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!
Thursday, March 27, 2008
Saturday, March 22, 2008
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.
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.
Thursday, March 06, 2008
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.
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.
Monday, March 03, 2008
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.
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.
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