make a plan to do it. It’s small, quick, incremental improvements you should aim to achieve, not large-scale projects.
• Do: Execute your chosen plan on a small scale. For example, you might decide to update code on a test server.
• Check: Compare the actual results you’re observing against your desired results. If your solution fails, return to the start of the cycle, but if it succeeds, continue to the next step.
• Act: In this step, you implement your solution fully. That could mean, for example, rolling your code out across the entire organization.

The Seven Steps of Hoshin Planning

The Hoshin planning process consists of the following seven steps:

1. Establish the Strategic Vision.
2. Develop Breakthrough Objectives.
3. Develop Annual Objectives.
4. Deploy Annual Objectives.
5. Implement Annual Objectives.
6. Monthly Review.
7. Annual Review.

Let’s look at each step of the Hoshin planning process in more detail. 

1. Establish the Strategic Vision

The first step is to establish your organization’s strategic vision.

Your strategic vision describes where your organization hopes to get to in the future. Essentially, it is the strategic aim of your organization.

2. Develop Breakthrough Objectives

Breakthrough objectives are ones that the organization will have to “stretch” itself to achieve and that you would like to achieve within three to five years.

In this step, it’s important not to pick too many goals, so you remain focused on what is strategically important.

3. Develop Annual Objectives

Your breakthrough objectives can seem far away and hard to reach, so your annual objectives lay out what you think you need to achieve in the next year to be in with a fighting chance of hitting your breakthrough objectives.

If you imagine trying to cross a wide river, it may seem impossible at first, but if you have stepping stones, it becomes a lot easier. Your annual objectives are your first stepping stone towards your breakthrough objectives, defining just how far you need to get this year to stay on track to reach the other side of the river.

4. Deploy Annual Objectives

With your annual objectives in place, you now need to deploy them to every employee in the organization. At the end of this process, everyone from the most senior managers to the factory floor should understand and agree on what goals must be achieved.

You deploy the catchball technique during this step to cascade your goals through the organization.

The X Matrix is a tool that is often used to facilitate catchball and cascade goals through the organization, but it isn’t strictly part of Hoshin Planning.

If that looks complex, don’t worry, it’s pretty straightforward. We’ll show you how to use it once we’ve finished walking through the remaining steps of Hoshin planning.

5. Implement Annual Objectives

This step is where the rubber meets the road, and execution begins. You know what you need to do and how it fits into the strategy; now, you need to determine the specifics of how to do it and get started.

You use the PDCA cycle during this step and the next step to drive continuous improvement.

6. Monthly Review

Your monthly review aims to ensure that your projects or initiatives are on track. It allows you to see what’s going right and what isn’t. When things aren’t going to plan, you can decide what corrective action to take.

Your key goal as a manager during these monthly reviews is to ensure that systems are in place to understand your progress toward your goals. Tools such as Bowling charts, A3 reports, and action plans are used here to monitor progress. 

7. Annual Review

The annual review is your opportunity to review how the year has gone. It’s your opportunity to step back and look at the big picture – what went well and what didn’t, and what you should do about it.

X-Matrix Overview

The X-Matrix is a popular tool that organizations use to implement Hoshin Kanri. It’s a single-page document that includes your strategic objectives, how you intend to achieve them, who is responsible for achieving them, and the KPIs (key performance indicators) by which you will measure success.

To use the matrix, you follow these five steps:

1. Enter your long-term objectives. These are the equivalent of your breakthrough objectives in Hoshin planning.
2. Enter the annual objectives that will progress you toward your long-term objectives. Use dots to connect each annual objective to the correct long-term objective.
3. Enter the projects or initiatives that will help you achieve your annual objectives. Again, use dots to connect them to the annual objectives.
4. Enter how you will know that each of these initiatives has succeeded. These are your KPIs and their targets, often called “how much.” Use dots to highlight which KPIs belong to which initiatives.
5. Finally, enter the person who is ultimately for each of your initiatives, and use dots to connect the two.

For example, to increase profitability by 25%, you may decide you need to increase customer satisfaction by 10% this year. To do that, you have an initiative to build quality into your product process. Your KPI for this initiative is to increase your NPS (a measure of how happy your customers are with your product) by 10%. Finally, the person ultimately responsible for this project is your Head of Product Management.

Let’s look at what this example looks like when embedded into an actual X-model template with a bit of extra detail added.

In this example, you can see that our long-term objective is to increase profitability by 25%. To do that, we need to hit two objectives this year: increase customer satisfaction by 25% and increase employee retention by 10%.

Now, if you follow the dots, you can see that to increase employee retention, we have two top-level priorities that need to happen. You can also see the KPIs for these initiatives and that the Head of Human Resources is responsible for these initiatives.

Suppose we follow the dots in the same way for our customer satisfaction annual objective. In that case, we can see that we have an initiative to build quality into the product process, a KPI to increase NPS by 10% and that the Head of Product Management is responsible.

For this example, catchball would happen by the Head of Product Management and the Head of Human Resources, each taking a copy of the X-model and working with their teams to create a new X-model based only on the initiatives and objectives for which they are responsible. Each time the model goes down a level in the organization, the initiatives become more concrete and less strategic.

X-Model Template

If you’d like to conduct Hoshin planning using the X-model, you can download an Excel version of the X-model template here.

Summary

Hoshin Planning, also known as Hoshin Kanri or policy deployment, is a 7-step strategic planning system that bridges the gap between strategy and execution to ensure that the entire organization contributes to and is aligned with the organizational strategy.

The post Hoshin Planning Explained appeared first on Expert Program Management.

Unfortunately, most people have never learned the art of negotiation and are thus terrible at negotiation.

The Four Harvard Principles of Negotiation

The four Harvard principles of negotiation are:

1. Separate the person from the issue.
2. Focus on interests, not positions.
3. Generate options for mutual gain.
4. Insist on using objective criteria.

Note that the Harvard principles of negotiation are principles and not rules that you must follow. As such you are free to adjust them as much as you feel is appropriate for your situation.

Let’s jump in and take a look at each of the Harvard principles of negotiation in more detail.

1. Separate The Person From The Issue

If you’re anything like most people trying to picture a negotiation, you’ll probably imagine two people head-to-head arguing, each unwilling to give an inch.

Each party has its position and tries to surrender as little as possible. Whoever surrenders least is seen to be the winner. This approach to negotiation is called “positional bargaining.”

Getting To Yes says that positional bargaining is bad because it produces terrible outcomes, is inefficient, and jeopardizes your long-term relationship.

Let’s look at an example to see why. Imagine there’s one orange, and each of our negotiators wants it. They argue about who should own it for a while, eventually deciding they should divide it in half.

But what if one person wanted the orange because they wanted the peel to make a cake, and the other person wanted it because they wanted the seeds to grow orange trees? In this case, it’s easy to see that dividing the orange in two was a suboptimal outcome.

So it’s in your interest to understand the interests of the other party because if you don’t, you may not get what you want. That means that the person you’re dealing with isn’t your enemy but your partner! The first principle of the Harvard principles of negotiation helps you to do exactly this.

To separate the person from the problem, you need to recognize that emotions and ego can stop you from seeing the other party’s position clearly. 

Here are some actions you can take to separate the person from the issue:

• Try to understand the other person’s position by imagining yourself in their shoes. 
• Allow the other person to let off steam. 
• Try to recognize the source of any strong emotions.
• Use active listening techniques to ensure you understand what is being said.
• A negotiation isn’t a debating competition, so when you speak, you should aim to be understood, not to win.
• Build your relationship. It really does help if you can connect with the other side on a personal level. The best time to do this is before the negotiation begins.

To separate the people from the problem, your mindset should be not to win but to better understand the other person’s concerns. 

2. Focus On Interests, Not Positions.

Negotiation is not about positions; it’s about resolving the conflict between each side’s interests and concerns.

If each side knew what lay behind the other side’s desire for the orange, they could have reached a much more successful outcome.

Here are some actions you can take to identify the other party’s interests.

• When the other side expresses a position, ask, “Why?”. Explain that you’re doing so to understand their interests and fears. Also, enquire why they have not proposed another seemingly equal position. 
• Ask “Why Not?” when the other side rejects one of your proposals. 
• Create a list of interests for both sides. Rank them so you understand what’s most important to each side. Update your list as you uncover new information during the negotiation.
• Acknowledge the other side’s interests. If you want them to consider your interests seriously, then an excellent place to start is by showing you understand theirs.
• Explain your interests clearly.

3. Generate Options For Mutual Gain

The key to finding options for mutual gain is understanding that shared interests lie at the heart of negotiation. 

When exploring options for mutual gain, there are four traps that people commonly fall into:

• Judging ideas too quickly. Nothing hinders new idea generation more quickly than someone immediately shooting down each idea.
• Trying to narrow your options quickly to find a solution.
• Assuming that the only outcomes are win-lose or lose-win – that is, the size of the pie is fixed, and you can’t both win.
• Ignoring the interests of the other party. Remember that to reach an agreement, you need to create an option that satisfies the other party’s self-interest.

Here are some actions you can take to overcome these traps:

• Separate the creation of ideas from the judgment of them. Aim to focus on generating lots of ideas, and agree not to criticize any of them during this step.
• Try to broaden your options rather than hone in on a single promising option.
• Try to identify mutual gains.
• Look for ways to make the other side’s decision easy. There will be no agreement without finding an option that works for them.

Reconciling Differences

Interests won’t always align nicely, so the key to moving forward when interests differ is to look for interests that are high cost to you but low cost to the other side, and vice versa.

Once you’ve found these interests, the party on the low-cost side should suggest proposals that are appealing to the other side. This process should work in both directions until there are no more interests to negotiate.

4. Insist On Using Objective Criteria

It’s not unusual for two parties to have diametrically opposed interests. To avoid descending into a positional tug-of-war, the final principle of the Harvard principles of negotiation is to use objective criteria to resolve your differences.

Objective criteria are facts that are independent of the people involved in the negotiation but which can affect what should be done in the talks. It tries to take power out of the equation so you don’t give in to authority or pressure.

For example, imagine you are negotiating the price of a used car with a seller. The seller wants the highest price, and you want the lowest. What objective criteria might you use to avoid positional bargaining?

One criterion might be the car’s book value, and maybe you can both agree that it should be taken into consideration. What is another criterion? Maybe you could use what’s common practice in used car deals. That could be adding servicing or other extras into the deal if the book price can’t be agreed upon.

It’s important to note that objective criteria aren’t as powerful as you might like. In our car example, you might ask the seller to agree that book value is an objective criterion, but they can simply say no, and that they want more and think they can get it!

Another issue is using different standards. For example, you could each get your book value number from a different source.

However, objective criteria are still useful for a simple reason. Very often, there’s a simple reason why the other party won’t give you what you want, and that’s simply because you’ve demanded it of them. So introducing objective criteria can be a way to turn the conversation away from positional arguing and towards looking at some other measure.

Yes, But What If…

So far, you might think this all sounds great, but what if the other side doesn’t engage fairly? The Harvard principles of negotiation provide three common ways this can happen and suggests practical approaches to deal with each.

1. When The Other Party Is More Powerful

If the other side is more powerful, then you should spend time developing your BATNA, which stands for the Best Alternative To a Negotiated Agreement.

The better your BATNA, the greater your power. To develop your BATNA, you should:

1. Brainstorm a list of alternative actions to take if you don’t reach an agreement.
2. Work on improving your best options.
3. Select your best option.

It’s crucial to develop your BATNA – you shouldn’t enter a negotiation if you are blind to what you’ll do should you not reach an agreement.

2. When The Other Party Won’t Use Principled Negotiation

This happens when the other party is looking for a win-lose outcome or is making personal attacks. In this case, you can deploy three approaches.

• Don’t allow yourself to be drawn into a confrontation: continue to use principled negotiation.
• Use an approach called Negotiation Jujitsu, which aims to deflect an attacker’s blow rather than absorb it. When the other party attacks you by:
  • Asserting their position: reply by asking the reasons behind their position.
  • Attacking your ideas: Ask them for more detail on what’s wrong with your ideas.
  • Attacking you directly: listen to everything they say and then recast this attack as an attack on the problem.  
• Involve a third party to fuse both parties’ underlying interests and draw up a proposal. Allow comments and then redraft the proposal. Continue this process until there is agreement. This is called the one-text approach.

3. When The Other Party Uses Dirty Tricks

Suppose the other party engages in dirty tricks such as leaking information to the press, using pressure tactics, lying, or even deploying a calculated delay. In that case, you can use a three-step approach to handle this.

• Recognize that a dirty tactic has been deployed and choose not to engage with it. 
• Call out that a trick has been played to the participants.
• Negotiate about the negotiation: try to agree on the rules by which the negotiation should be conducted.

To Sum Up

Negotiation exists in all aspects of our lives, but most people are terrible negotiators. The Harvard principles of negotiation can help you achieve better negotiations in all aspects of your life.

The best way to improve your negotiation skills is to practice using these techniques regularly. It will be slow progress at first, but eventually, the methods will become second nature.

The post The Harvard Principles of Negotiation appeared first on Expert Program Management.

Put another way, your firm’s profitability is directly correlated with your chosen strategy. Porter’s Generic Strategies is a tool that can help you select a clear strategy.

While every firm needs a clear strategy to succeed, that is not to say there can’t be more than one successful strategy within an industry. For example, low-cost airlines, such as Southwest in the US and Ryanair in Europe, can be successful alongside airlines focused on luxury and personal service, such as Delta and Emirates.

The key point here is that having a clear strategy is what’s important, not that one strategy is better than another.

Porter’s Generic Strategy

Porter’s generic strategies were laid out in the 1985 book, “Competitive Advantage: Creating and Sustaining Superior Performance,” by Michael E. Porter.

Porter says that there is only one way that firms can gain a sustainable advantage: by offering greater value than their competitors.

However, Porter says there are three mechanisms (or generic strategies) you can leverage to deliver greater value than your competitors and achieve a sustainable competitive advantage. These are:

• Cost Leadership: choosing to be the cheapest in the industry.
• Differentiation: choosing to create the most unique and desirable products in the industry.
• Focus: choosing to focus exclusively on the niche market within the industry.

One thing to note about this diagram is that you’ll usually see it drawn with a column called “low cost,” but we’ve used “lowest cost” here because it’s more accurate. You don’t win by being low-cost. You win by being the lowest cost.

To complete his model, Porter makes two additions:

• First, breaking down the Focus strategy into two parts: Cost Focus and Differentiation Focus. Cost focus means being the lowest cost provider within a niche market, while differentiation focus means being the most desirable offering within your niche market.
• Second, by showing that failing to select a strategy or trying to mix and match strategies will result in below-average profitability and strategic mediocrity, which Porter calls a stuck-in-the-middle strategy.

Let’s look at each part of the model in more detail.

1. Cost Leadership Strategy

With a cost leadership strategy, a firm sets out to become the lowest-cost producer within its industry.

Common ways firms go about becoming the lowest-cost provider include:

• Leveraging economies of scale.
• Creating low-cost production facilities.
• Selling a bare-bones version of a product or service.
• Employing tight cost control.

It’s important to note that a cost leadership strategy doesn’t just mean deciding to be the cheapest. That’s not enough because a similar low-cost competitor could undercut your prices to steal your customers. You must look at what you can do differently from your competitors to sustain your position as the lowest-cost producer.

It is very common for firms with a cost leadership strategy to sell a bare-bones or no-frills version of a product or service.

Cost Leadership Strategy Examples

Examples of firms with a cost leadership strategy include:

• Wallmart.
• Southwest Airlines.
• Amazon.
• Ryanair.

If you think about it for a moment, these companies sell cheaper products than their competitors. Note that although these companies are the lowest-cost operators in their industry, they are still very profitable, just as profitable as companies using a differentiation strategy.

2. Differentiation Strategy

With a differentiation strategy, a firm makes its products or services unique to stand apart from its competitors.

Common ways firms make their products and services unique include utilizing unique product features, unique branding or design, higher quality, and higher customer service levels.

Because of the uniqueness of their offering, firms with a differentiation strategy usually price their offering higher than their competitors. 

Firms with a differentiation strategy often have loyal customers because of the perceived uniqueness of their products. This loyalty, in turn, reduces direct rivalry with the firm’s competitors.

Differentiation Strategy Examples

Examples of well-known firms using a differentiation strategy include:

• Louis Vuitton.
• Apple.
• LEGO.
• Harley-Davidson.

If you think about it for a moment, each of these firms offers unique products compared to their competitors.

3. Cost Focus Strategy

With a cost focus strategy, a firm sets out to become the lowest-cost producer for a specific niche within the industry.

The only difference between this strategy and Cost Leadership is that firms within this category target a narrow slice of an industry at the exclusion of all other segments.

Cost Focus Strategy Examples

Examples of well-known firms using a cost focus strategy include:

• Monster Energy.
• Sandisk.
• Netjets.

For example, Monster Energy operates in the energy drink niche of the soft drink market and aims to charge less than its most well-known competitor, Red Bull.

4. Differentiation Focus Strategy

With a differentiation focus strategy, a firm sets out to become the most unique and desirable provider for a specific niche within the industry.

The only difference between this strategy and differentiation is that firms with a differentiation focus target a narrow slice of an industry at the exclusion of all other segments.

Differentiation Focus Strategy Examples

Examples of well-known firms using a differentiation focus strategy include:

• Whole Foods Market.
• Red Bull.

For example, Whole Foods Market focuses on the niche of selling natural and organic products. Its expensive products have earned it the nickname “whole paycheck,” but a significant amount of people are prepared to pay these prices to feel good about the food they eat.

5. Stuck In The Middle Strategy

Firms that chase more than one generic strategy but fail to achieve any of them successfully are said to be stuck in the middle. They are neither inexpensive nor differentiated.

The reason why firms struggle to both differentiate and lead on cost is that differentiation is usually very expensive.

Compared to differentiators, cost leaders, and focused companies, companies stuck in the middle are competitively disadvantaged. That said, a stuck-in-the-middle company may still make satisfactory profits if the industry is particularly profitable or its competitors are also strategically stuck in the middle.

Stuck In The Middle Strategy Examples

Examples of well-known firms with a strategy that is stuck in the middle include:

• Sony.
• Sears.

If you think about the TVs that Sony sells, they’re not cheaper than other brands but neither are they any more unique that other brands.

How To Use Porter’s Generic Strategies

1. If you haven’t yet entered a market, use the Five Forces Model to determine the market’s attractiveness. If you’re already in the market, you can still use the Five Forces Model to understand better the forces affecting your market.
2. Conduct a SWOT analysis for each generic strategy. The idea here is to understand the pros and cons of adopting each generic approach.
3. Once you’ve completed your SWOT analysis, you’re in a position to select the most appropriate generic strategy for you, which is the strategy that places you in the strongest strategic position.

Advantages & Disadvantages

There are several advantages and disadvantages associated with Porter’s generic strategies.

Advantages

• The model shows that there is no one best strategy, with each approach being as good as another. Which one you choose will depend on your unique circumstances.
• The model helps you avoid choosing a stuck-in-the-middle strategy.

Disadvantages

• The model says that companies must focus on a single generic strategy, but as we’ve seen in the case of IKEA, this is not the case. Apple is an example of another company that has been able to demonstrate both cost leadership and differentiation.
• The model may not apply to some small firms. The tools to offer low cost and the investment to create differentiated products may be too expensive for them.
• The model suggests that a firm needs to select its strategy and get on with execution, but this isn’t always the case, and a firm needs to stay flexible to change its strategy as circumstances demand it.

To Sum Up

Porter’s generic strategies ultimately says that there is only one way that firms can gain a sustainable advantage: by offering greater value than their competitors.

That greater value can take one of two forms, either lower prices or better uniqueness, and you can apply both of these approaches to either the broad market or to a narrow niche within the market.

The post Porter’s Generic Strategies appeared first on Expert Program Management.

The model was first described by Chris Fill in the third edition (2002) of his book Marketing Communications: Brand, Experiences, and Participation.

Why Use The DRIP Model

There are several reasons you might choose to use the DRIP model for your marketing communications, including that:

• It gives you a mechanism to communicate and convert prospects over the long term.
• It keeps your organization at the top of your prospect’s mind.
• It lets you put your best foot forward by enabling you to talk about what’s great about your products and services.
• Ultimately, it can lead to increased sales.

What is Marketing Communications

Before we look at the DRIP model, let’s begin by defining what we mean by marketing communications.

Marketing communications is concerned with the multitude of ways in which your organization’s prospects and customers engage with your organization.

At a macro level, your audience can engage with you in four ways.

1. Planned marketing communications: these are considered communications that you have timed to target specific audiences, for example, when you pay for radio advertising.
2. Service experience-based communications: these communications happen when your customers use your services, for example, when your customer decides how good the service in your hotel is.
3. Product experience-based communications: these communications happen when customers use your products, for example, when a customer decides how delicious your chocolate bar is.
4. Unplanned marketing communications: these communications are unintentional and uncontrollable and happen for several reasons. For example, when one customer tells another about your product, when an influencer creates a review of your product, or when a customer wants to buy your product but you are out of stock.

As you can see, the field of marketing communications is very broad. 

The DRIP Model

The DRIP model is concerned only with planned communications.

The DRIP model is about sending repeated communications to your prospects and customers. Your aim is to communicate what you do well and to do so regularly enough that you stay top-of-mind. Ultimately, you want your drip campaign to lead to increased sales inquiries or sales.

Let’s look at the aims of each part of the DRIP communication model.

1. Differentiate

Differentiate aims to position your product or service to stand out against your competitors.

This is all about explaining why a prospect should choose your company over your competitors. This is particularly important when your products are similar to your competitors.

Example

For this example and all the examples in this section explaining the DRIP model, imagine that you run an online advertising agency and want to use the DRIP model to increase your sales.

The services your advertising agency offers are very similar to your competitors, so you decide to send an email to your prospects to highlight how you’re better than your competitors. 

Your points of differentiation include the excellent results you’ve achieved for previous clients and the unique process you use to engage with your clients.

2. Reinforce

The purpose here is to reinforce and strengthen a previous message or to reassure prospects about using your products or services.

Example

As an advertising agency owner, you know your prospects don’t read every detail of every email you send. Because of this, you decide to send periodic emails reminding them of your key differentiators.

You also decide to send periodic emails to reassure your prospects that it is safe to do business with you. You do this by reminding them of your money-back guarantee and no-profit no-fee approach.

3. Inform

The focus of Inform is to make prospects aware and educate them. This differs from the differentiation step as you’re not trying to highlight why you’re different but simply trying to share information.

This could include telling your prospects or customers about new features or showing how an existing customer benefits from your product or service.

Example

To inform your prospects, you decide to send them an email informing them of two things:

• A new service you offer.
• The results of your recent “bring your dog to work day,” and you include photos of dogs in your office. You do this to engage with your prospects and leave them thinking that not only is your office a nice place to work but that your team looks lovely to work with.

4. Persuade

The focus here is to persuade prospects or customers to either buy from you or move to the next stage of the sales process, such as by making an inquiry.

Example

You could ask prospects to schedule a one-hour call with one of your team so you can see if you can help them.

Your aim here is to move them through the sales process but not try to get them over the line until you know you can help them and that they are excited for you to work with them. You don’t want to be too pushy.

How to Use the DRIP Model

Now that you understand the basics of the DRIP marketing communications model, here are some tips to help you get the most out of the model.

• Do not try to do everything in one communication. Your aim should be to communicate little and often to stay top-of-mind without overwhelming your prospects. Think of it as a drip drip drip approach (the clue is in the name).
• You don’t have to fully cover a single DRIP element in any correspondence. For example, it is not unusual to take multiple communications to explain how you are differentiated from your competitors.
• Aim for balance in terms of how often you send your communications and how often you ask for a sale. You want to educate and inform your audience without turning them off or being too pushy.

DRIP Model Example

For this example, imagine that you sell luxury, fair-trade, organic chocolate direct to consumers from your website. You want to build a DRIP marketing campaign to build your relationship with your prospects and stay top of mind.

You might structure a simple DRIP campaign over four emails as follows:

The basic idea in this example is to show your prospect what makes you different and educate them about your brand before asking for a sale:

• Your first email on day one talks about how you’re different from your competitors.
• Your second email informs them of all the different flavors of chocolate bars you offer.
• Your third email highlights the ethical aspect of your brand.
• Finally, your last email asks for a sale.

If you like, you could repeat this process of three informative emails followed by an email asking for a sale ad infinitum.

DRIP Model Template

If you’d like to plan your communications using the DRIP communications model, you can use our DRIP Model Template, which you can download here.

The template is an Excel file you can adapt in any way you like to suit the specifics of your communication campaigns.

To Sum Up

The Drip model of communication is a model that you can use to help manage your planned marketing communications with both prospects and existing customers. It helps you produce balanced communications that are sometimes informative and at other times ask for a sale.

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