Friday, October 30, 2009

The State of the Art

Despite what people might tell you, strategic planning is an art. As with other arts, you can do better with good training and tools, but at the end of the day, there is no replacement for skill and experience.

In times of economic turmoil - or even just turmoil in a specific industry - many companies turn away from their strategic planning to focus on short-term issues. In many cases this is warranted - your course may not be as important if the ship is sinking - but in far more cases, this departure can lead to bad strategy and failure.

One of the best (and to me, the most painful) examples of this departure from the path of good strategy occurred at Disney from 2001 to 2008. In the years before this - from 1991 to 2001 - Disney operated an excellent park at Disney World called Pleasure Island. This park filled in an important gap for both families and convention attendees in the area - the absence of nightlife for adults. While this fell outside the Disney strategic competency of family entertainment (viewed on its own), it was well within that competency when seen as a part of the bigger picture, answering the question "How can we keep the whole family happy during a week at Disney World?". Unlike any other place in the world, Pleasure Island offered (during its peak years) family oriented nightlife - a place where I wouldn't mind taking my young children to go dancing or take in a comedy show.

In 2001, the aftermath of 9/11 devastated the travel industry, and hit Disney hard. To overcome this, Pleasure Island management started targeting the local nightclub crowd, making changes to the operation that made it more appealing to young local people. This change may have decreased losses in 2001-2002, but it also decreased the family appeal of the attraction, and Pleasure Island started to fade as a part of the Disney destination as it became more of a local hang-out spot. As you might expect, the very non-family oriented problems of nightclubs - drugs, violence, gangs - also seemed to be increasing during this time. Attendance -especially by families and Disney vacation-goers- declined steadily as the Pleasure Island operation became less of a distinct entity and more of an imitation of Citywalk at Universal Studios nearby.

In 2008, the entire operation was shut down, to make room for more shops in the Downtown Disney area. Thus, a unique part of the strategic competency of Disney World suffered a strategic loss due to changes that were made for tactical reasons seven years before.

While the decisions involved in the decline of Pleasure Island may well have been made in strategic planning, there was a clear departure from strategic competency-based thinking for more tactical considerations of short-term revenue enhancement in 2001-2002. Small changes, like the cessation of fireworks and live shows, and big changes, like the removal of admission gates from the island entrance, led very directly to the decline and, ultimately, the failure of the operation.

Has your company departed from its strategy in the past year? Do you need to return to strategic competency-based planning to renew the true distinction that your company can have in the marketplace? Now would be a good time to consider returning to a discipline of formal strategic planning to assure success not just next year, but for years to come.

Tuesday, August 18, 2009

When Should You Get on the Bandwagon?

You have no doubt seen many of the indicators that the recession may soon be over (if it isn't already, a view held by some very smart economists). This doesn't mean everything will return to the rosy days of, say, 2006, but it does mean the economy will begin growing again. With this knowledge, you are probably thinking about when you should consider revving up the profit engine in your company. The timing of this can be a critical question in many industries.

As a general rule, you don't want to rev up too early, because you will increase your expenses to do so, and profitability will suffer as you spend on capacity that you do not need. On the other hand, you also don't want to rev up too late, because this could easily lead to a loss of market share as your inability to fill orders in the short term pulls you up short. A more difficult and probable effect of undercapacity is that parts of your distribution channel - and even individual customers - are likely to switch to competitors when you cannot meet their needs.

These two factors push against each other - the risk of increasing expenses too early tempers your desire to reduce the risk of losing market share in a recovery. Obviously, excellent forecasting - or at least close attention to real economic data - can be very valuable to you here. Beyond timing your return to expansion precisely, you should also assess the real risks of both scenarios. If you are pursuing commodity strategies, the cost of increasing costs too soon may be unbearable with your super-lean cost structure. On the other hand, a specialty strategy may lead you to see the cost issue as small compared to the risk of losing market share, especially when some market share loss may be permanent.

How should you handle this in your strategic planning? An objective look at your current financial model and market position should be a part of at least some of your monthly strategy implementation review meetings. Until we have passed the current economic inflection point, you will be well-served to look at the upside AND downside of both increasing costs and losing market share.

Thursday, May 14, 2009

Strategic Planning - Better Business Models, part 2

Business models work because they work for customers – and coincidentally, for your company. Self-deception here can lead companies to optimistically adopt a business model that fails because it was designed for the supplying company rather than for the customer. Time and again, I see business models that are broken not because the starting point for their design is what the supplier wants – rather than what the customer wants. One of the key reasons that specialty and commodity strategies are more often successful when they are distinct from each other is that the concept of specialty and commodity limits suppliers to ONE facet of their own desires – and then subjects the business model to a wide range of the customer’s desires.

The quintessential example of failure on this point is one of the oldest ways to create a scam – sell someone on the idea that they can get lots of money, quickly, without special skills or hard work. Sometimes these scams are simple (the Nigerian 401 scam), while sometimes they are grand and complex (Bernie Madoff and Enron come to mind). The fundamental nature of free market capitalism – that it is an engine of creative destruction – means that ANY business model that requires little work, skill, risk or time will be destroyed as quickly as competitors figure it out. Incidentally, if you think through the implications of each of these advantages (little work, little skill, little risk and little time), it becomes quite clear that business models built on top of genuine strategic competency are the only ones that have a long-term chance of success.

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Tuesday, May 05, 2009

Strategic Planning for Acquisitions - Team Composition

When you are evaluating an acquisition, who should be on your team? As a general rule, you should attempt to include anyone who has primary responsibility for an area affected by the acquisition. For example, if operations will be affected (and they almost always are), you will want to include the VP of Operations. Obviously, there are a few other areas that are always - or almost always - affected by an acquisition, which means that most (if not all) companies will also want the CEO, the CFO and the VP of Sales involved. If you have a VP of marketing with a strategic level of responsibility, he or she would also be a good addition to the team. In many companies, you will also want to consider including the heads of IT, Human Resources, and Technology/Engineering - depending on your industry, and the ability of the person in question to think strategically about the acquisition.

I'd be curious to hear if there are people you have included in acquisition teams in the past that aren't listed here. Do you have any experiences (good or bad) that might suggest ways you should consider team composition? Let me know!

Thursday, April 30, 2009

Strategic Planning: How to RE-think Your Business Model

This year, a LOT of people seem to be wanting to re-think their business models. This is a pretty good idea, because some things are changing in the world economy at a very fundamental level.

I do have to question the wisdom of tackling this for the first time in a recession, though - and here's why: tuning up a business model requires good information from the market.
The information from the market right now suggests (for example) that US consumers only want to buy 6 million vehicles a year. This is obviously poppycock, as anyone in the auto industry could tell you - but behaviors change during a recession.

When you are re-designing your business model, you are trying to create a structure that will work for you ALL the time - in both good times and bad. In many cases, the best business models simply don't work that well during a recession - so you have to structure your business to weather the storm.

All this being said, some markets may be changing so fundamentally that it would be suicidal NOT to re-examine your business model. So what is the best process for doing this?
In strategic planning, the business model is often one of the core strategic issues, so I often find myself tinkering with it.

In the past 20 years, I've found myself making excellent changes - and sometimes not so excellent ones. Here are a few things I've learned from the hundreds of times I've tackled this:

1. Build your model on DATA, not emotion
2. Understand ALL FLOWS in your model - not just the easy ones
3. Start with an understanding of your STRATEGIC COMPETENCY
4. Looking at your current model, ask WHY and WHY NOT about every area where customer value is not optimized
5. Pay close attention to the things EVERYONE IS DOING - and figure out how to avoid them
6. When you have a new model you like, SHOOT HOLES IN IT - and then fix them
7. Make sure you have a good EXECUTION PLAN for making sure the model changes - you will meet resistance!

My next few posts will be about each of these points, and some of the things I do to assure the output is a sturdy, viable business model.

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Tuesday, April 07, 2009

Strategic Planning - What's Working Now

I've been paying close attention to the things my clients are doing that seem to be working right now. Remember, the economy is still functioning around at least 90% of where it was a year ago, so there is plenty of money to be had out there. Here are the strategies that seem to be working:

1. Target emerging customer desires

Emerging customer desires can be general (such as an increased desire for green products) or very specific (such as the new niche for iPhone apps). This strategy requires a bit of forethought about what's going to be cool next year, but the payoff can be huge.

2. Emphasize needs based purchases

When people tighten their belts, they still buy what they need. An emphasis on basics can pay off, but don't overlook the "downshift" appeal of less expensive luxuries, where people subsitute, say, a domestic vacation for an international one, or beer for wine.

3. Use the breather to tune up your operation

You have extra capacity and manpower right now? Prepare may not have enough in a few months. Even if you don't expect this, it's wise use a period of low capacity utilization to increase the efficiency of your operation from the ground up - and NOT just by cutting costs! This would be a perfect time to undertake a lean initiative, for example.

4. Acquire competitors who haven't planned for a recession

Some of your competitors undoubtedly didn't prepare as well as you did for a recession. Why not take advantage of this fact and sniff around to see if any of them would be willing sellers?

Wednesday, April 01, 2009

New Strategic Planning Process - Drinks at the Pool

I have recently reviewed strategic planning results from a number of clients, and am developing a completely new design based on results over the past 10 years.

This new process, which I am calling "Drinks at the Pool" or DatP for short, reflects learning from some of the most successful organizations I've worked with over the past twenty years. It involves a structured process of drinking whiskey next to a swimming pool in a warm climate.

If you are interested in this streamlined and effective form of strategic planning, I have some dates available in April in Orlando, and would enjoy talking with you about how we can relax and imbibe our way to greater success for your company!

Wednesday, March 18, 2009

Strategic planning - Compensated Risk

I love entrepreneurs. Not only are they the soul of job growth in the world, but they are, in many ways, the pinnacle of the accountable life. Every little thing a business owner does can have an effect on his or her company - and he or she reaps both the rewards and the penalties for those actions.

One of the things that bothers me about public companies is the separation of risk and reward, especially at the executive level. It drives behavior that is at best incongruent and at worst, destructive.

Take the example of a company that takes a wild risk to fund development of a major new product. Let's say this funding requires an investment of $2 million and has a 50/50 chance of success. For the entrepreneur, the downside is the loss of his or her $2 million - and in many cases, failure of the company.

Not so for the executive in a large public company. That loss simply becomes a blotch on his or her resume - and would not usually prevent finding another, better job when the time comes to move on. Now, granted, the entrepreneur gains more from the upside - the gains are all his or hers (after taxes). The large company executive merely gets a big feather in his or her hat and possibly a nice bonus.

Let's look at the real issue here - both of these players are gambling. But the entrepreneur gambles with his or her own money, while the public company executive gambles with the investment dollars of shareholders. If the public company is REALLY big, like General Motors or AIG, the gambling can also involve taxpayer money, which is essentially extorted from citizens to fund the career-building risks of executives in large companies.

Inside ANY company, you can find issues resulting from compensated risk. When the risk to any employee does not correlate to the risk for the company - when he or she doesn't have enough "skin in the game" - you are asking for strategic problems. A very common example of this lies in sales compensation - most salespeople are compensated on sales volume, but can have a high impact on margins, too. When you balance the compensated risk of losing the sale (and the volume-based commission that goes with it) against the non-compensated risk of low margins for the company, most salespeople will err on the side of low margins. Where do you see conflicts of compensated vs. non-compensated risk in your company?

Monday, March 02, 2009

Strategic Planning - What You Should Do Differently!

Obviously, this year puts most of us in a strategic environment that is quite different from anything in the past five or ten years. Are there any things you should do differently in strategic planning this year? Absolutely! Here are a few suggestions:

1. Do make sure you are investing as much as you can in capital and acquisitions - because they are really cheap right now!

2. Do invest in your brand - again, really cheap, and the marketing noise level is low in many markets!

3. Do hire good people away from competitors that are cutting staff - good people are gold, and some of the best people may become available this year!

Here are a few other things you should NOT do:

1. Do NOT save money/time by skipping strategic planning! Now, more than ever, you need to steer your business carefully.

2. Do NOT cut key people if you can help it - they are very hard to replace.

3. Do NOT assume that current trends will continue - one thing we know is that even bad recessions don't last THAT long, so plan to position yourself well in the recovery.

If you'd like to discuss how to apply these suggestions at your business - no matter what size - please get in touch! We've helped clients improve their profits in good years AND bad since 1981 - and the Simplified Strategic Planning model can be scaled to fit any timescale and budget.

Wednesday, February 11, 2009

Strategic Planning: "Cancelled Meetings are Actually Costing the Economy Millions!"

In response to congressional scrutiny of lavish travel perks for top executives, many in the travel industry are pointing out that meetings and incentive travel are an important part of the economy.

Yes - and no. Yes, meetings are still the most effective way for people to network, communicate and learn, because face-to-face meeting will always have higher bandwidth than any other form of meeting (or at least for the forseeable future). Yes, incentive travel is a very efficient way to motivate employees who are performing well.

No, because, at the most outrageous level, some incentive travel is going to people who need very little in the way of incentives. I'd be happy to be in the executive suite of one of the nation's top banks - and AT THAT LEVEL I wouldn't expect any incentives unless the bank was doing well. At the C-level, incentives should go up and down with the company's stock - and a company getting massive government bailout money shouldn't hand out incentives at the C-level until that money is paid back in full. An executive in a troubled company who accepts this kind of perk - with a cost that exceeds the income of some employees - should be completely prepared to have a PR nightmare on his or her hands.

This is DEFINITELY NOT THE CASE when you go to lower levels of any organization. A manager who is delivering top performance in a business unit, and increasing bottom-line performance for his or her company, should obviously be well-rewarded for that effort - especially now. So I'm particularly concerned to see Wells Fargo adopt an across-the-board elimination of incentive travel, since that is obviously a case of throwing the baby out with the bath water. What is the likely effect of this kind of misguided reaction? Loss of Wells Fargo's best performers to competing banks who will (appropriately) continue to reward their employees who are performing well. Let's put this another way: a hard-working mortgage producer who meets measurable goals this year and makes the bank a million dollars more absolutely deserves a trip to Hawaii - and I would applaud this move, as a shareholder.

Obviously, Wells Fargo and similar organizations don't face this issue at the top level where the most egregious over-incenting was taking place. No one will cry if the executives responsible for the bank's current position jump ship - and it's unlikely another bank would want them right now. Perhaps the most difficult part of being responsible for incentive travel is looking employees - even executive level employees - in the eye, and telling them why it doesn't make economic sense for them to go to meetings, when others are going. A true test of a great manager is his or her courage to do exactly this - and I hope the folks at Wells Fargo will show that kind of courage instead of the one-size-fits-all easy way out they have taken.

Meetings and incentive travel are, in fact, a critical part of the economy. Shutting them down will have a long-term negative effect on productivity growth. Let's not hamper economic recovery just because the ROI is too difficult to measure.

Monday, February 09, 2009

Strategic Planning - "What's the point, in a recession?"

Some audience members at my speeches have asked me if it really makes sense to continue with their strategic planning activities during a recession.
My first reaction is "of course!", but let's take a closer look at the reasons why you might not start strategic planning (or continue it...) during a recession.

1. Strategic planning takes resources.

This argument is part of the general "downward spiral" attitude - cut everything that costs money, the conventional wisdom goes, and you will end up with a profitable business. I suspect the airlines have been trying to figure out how to get rid of passengers for years, since they cost money...and that is exactly the point. Almost everything worthwhile in your business requires time and money to maintain its value. The same is true of your strategy. This is not less true during a recession - in fact, there is no better time to look for strategic opportunities as your competitors make their strategic choices based on fear and knee-jerk reactions. True, you may want to spend LESS on your strategic planning than in the past - but that is a good reason to use the SSP framework.

2. Strategic planning focuses your attention on the big picture when you need to worry about staying in business.

If you are in imminent danger of insolvency, this is absolutely true. If you can continue operations, then now is the best time to look at the big picture. Many strategic resources - people, technology, capital resources and acquisition targets - are more available and cheaper now than they have been in years. If you can take advantage of the opportunities, this is the perfect time to examine your strategy and pursue those that truly fit your business.

Beyond that, if your business model is truly broken, you have a very short window of opportunity in which you can completely change it in order to resume growth in the new business environment.

3. Strategic planning may limit you from pursuing opportunities when you need every nickel to turn a profit.

Again - if you absolutely have to have every dollar you can get in the door, you may need a very different look at your strategy. But if you are going to survive, the choices you make to get those dollars today will affect your business for a long time to come. Making good choices today will help you build healthy growth for the future - and not get you into the downward spiral of trying to be all things to all people as your company resumes growth.

The Center for Simplified Strategic Planning has a number of processes designed for every level of resource availability. My clients are CONSISTENTLY outperforming their competitors in a wide range of industries,
right now. If you are concerned about your ability to plan effectively this year, please contact me to find out how we can design a schedule that will fit your situation, and better prepare you for the years ahead.

Wednesday, January 21, 2009

Strategic Planning - How are you preparing for the END of the recession?

I'm hearing a lot of interesting things about how to adapt your business to a recession, but the fact is, the most successful strategies we've seen in the past two recessions involved preparing the company for the END of the recession.

Partly, this is because the knee-jerk reaction to recession is to begin the cost cutting/value cutting syndrome that leads to a downward spiral...and partly, it's because there is NO better time to plan for a reinvigorated strategy than when you have a little bit of breathing room.

Let's look at this another way - during the peak season at a tourist destination, everything is crowded and expensive. Hotels, airlines, rental car companies all charge top dollar because they can, when there is more demand than supply. In the off-season, everything is cheaper and less crowded.

If you think of the US economy as being in the "off-season" right now, you'll realize there are some things that savvy companies ARE spending money on - right now. A classic example of this is something we teach in our strategic planning classes - that mature cash cow companies ALWAYS invest in marketing during recessions. This is because brand is still important to a cash cow - but waiting for recessions to invest in your brand helps to optimize overall cash flow.

Our experience bears this out - our top-performing clients not only managed costs carefully during previous recessions, but also invested in preparing for future growth - and beat their competitors to the punch by doing so.

What are YOU doing to prepare to return to growth?