Strategic Planning and strategic thinking - what should employees know?

What are the most important things for employees to know to think more strategically? A quick survey of recent attendees at our strategic planning seminar yielded these areas for improvement:

1. Thinking about our business from the customer's perspective
2. Understanding the economics of our industry
3. Knowing the competition and their strong and weak points
4. Understanding our strategy and the reasons for it

Beyond this, I would contend that employees do need to understand some of the fundamentals of strategy - the concepts of strategic capability, focus, specialty and commodity strategies, and market share are all very useful in many jobs, not just executive ones.

Do your employees know these things? If they did, how would it help your company?

Strategic Planning - Recession Opportunities

We all fear recessions – in most industries, we hate going through them. But recessions are an inevitable part of a dynamic economy. No amount of planning or regulation will prevent this (in fact quite the opposite). So how do we come through the inevitable in good shape?

In our strategic planning programs, one of the key ways we have seen companies come out of a recession well is by viewing the period as an opportunity. Clearly, your first priority should be survival, but I like to follow the advice of Warren Buffet: “Be fearful when people are greedy, be greedy when people are fearful”. Here are four areas of opportunity you should be considering in the next year:

1. Get new customers – customers will be looking to change how they do business because of recession pressures. Why not be that change for the customers you aren’t currently selling?
2. Get new employees – with a tight labor market, you have a unique opportunity to bring top shelf talent into your organization.
3. Add capacity – you’ll get far better deals on capital improvements you want to make now. It’s like vacationing during the off-season – cheaper, and less crowded!
4. Make acquisitions – some great acquisition targets may be available at bargain prices in the next few months. If you’ve been putting this off, and you have the resources, now is a great time to buy.

Are you considering other strategic opportunities because of the current economic climate? Let me know!

Strategic Planning - Great Strategic Thinking

One of the secrets of the greatest companies is their ability to communicate the essence of their strategy to every level of the organization. Not only does this result in better co-ordination and input from every employee, but it yields behaviors at the front line of the organization that reinforce the core strategy.

Obviously, a good strategic plan that is well-communicated will go a long way to making this a reality. But there is also an element of strategic thinking that exists at the top of most organizations - and is often missing at other levels.

I'm curious...does your company communicate the strategic plan to its employees? What does your company do to instill strategic thinking below the top management level? What do you think could be done to improve this at your company?

Strategic Planning: How Many Market Segments?

A common issue in strategic planning is "How many market segments should we have?". This issue is one that we address in the first day of our strategic planning process.

As a general rule, I like to keep market segments limited to a number that everyone can carry around in their head. Psychologists have studied what this number is, and their research suggests that the average person can recall a list of 5-9 items. Managers, who are (on average) more capable in this department, can recall 9-11 item lists. In strategic planning, this means you can expect a management team to keep a list of 10 segments straight while your average employee will only be able to keep 7 or 8 items straight. Because I like to see awareness of strategy driven through the entire organization, I suggest a guideline of 6-8 strategic market segments. This does NOT mean you shouldn't do a more thorough job of parsing data in your marketing analysis - it DOES mean you should use a list of segments that will be meaningful through the entire organization when setting strategy.

When CEOs tell me the issues they have with their strategic planning, "How many market segments?" is one of the first five questions I ask. This is because "too many market segments" is a very common problem - and one that is easily remedied in the course of strategic planning.

Strategic Planning for Acquisitions

One of the issues I often encounter with new clients is acquisitions. In many cases, the acquisition has already been made when we start strategic planning, and we have to figure out how to make it work. This, of course, is a little backwards - the best way to make an acquisition is to figure out the answers to a series of questions and use those answers to guide your acquisition selection process. These questions are:

1. Are we ready to make an acquisition?
2. Why do we want an acquisition?
3. Who should we acquire?
4. Who should we NOT acquire?
5. How can we integrate the newly acquired company into our strategy?

We are addressing the first four of these questions in a teleseminar series that starts today at 2:00 EST. If you are interested in participating, you can sign up at the Strategic Planning for Acquisitions web site.

Strategic Planning - IT, Google, and Strategic Competency

I just read an excellent article on Google as a disruptive technology over at TechRepublic.

One quote by Richard Hunter from Gartner Group caught my eye:

“Google has the potential to be the first-choice provider of many services that are now handled by internal IT organizations, starting with non-competitively-differentiating services such as email (which Google already provides to a number of enterprises), and ultimately including high-value-added functions and services such as business intelligence, mobile sales support, and others. Some IT organizations might consider it a boon to pass these functions on to Google so that the IT department can concentrate on very enterprise-specific competitively differentiating applications. IT organizations that measure their worth in terms of how much of the company’s IT needs they supply themselves will be less happy to see Google move in on their turf-and I do mean specifically that in many cases it will be an argument about turf, not enterprise value."

This comment shows a lot of strategic savvy. The interesting question is similar to the questions that plagued IT during the rise of personal computing in business in the 1980's - first, is this really a wave? Secondly, if it IS a wave, do we fight it, roll with it, or ride it? These questions should be coming up in your strategic planning.

In my thinking, the idea that IT can (and should) focus on company-specific differentiating technology is dead on - and very important for most IT departments. An IT department that isn't differentiating the company might not be worth what you are paying for it.

How about your IT department? Does it contribute to your company's strategic competency? Do you have them working on technologies that other people can already deliver?

Strategic Planning - Why your balanced scorecard isn't yielding the results you expect 4

This is the last in a series of blog articles on why your balanced scorecard isn't getting the results you expect.

The fourth main reason why you may be disappointed in your balanced scorecard program is fundamental to the limitations of the scorecard itself.

-The change your business needs involves a more fundamental shift in strategy

Simply put, you can't measure your way out of some strategic issues. To use an analogy, let's say you are part of a team of jungle explorers, and you are measuring your efficiency. You might look at "miles traveled per day". Under many circumstances, this might get you where you want to go. But there is no measurement around this that addresses the more fundamental strategic questions - such as "Are we in the right jungle?" and "Should we be in a jungle in the first place?". No matter how well you perform on your measurements, being in the wrong jungle will prevent you from succeeding - and you won't even ask the right questions if you stay completely focused on any set of metrics.

So, to sum it up - a balanced scorecard is a very useful tool, one that is quite similar to the "Measures of Performance" we have been teaching since 1981. Even more importantly, measurement can drive strategically useful behavior, so a balanced scorecard program can yield excellent results. But - as with any other management process - you need to be aware that no one approach can solve all of your business problems, and there is no substitute for a robust, formal strategic planning process.

Strategic Planning - Closing the Loop

I just read an interesting blog entry on “bringing perpetual reality to strategic planning”. This is EXACTLY what you need in your strategic planning – a process that drives from good strategy and vision to the hard realities of what is going to happen, who will do it, and how much it will cost. Putting real feedback into your planning process helps us to correct, improve and build on what we learn in implementation.

In Simplified Strategic Planning, we drive this approach three distinct ways:

1. The structure of the process flows toward an end-point that makes very specific, measurable objectives and implementation plans.
2. The implementation planning process leads to a regular monitoring process where progress on execution is tracked and discussed.
3. The entire experience is reviewed at the beginning of the subsequent cycles for learning and opportunities for improvement.

Does your strategic planning do these things? If not – let’s talk about how you can improve the “reality connection” in your strategic planning!

Strategic Planning - Finding the way forward

These days I seem to be meeting more people who feel strategic planning should take second place to improving sales right now. Unless your company is on the verge of bankruptcy, this opinion is completely misplaced.

Sales can be good or bad for your company. I've seen many situations where big increases in sales have nearly killed a company - and others where the sales that were added were to completely the wrong kind of customer. Both leave you with a bigger problem - that is, your company is bigger, but your problems are bigger, too.

Good strategic planning is about finding a way forward that does not leave you to the mercy of a sometimes capricious economy. In the last two recessions, we had many clients that used the pause in market growth to build substantially sturdier and more profitable businesses. Sadly, I met some people who chose the path of more sales instead of better strategy - and more than half of those people are now out of business. I now expect this to happen to companies that don't have excellent strategies - because recessions have a way of weeding out companies with poor strategy.

Which will you choose? A stronger, stable company - or a bigger, weaker one?

Consider contacting me for a short strategic planning tune-up - even if you already have a plan, you will probably find some valuable ways to improve profitability now.

Strategic Planning in law firms

I saw a fascinating tidbit in a blog on law firm profitability today...just thought I'd like to share it with you:

http://www.morepartnerincome.net/2007/12/10/law-firms-with-strategic-plans-more-profitable/

One of the most interesting points in the article is that while a huge majority of firms that do strategic planning say it improves their profitability, 74% of law firms don't do strategic planning!

It also refers to an interesting article about why strategic planning is such a problem for law firms, written by a partner in a large firm:

http://www.lawmarketing.com/pages/articles.asp?Action=Article&ArticleCategoryID=58&ArticleID=475

Strategic Planning - Why your balanced scorecard doesn't work part 4

Your balanced scorecard isn't driving action.

This is most likely true, if you are doing balanced scorecard instead of true strategic planning in your company. Why do I say this? Because true strategic planning focuses attention on the things that will make a difference for your company. Balanced scorecard processes, on the other hand, tend to rely on employee understanding of the links between metrics and reality - and, because of shortcomings I've discussed in earlier posts, these links rarely motivate employees as well as understanding the underlying issues. Granted, your CFO or other technical managers may quickly grasp the relationships - but true strategic competency requires broad participation and support from all parts of the company.

Even if you have excellent training and support throughout the company for balanced scorecard, you are likely to have issues if you are not also driving execution through a routine tool for monitoring and accountability on actions (rather than numbers). The action plan process in Simplified Strategic Planning is an excellent approach to doing this, and can be helpful even if you are not using an optimal strategic planning process. There are several keys to making implementation work - it is, after all, the sore spot in strategic planning for most companies. The most important of these is to have rock solid and unified support for implementation accountability at the top levels of your company. This is a key area where executives must always act as role models for the rest of the organization - failure to do so almost always results in sloppy execution.

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If you are looking for a strategic planning speaker to help your organization learn better strategic planning implementation - or the whole strategic planning process - please check out my strategic planning speaker brochure or see what past clients have said about me at http://www.strategyspeakers.com/p_rwb.asp

Strategic Planning - Estimating the Size of Your Markets

Many companies I've done strategic planning with have gotten really worked up over trying to estimate the size of a niche market when there is little or no available data on the market.
I figure there are four easy Ways to figure out the size of your market segment.

1. Total up the sales of your competitors in the segment
2. Total up the purchases of the customers in the segment
3. Take your sales in the segment, estimate your share, and multiply
4. Total up the sales of key suppliers into the segment and estimate the sales number this represents

Naturally, each of these requires that you have some information, or at least guesses about what is going on in your markets. If you'd like me to explore how to do each of these, let me know and I will write more on the topic.

Do you have another way to estimate market size? I'd be interested in hearing from you if you do.

Also, if you know anyone who is looking for a strategic planning speaker - I love to speak at conventions and corporate events...drop me a line!

Strategic Planning - Why Your Balanced Scorecard Isn't Working, Part 3

You aren't measuring things that really matter.

There can be lots of reasons for this issue. Perhaps you are measuring something that has little or no impact on your competitive position. In strategic planning, this is worse than a waste of time.

Ask yourself: if ONLY this number improved, would we really be better off? In many cases, the numbers you look at overlap with other numbers. To use a simple example from financial measurements, it's somewhat redundant to look at both gross margin and net profit, because net profit is simply gross margin minus fixed costs and a few other expenses. I won't tell you which you should look at in your own company, but I will tell you it's rare that a company should include both numbers in the five to ten core metrics in a streamlined balanced scorecard. This means you need to pick one, understand that it (like all metrics) will have the flaw of not being complete, and move on.

Another reason why companies sometimes measure things that don't really matter is that the metric chosen makes the company look good. At worst, this can be a case of throwing in a number because it can be counted on to give us good news even when the other numbers are telling us bad news. Again, if the number does not affect your competitive position or your ability to succeed, consider eliminating it from your scorecard.

There is an even more insidious problem associated with measuring things that don't matter - if this is your company's problem, you are very likely shying away from measuring things that matter very much. Sometimes this is because managers fear the implications of managing to certain metrics. If managers fear measuring profit per employee, for example, because it might lead to staff reductions, you should be asking yourself whether this fear is useful. There are many industries where staff reductions are a vital strategic management tool - failing to consider them when appropriate can be a major strategic error.

Strategic Planning - Why your balanced scorecard doesn't work, part 2

You have too many metrics in your scorecard.

This is most likely true, if you are doing balanced scorecard in your company. Why do I say this? There are four reasons you have probably put too many metrics into your balanced scorecard.

1. Someone thinks bigger document = better document

This is a holdover from when we had to write five page papers in high school. We are all now old enough to know that quantity does NOT equal quality, it just makes work and wastes paper.

2. You can't decide which numbers to throw out

You know you should have only two or three financial measurements, but there are so many good ones from which to choose. Is the solution to keep them all? Only if you want to make people's eyes swim and make sure only the accounting types really read your scorcard numbers.

3. You want to be inclusive and have a metric for everyone

After all, if Bill in the mailroom doesn't have a metric, how will we include him in our process? This is a hard one, because inclusion does create value - but let's have a tactical number for Bill...and avoid pretending that our company should have a mailroom strategy. Either that, or admit that your balanced scorecard process is tactical rather than strategic - which is probably will become if you have this issue.

4. You don't want to exclude certain measures because someone says you "have to" watch them

I see "have to" junk all the time in strategic planning. Whenever someone says you "have to" do something in business, I hope you'll do what I do and immediately explore what will happen if you do the exact opposite. The future belongs to the unconventional company, and you are seriously conventional if you do everything people say you "have to" do...

And what are the reasons for having fewer measures? There are only three:

1. It's less work
2. It's more effective
3. More people will read it.

For some bizarre reason, none of these is as psychologically powerful as the reasons to have a big, bloated scorecard. So when someone asks me to look at their scorecard, I always brace myself for a mind-numbing avalanche of numbers only a CPA could love. I'm rarely disappointed.

Strategic Planning - Why Your Balanced Scorecard Program Isn't Getting the Results You Expected

Last week I had an interesting conversation about the Balanced Scorecard with a friend who works in a large organization. His comments reminded me of so many comments I've heard about balanced scorecard and strategic planning that I went back through my notes to see what common threads underlie the biggest issues companies have with balanced scorecard initiatives.

To begin with, balanced scorecard projects are no more strategic planning than budgeting is. Sure, you can use a scorecard to drive certain fragments of the strategic planning process, but it is still a fragment of what is needed to create the right strategic change for your organization. To make matters worse, it's often a complicated and expensive process.

Based on feedback from the companies I've met through my strategic planning seminars, speaking and client work, here are the main reasons why you might be dissatisfied with your balanced scorecard program:

1. You have too many measurements
2. You are measuring the wrong things
a. You are measuring things because they are easy to measure
b. You aren't measuring the things that really matter
3. Your scorecard isn't driving action
4. The change your business needs involves a more fundamental shift in strategy

I'll explore each of these in my next few blog posts, and discuss what you can do about each.

Of course, the best thing to do about getting the strategic change and the results you want is to do good strategic planning, and there is no better way to do this than Simplified Strategic Planning.

Strategic Planning – when should the team be expanded?

The question of the size and composition of your strategic planning team should constantly annoy you. It should be annoying because there are two really important, but competing factors that should drive your choices. First, your planning will be more focused and effective with a smaller group. Second, your planning will have far greater impact if a larger number of people in your company feel they own the plan.

In recent years, we have tried many different compromises driven by these two factors. We’ve done planning with teams of 20, we’ve worked with teams of 3. Some of the innovations that have come out of this are well worth trying in any company. Still, at the end of the day, some clients want to have a very large number of people participating in their strategic planning meetings. Here are a couple of approachs that have worked for different companies:

1. Have larger teams work on the homework from sections 1 and 4, and bring them in for the first day of meeting 2 to present their information.

2. Invite all members of action plan teams into meeting 3 to review their action plans and participate in the scheduling process

3. Have an informational meeting with a larger group at the end of the strategic planning process

4. Conduct a strategic issues discussion (page 5.2) with larger groups and collate the results with the top management team.

Of these, I’m very partial to (1) and (2). Approach (1) drives ownership of the information.- and the strategy – down a level in your organization. Approach (2) drives ownership of executive to the appropriate level, where people who will do the work are also responsible for management of the implementation.

In any event, I would be wary of doing any of these approaches the first time out. Your management team will be under enough stress engaging in a new (or different) process without the added problem of performing for an expanded audience. Indeed, when there are specific remedial issues to address, you probably want to keep the strategic planning team as small as possible.

Have you involved a larger group in your company’s strategic planning? I’d love to hear about other approaches that have worked well.

Strategic Planning - Do you think like your customers?

Yesterday, someone brought to my attention a video of an ad that airs on late-night TV for an auto insurance company in Washington State. On the surface, it’s not a slick ad. Many insurance agents would immediately poo-poo it as unprofessional, cheap and sleazy-looking. Frankly, it would hurt to be responsible for this ad.



So why do I like it?

I like this ad because it works – and it works for a reason that bears thinking about in your strategic planning. The ad is for insurance for people who are pretty bad risks. It’s a group I would want to insure myself, but then someone has to. Here’s what I think makes this ad work: the people who see this ad, folks who are, perhaps, watching cheesy re-runs at 2 a.m., are not, for the most part, “professional”. They see an ad that shows someone pulling up to a McMansion in a BMW and immediately tune it out – because they know it’s not for them. But this ad hits those same people hard because it is for them….it’s quick, funny in a cheesy way, and there are bits that will appeal strongly to the lowest common denominator.

Obviously, there are things I do not like about this ad campaign. For one thing, there are nasty sexist bits in there that I wouldn’t touch with a ten-foot pole. But, at the end of the day, Vern Fonk keeps running these spots because they get business in a cost-effective way. And that means the spots probably work - even though most marketing folks would hate to have produced them.

So…in your strategic planning, I’d like you to ask yourselves: are we approaching our market thinking they will behave just like we do? How would our customers make different choices? What can we do to find out what really works, if we don’t really think as our customers do?

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Strategic Planning - avoiding the downward spiral

This week I'm at a convention that I really have enjoyed over the years. The trouble is, I notice that the numbers have been smaller, and the association is cutting corners on lots of visible things that affect my perception of the value of the meeting.

I envision the people doing the strategic planning for this event discussing their challenges and noting that, because attendance is off, there is less money to spend. Shouldn't we meet this challenge by spending less? Of course, the answer is yes, but I think it's critical to examine the distinction between costs that add value for customers and those that do not. When we fail to do this, customers notice that every year, things suck just a little bit more. A good example of this is the entire airline industry. Southwest Airlines took advantage of this by cutting to the chase and cutting deep very early on - and they still spend extra money on things that really do affect the customer's value perception. The rest of the industry is stuck on the downward spiral...diminished expectations driving down the customers' willingness to spend leading to less money...and so on...

How can we spot this syndrome in strategic planning - and how can we avoid it? It helps to ask - would customers pay extra to get certain things? It also helps to have a firm idea of who you are for your customers. If you are an association, do you deliver value the members can't get any other way? If you are an airline, are you a comfortable, friendly way for business travelers to get wherever they are going? If you run a construction business, do you get projects done on time and under budget? These are just some examples, but they can help make it very clear where you should spend money even when things get tight. Failure to do this makes you vulnerable to a competitor who does what your customers think you should be doing. Does this mean you may have to lose some customers who aren't willing to pay you to be who you are? Yes, it does. Do you have to choose which customers you want to target in strategic planning? You bet - that's one of the reasons why it's hard.

Next time you are discussing the challenge of a tighter budget in strategic planning, you might want to ask yourself where the value lies. You may be better off charging more and getting smaller numbers anyway than following the cheapest customers into the downward spiral.

Strategic Planning – the infinite loop

Yesterday, I had a strategic planning session with a fellow speaker, who mentioned to me that her strategy is to have everything she does be part of an “infinite loop”. This picqued my curiosity, so I asked her about what this meant. In her view, this meant that every new client she takes has to help her learn things that will help her get the client after. In other words, she intentionally seeks business where the her learning helps her get more of the same type of business.

In systems thinking, we would refer to this as a “recursive process” – that is, the output of the process ultimately becomes input to the process. Some engineers might recognize this as a “feedback loop”. In many cases (for example, in software), we don’t like to see feedback loops – but in business strategy, it’s a great idea. Why? Because the “problem” with feedback loops is that whatever is feeding back gets bigger and bigger with each cycle through the loop. In an audio system, this leads to that horrible screeching we hear when a microphone gets too close to a speaker…but in business, this effect can happen to beneficial results (such as learning or getting more business).

Does your business have a feedback loop? How do you maintain it? Good strategic planning should guide you towards this type of competitive advantage.

Strategic Planning - strategic competency and obsession

Today I had a strategic planning meeting with a long-time client that started out in the business of selling tax forms - Greatland Corporation. I say they started out this way because today they offer numerous products and services, including software and online services, to support compliance with government regulations, mostly in the area of wage and income reporting. While their decision, years ago, to pursue other products made sense from a technological perspective, what really made it work was their obsession with compliance. Today we are looking at ways they can extend this obsession into other products and services, which makes me think this quite possibly a useful strategic competency.

In reflecting on this, it is clear to me that great strategic competencies almost always arise from obsession about something that is valuable to your customers. What are you obsessed about? Next time you do strategic planning, ask your team about what they think your company's obsession is - you might find the answers useful.

SWOT analysis - why not try another approach?

People make a lot of the SWOT analysis in strategic planning. As a rudimentary approach to thinking about strategy, the SWOT works pretty well. Decades of experience has shown us that great strategy requires much more focus on strengths and opportunities.

There is so much more to great strategy than a simple SWOT analysis. Sure, it’s a great buzzword, but I’d much rather see a strategic plan built around the strategic competency work of C.K. Prahalad and Gary Hamel. Why? There are three main reasons. First, the SWOT methodology creates unnecessary friction around the weaknesses and threats. Second, SWOT-based strategies seldom push the management team hard enough on creating truly distinctive competitive advantage. And third, there has been little, if any, effort put into making the SWOT analysis more data-based (by most practitioners).

So why not just toss out your old SWOT analysis if your strategic planning isn’t working for you this year? I think this is a darn good question.

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