Strategic Planning Fix #3 - How Do You Track Your Implementation?

Most people who claim to do strategic planning really fall down on this one. If you are ever in a position to interview someone who claims to be a strategist, make sure you ask them what percent of strategic objectives are met by their average client. Half will choke on this question, because they don't track it (and how can you optimize something you don't track?).

The cold, hard fact about strategic planning is that it isn't over when the strategic planning meeting is over (and the consultant goes home). Strategic planning is NEVER done - it is part of a cycle of activity that should be changing your company in significant, noticeable ways over time. If you are doing strategic planning and you are not seeing noticeable change, it's probably because you have no mechanism for tracking.

In Simplified Strategic Planning, we tell people to review progress on strategic objectives by writing action plans for them with monthly milestones - and then track progress on those milestones with a mandatory monthly review meeting. This meeting takes a couple of hours most months, and is well worth the time. There are two key benefits you get from this: (1) It puts accountability into the implementation plan and (2) It gives you the ability to correct your course in mid-year when reality doesn't match your plans.

In my experience, of the hundreds of companies I've done strategic planning with over the years, the top 10% ALL do a monthly monitoring meeting and the NONE of the bottom 10% do a monthly monitoring meeting. When you consider that the top 10% in my database averaged 40% per year profit improvements over 5 years, you can see why I strongly recommend this approach!

Strategic Planning Fix #2 - Set the Right Number of Objectives

I've given this advice so many times since I started coaching strategic planning teams in 1981. Let's say your team can achieve 10 good-sized strategic objectives in the next 12 months. What will happen if you give yourselves a "stretch goal" and try to do 20? In my experience - almost nothing will happen. Your team, which would find 10 good objectives challenging and productive, will be lucky to get halfway done with each of the 20. At the end of the year, you will have a typically poor showing in the execution department and your team will have just a little less faith in the strategic planning process as a whole.

A good rule of thumb for objective setting is to have no more objectives than you have effective team members. For many companies, this puts the limit somewhere in the 5-10 range. Most companies I've worked with in the past five years have done very well with six objectives.

Strategic Planning Fix #1 - What Process Did You Use?

This is the first question I ask anyone who asks me if I can help fix their strategic planning. The reason is simple - every process has strengths and weaknesses, and the issues you are having with your strategic planning may well be the direct result of the process you chose to use.

Surprisingly, a common answer to this question is "We didn't really use a process" or "We read a couple of books and came up with our own process". Obviously, both of these can lead to problems. There are inevitable pitfalls in process design in strategic planning, and no process, or a mishmash of elements from several processes, can get you into those pitfalls quickly. So my first point is use a strategic planning process! Ideally, you want to use a process that's been tested and refined through use in thousands of companies in many different industries over the past 25 years, with a proven track record. Anything else is probably a mishmash of other processes put together by an inexpert strategist who wants to get into the business, and just as likely to lead to problems. Your best bet, of course, is a program like Simplified Strategic Planning, which is the most popular strategic planning model in use today.

The second point I want to make is that many processes that people use for strategic planning leave huge gaps where there should be data, analysis and documentation. My favorite example is Balanced Scorecard, which is an blown-up version of the Measures of Performance we started using in 1981. It's not a complete planning process - it's just a part of the process - and yet many companies treat Balanced Scorecard as their main strategy effort. That's like trying to drive from New York to LA by watching the speedometer and gas gauge - but not a map. Sure, you'll make good time...but where the heck will you be going?

The most common gap I find in other people's planning processes is implementation. Be sure to ask about how a process handles this, because implementation is the most common issue with strategic planning among attendees at our Simplified Strategic Planning seminar.

Can I Fix My Strategic Plan?

Occasionally, I'll get a call from a team which has been doing strategic planning for a while on their own and are disappointed with the results. In most cases, they are just not getting value out of the time spent on the process. This is a shame, because good strategic planning usually yields excellent results for companies that approach the process with discipline.

There are a few questions I always ask, because they lead to some of the most common reasons why people have trouble with planning.

1. What strategic planning process did you use?
2. How many objectives did you set?
3. How are you tracking implementation?
4. Who did the planning?
5. Did you use an outside strategic planning facilitator?
6. How much time did you spend on the process?
7. How many market segments are you using?
8. Are you segregating your assumptions from facts?
9. How are you measuring the success of your plan?

In my next few posts, I'll discuss each of these questions, and the answers that are often warning signs that the planning process needs a major fix.

When should I do my strategic planning?

I get asked this question a lot in my seminars. There are three basic ways to time your strategic planning around your annual cycles. First, you can schedule your planning process so that it precedes the budget cycle. This is useful if you feel it's important to get the money for strategic projects into your budget. This means you will have to complete and review your action plans before starting your budgeting, but it has the advantage of giving you some pretty detailed information about the expected cost of new strategic projects.

The second way to schedule your strategic planning process is to do it just after your year end. The main advantage of this is to give you the most complete, accurate and up-to-date data on your company's strategic performance. If your financial data gives you key insights about what strategies are working well for you (and it should), this approach might give you the best information for your strategic planning. One possible disadvantage is that it might not allow for inclusion of the action plan expenditures into your budgets, requiring a second look at your budget at the end of the strategic planning process.

The third scheduling approach is to time your strategic planning for a low point in management activity for the year. The main advantage of this is that you won't overload your executive team with the additional burden of planning meetings and homework. For construction, this might be the Fall or Winter, while for schools this is most likely the summer.

All of these approaches have pros and cons, and - of course - there are hybrid approaches that combine these approaches to scheduling strategic planning. I'd suggest you try one and see how it works for your team, understanding that it's always possible to change the timing of your strategic planning in the future. And, of course, a short discussion with an experienced, qualified strategic planning consultant can really help you find the timing that is right for your organization.

Strategic Planning - Should you go for the home run?

Every once in a while, when I'm doing strategic planning with a client, we hit a home run. It doesn't happen with every client, and it doesn't happen every year, but it does happen. A frequently asked question is "Should we try to get a home run?"

I have two very opposing views on this. The first is that swinging at home runs can be very distracting and, when you actually get a hit - it can be downright disastrous. One of my earliest home run stories tripled the size of the company in less than a year and brought their strategic planning to a halt. Within three years, the company - partly because they had stopped planning - had serious growing pains, including cash flow issues. The great "opportunity" they had found nearly killed the company! This is not as uncommon as you would think - there is a very real danger of growing your company to death. Also, let's not ignore the fact that, as in baseball, you are likely to have a lower batting average if you are always hitting for the fences.

On the other hand, while most of my success stories are about dependable, steady growth, there are quite a few that were explosive...and that can be the just thing to get a company out of a rut. Certainly, I'm proud of the home runs that worked out well, because they were built on sound strategic thinking and created sustainable competitive advantages.

So my basic answer is this: put most of your effort into your strategic competency, and the strong, steady growth that comes from that. Consider having a project with home run potential on a side burner, especially if it relates to your competency, but don't bet the farm on it. And...if it starts to take off, be very careful of how it will affect the viability of your company in the long term. Strategic planning is an excellent tool for assessing these kinds of situations, and if you are looking for explosive growth - or in the middle of it - you will be well rewarded if you take the time to do a good job of strategic planning.

If you are looking at consultants...

Remember, one of the most important concepts in strategy is focus.
Any strategic planning consultant who says "I do strategic planning and..." is not focused. They are just fooling around when it comes to strategic planning.
You wouldn't go to a brain surgeon who says "I do brain surgery and plastic surgery." So why work with someone who does something else, like marketing, operations or teambuilding consulting? Your company deserves the best, not an amateur.
Here are some useful questions for when you are choosing a consultant:

1. How many strategic plans did you work on last year? In the past 10 years?
2. What results do your clients get? Can I talk to them?
3. What else do you do besides strategic planning? Will you try to sell that to me?
4. How are you different from other people who do strategic planning?
5. Why do you think there is a fit between you and my company?
6. Do you work with my competitors? How do I know you won't share my data with them?

On that last question - you want to avoid consultants who work with your competitors. The worst strategy is the one that looks just like your competitors - and using the same consultant is a sure-fire way to get that.

Strategic Planning - better implementation

I'm thinking of doing one of my future Hot Seat programs on the Four Pillars of Strategy Implementation. I think it would be an awesome program.

People who use any strategic planning model tell me that implementation is really the hard part for them. Yes, I make my living helping people come up with great strategies, but I recognize that I get to go home at the end of the meeting and the managers I work with have to actually put a lot of attention and time into turning those strategies into reality. I suspect that the time I spend on implementation - about 20-30% of the whole process - is one of the reasons my clients get such great results. Some clients tell me it feels a little weird the first time through, but after the first year, almost all of them are completely sold on my unusual approach.

One of the keys - and this is a valuable point for anyone concerned with strategy implementation - is that we pay a LOT of attention to the money involved in most of our projects, and very little attention is devoted to the time involved. This has always seemed backwards to me, because (in the hundreds of projects I've worked on) 95% of the projects that fail in execution do so because people at the top of the organization didn't spend enough time on the project.

So my idea for the Implementation Program is to lay out each company's objectives, action plans, and resource issues, and discuss those in depth, probing for areas where little changes can yield big results in effectiveness. I'm guessing there will be some really great stuff we can do in a program like that on three areas: (1) writing better objectives, (2) writing better action plans and (3) structuring the resource allocation process to yield more realistic commitments. This is just an idea, so I'd love to hear what you think about this!

I think any company who is doing strategic planning could leave the room with a much better implementation plan - maybe even people who are already working with me! If you are interested in this program, drop me a line. I haven't decided where to hold it yet - it might be anywhere in the world.

On that note, I still have a couple of days available when I'm in Europe in late June- early August - my plan is to spend most of that time in Switzerland, but I'd love a chance to do a Simplified Strategic Planning workshop for anyone who hasn't had a chance to see me for a while. Since my only European gig was in Norway last year, that's probably most of my readers in Europe. Drop me a line if you think some great strategic stimulus would be valuable to your company.

Strategic Planning - the four pillars of implementation

At last week's Michigan State University Simplified Strategic Planning seminar, we had a great discussion about the four pillars of strategy implementation. These four things are the best practices held in common by all of the companies I've worked with who achieved 100% of their strategic objectives. They are:

1. Good objective setting
2. Well-written action plans
3. Good allocation of both time and financial resources
4. Routine monthly monitoring of action plan progress

Are you doing all of these things well? If implementation is an issue for you - as it is for most companies - you might want to think about how you can improve your effectiveness in these four areas.

Strategic Planning Implementation - The Dangers of Planning to Plan

One of the things I worry about in strategic planning is the tendency some people have to want to write action plans that result in plans. If something is big and complicated enough, it might require a plan to plan, but sometimes this is just a smokescreen for a bigger issue. Is the team avoiding making a decision for some reason? Is planning to plan a way to avoid conflict? Or is planning easier than the actual work involved in reaching the real objective? Make sure you address these questions squarely whenever you are confronted with an action plan step that starts with "Plan...".

Cash Flow - Is it Strategic?

Cash flow is both very strategic and very un-strategic. What I mean by this is, cash flow is the thing that kills most companies that go out of business. I've seen otherwise profitable companies driven to insolvency by poor cash flow management. So staying on top of your cash flow is definitely a strategic priority. But cash flow is also very, very tactical. It has very little to do with the reasons why most companies succeed, and often, cash flow goes down when a company makes good strategic moves. Watching cash flow has rarely led to good strategy - and in fact, companies that are too obsessed with cash flow may be driving away otherwise very profitable customers. So, watch your cash flow, yes - because it affects your survivability. But if the ship isn't sinking, remember to stay focused on moving forward.

Strategic Planning - avoid the wannabe strategic plan

One of the fascinating things I think about these days is all the nonsense that passes for "strategic planning". Strategic planning is a VERY specific process, which involves setting the course of an organization. A good strategic plan always answers the following 3 questions:

1. What do we do?
2. For whom do we do it?
3. How do we beat the competition (or absent competition, how do we excel)?

A good strategic plan also incorporates a systematic analysis of the environment, current situation, organizational capabilities, and assumptions about the future as a foundation upon which to build the answers to those questions. Finally, a good strategic plan, being a tool for creating better results, is simple and includes short-term implementation activities that make a critical difference in pursuing your organization's long-term vision.

Anything less than this is just a piece of a strategic plan that someone is calling a strategic plan so they can charge you more money for it. At best, these planning fragments will be useful but leave you exposed to many of the common pitfalls of poor strategic planning. At worst, they will waste your organization's time and money and leave people disillusioned about the entire strategic planning process.

Fortunately, the Simplified Strategic Planning process will help you avoid these pitfalls. Unlike ANY other model, it has been fine tuned through application over 25 years in hundreds of companies of all sizes.

Strategic Planning - making it more personal, part II

Another exercise that helps make participation in the strategy more personal involves identifying key relationships.

Using a diagram similar to the 3-7 element flowchart mentioned in my last entry, you can ask the team which relationships/communication points are most critical to effectiveness in each area. For example, in some companies, the key to effectiveness in customer relationships is the relationship between sales and operations management. Since these areas involve very different mental disciplines, it's not unusual to find the two departments don't communicate well with each other, and there may be some excellent opportunities there to improve effectiveness.

One way to dig in to this diagram is to ask each team member how value is created or destroyed for the customer in their department. Once you have identified, say, the top three ways value is created in each department or area, you can draw lines that connect those value drivers to the departments involved. In many cases, this mapping process can identify areas where you can greatly increase your value to the customer by putting a little effort into improving how the involved departments communicate and work together.

After completing this diagram, it's useful to ask the individual team members how they might improve their role in the identified relationships. You may also want to ask individuals to pick something they do that works well in this area that the other managers might benefit from trying.

I almost always use these tools when discussing strategic issues (page 5.2) in the simplified strategic planning process, which is in the second meeting of the cycle.

Strategic Planning Reborn - Making the strategic plan more personal

While personalizing the strategic plan is one of the most effective ways to bring energy and commitment to it implementation, it's also one of the most difficult ways to do this. This is because, unlike many of the variables of the strategic planning process, the complexities of the personalities involved pose analytic difficulties that are both broad - covering a wide range of possibilities - and deep - making them far more difficult to unravel than, say, a question of market responses to certain product changes. Even so, there are some ways of working with the personal nature of involvement with your strategic plan that can yield excellent results

One way of driving home the personal nature of commitment to your team's plan is to bypass personality issues and address the question in a fairly neutral way. An exercise I often use to do this involves asking the team members to identify exactly how they envision themselves contributing to forward motion along the lines of the strategy, and how they see themselves (and their activities) creating obstacles to that same forward motion. As you might guess, it's much easier to get team members to discuss their positive roles in a group setting. One way around this is to reduce the initial interactions around this to a one on one conversation. It's also a great exercise to have team members pair up and discuss the positive contributions, then have each member report on the positive elements of his/her partner.

To reassure the team, I like to tell them that this exercise is not about who is the best, or who has the least weaknesses. Instead, I point out that the greatest opportunity in this exercise lies in our ability to find the best adaptations to existing weaknesses - and that the more obstacles we can identify, the more obstacles we can get out of our way.

So...here is one process, in outline form:

1. Ask the team members to pair up and spend 5 minutes describing to their partner the ways they can drive the strategy forward.
2. Ask the team members to spend 3 minutes identifying specific ways they either (have created obstacles to this in the past) or (could create obstacles in the future).
3. Lay out what you consider to be the KEY elements of the strategy in a diagram (say, on a flipchart). Ideally, it's optimal to have just 3-7 key elements, such as "customer relationships", "quality processes" or "asset acquisition". For a FULL description of the modeling discipline I use, see Jay Forrester's Industrial Dynamics.
4. Ask people to point out where their partners can contribute the most on your diagram, and illustrate it.
5. Ask people to point out where they might/do obstruct the strategy in the same way - but be VERY encouraging about it. The key here is not to fix the person, but to get the pieces of activity that don't FIT the person moved to someone else. A useful set question here is "How could we accomplish this effectively? Are you the right person for this task? Can we use your skills better elsewhere? Is there a process, person, or piece of equipment that would take some of the difficulty of this activity off of your shoulders?"
6. One of the best ways to really tie this up is to ask the team where they feel they personally can create the biggest improvement in the effectiveness of the company. It is important NOT to permit discussion of what other can do, but rather to keep focus on how you can change yourself, or what you do, to increase effectiveness. At times, I've encouraged this by suggesting we will devote resources to the one or two best ideas, but even simple verbal encouragement will generate good results.

The point of this exercise is to really connect team members with the key elements of your strategy. As you progress with your strategy, this exercise can serve both as a reminder of this connection, for the team members, and a diagnostic for some types of implementation issues, for the CEO.

I've tried this exercise several times with different clients now, and I've been impressed with the results, even with clients who have been through several cycles of the strategic planning process already. There are some critical issues that tend to surface with this approach, and team members feel really good about what we achieve when we put this exercise into the strategic planning process.

In my next entry, I'm going to cover another exercise I use to make the strategic plan more personal.

Strategic Planning reborn - Drilling down, part II

I've gotten a lot of questions about drilling down, so I'm going to outline some of my favorite techniques for doing it.

As stated before, "drilling down" is a term I use for picking apart parts of the strategy framework. I'm assuming you are using simplified strategic planning as your basic strategic planning model. If not, be sure that your planning process has the following information outlined WELL before you attempt this technique. (I say this because most strategic planning processes are written by people who don't do that much actual planning, so the important chunks may be missing):

1. A good outline of your own capabilities. If you've done a standard "SWOT" analysis, you are probably fine, but avoid focusing on the weaknesses and be wary of BS.
2. A good outline of the capabilities of your 3-5 key competitors. NOT 20 competitors...just 3-5 that really bug you.
3. A good analysis of customer behavior in your markets, in particular, needs, preferences and specialty/commodity tendencies.
4. A good understanding of your operations, current technology, and supplier markets.

If you have all of these, "drilling down" simply involves picking ONE element - such as your supplier markets - and closely examining how they affect the strategic dynamics inherent in the information provided above. For example, in one retailing client, when we first looked at supplier markets, we assumed they wouldn't have much impact on our strategy, because everyone was in the same boat vis the different suppliers. Drilling down led us to ask whether a differentiated supplier market position was possible. We looked at 4 key supplier markets:

1. Capital/real estate
2. Labor/key skills
3. Merchandise/raw materials
4. Advertising

What immediately became clear in our discussion was a firm belief that our larger competitors would quickly copy any strategic move we made in most of these markets - and beat us squarely. In key skills, however, we identified that the size of our competitors would make them reluctant to radically change their human resource practices, so we opted to examine possibilities relating to those. The "drill down" involved a very detailed, almost tactical look at opportunities and operational changes required to change our ability to attract and retain people with key skills. We specifically rated each idea for 2 characteristics:

(1) How easily would/could our competitors copy this change?
(2) How well does this change fit our strengths?

Ultimately, this helped us choose a combination of initiatives (including training and recruiting) which yielded a significant advantage in this area. In the following year, the company increased market share by 10% in a large and mature market while maintaining premium prices.

Strategic Planning - "Drilling Down" part 1

Someone asked an excellent question about drilling deeper into the strategy, so I'm going to discuss that tactic, first.

When I talk about drilling deeper, I'm definitely talking about a strategic planning process that involves the top management team, and not external stakeholders or media. When you take planning outside the organization, you are generally looking to communicate why your strategy is a good one rather than how you came up with it. An example of what I mean by "drilling down" could be seen in an airline examining the customer satisfaction impact of all the contact points a passenger may have with them. This might involve some detailed analysis of the operation, combined with insights from market research on things that affect customer satisfaction. While it would look tactical to an outside observer, this kind of "drilling down" can identify places where operational, financial, IT or HR practices (to name a few) can be changed to be better aligned with the overall corporate strategy.

This kind of work is unlikely to be productive with the media, because it is time-consuming and hard for them to package. They will, however, appreciate any surprising bit you might come up with. For example, when Sears acquired K-mart, they saw the real estate involved as the key piece of the value of that deal. This was interesting, because it was a merger of two huge retail brands, not just a real estate transaction. The news media were fascinated by this, without really knowing why that made sense for Sears.

Outside stakeholders may have more appreciation for the actual "drill down" process. The best way to handle this with them (if you have the resources) is to walk them through the key questions. They won't have the data or experience of the management team, but - if you are well-prepared - you can throw those in as trump cards to move the conversation and its conclusions along.

One important point here is that the process of strategic planning is entirely different from the process of communicating the strategic plan. Both are important, but it's possible to do either poorly if you mix them together without considering how you will affect the quality of the strategy or the perception of the resulting plan.

Quick note...

Many readers already know I do training and consulting on strategic planning. What they might not know is that - to simplify my travel schedule - I sometimes offer incentives to have meetings in specific cities around the country.

I currently have client dates in a number of cities where I wouldn't mind adding a day or two for a workshop, or even a full three-meeting cycle. Here are the cities I am currently looking to add dates in:

Burlington, VT
Detroit
Geneva, Switzerland
London, England
Orlando (always!)
St. Louis
San Diego
Vancouver, BC

If you would like me to coach your team through the process...or simply train them in our highly popular program...please contact me about meeting in one of these cities!

Strategic Planning - Reinvigorating your strategic planning process

After a few years, clients almost always ask, "How can we put life back into our strategic planning? We've achieved great success, but we'd like to have the same level of excitement we had in the first few years."

This question often comes up for reasons that are inherent in the process itself. First, strategic planning - as an ongoing process - tends to yield easy benefits in the first couple of years, as your team focuses attention on the low-hanging fruit. After a couple of cycles of this, the fruit that is left may seem to be a little harder to reach...and often, it is. Secondly, if your process is well-run, each cycle of planning will seem more like a part of your management routine and less like a special event. This is true of any process that you repeat routinely, but with strategic planning, the first couple of years seem strange and wonderful because good strategic planning is so far outside the norm for most managers. Finally, as your team gains experience with the process of identifying strategic objectives and effectively implementing them, they also learn how much work is involved...and there may be a natural reluctance to commit to the big, exciting projects that bring so much energy to the first few years of strategic planning.

In the next few posts, I'm going to take a look at some exercises I have used to give the ongoing planning process a little more "zing". In general, these exercises fall into 3 categories:

1. Making the strategic plan more personal - many plans lose their "zing" because they seem to be about someone else...so identifying how individuals affect - and are affected by - the strategy can help reverse this.

2. Giving the vision more substance - sometimes, the vision encompassed in your strategy is too abstract for the team to "get into it". In these cases, some work on what the reality of that vision will look like can be just the thing.

3. Drilling deeper into specific parts of the strategy - in many cases, there are things just below the surface that can dramatically transform your company. A little digging in some specific areas can turn up gold!

Getting started with strategic planning

What do I do to get started?

This is one of the most difficult parts of the whole strategic planning process. Getting started with strategic planning can appear to be a daunting task, even if you are using a simple template like Simplified Strategic Planning. Here are a few tips to help you get started:

1. Set a date - sounds simple, but if you have a process with a schedule, committing to that schedule will help a lot.
2. Don't wait until you are ready - sadly, a lot of companies get stuck with this. There is no time when you are more ready to do strategic planning - so just start NOW.
3. Don't wait for data - you might do a better job of strategic planning with more/better data, but, again, there is no substitute for just doing the plan.
4. Don't overcommit - do NOT use a process that takes more time than you can commit to strategic planning. A good model, like Simplified Strategic Planning, should cover everything from gathering data through implementation with just a few days invested.
5. If in doubt, take a class - a seminar on strategic planning is a great way to get started - especially if you can bring your whole team.
6. When all else fails - or even if it doesn't, you will get a LOT from using a real strategy professional. The very best do NOTHING BUT strategic planning, and have done the strategic planning process hundreds of times. A professional will get you going - and coach you to do a better job the first time than you would even with years of experience.

strategic planning, strategy, management, business, getting+started+with+strategic+planning, strategic+planning+process

Succession Planning and Strategic Planning - it pays to plan ahead

In business, there are many things that can be done more effectively if you plan to do them well in advance. This is one of the reasons why strategic planning (when done well) is such an effective management tool. Succession planning is certainly one of those activities, and here's why - if you spend some time observing successor candidates and involve them in your strategic planning, you get two huge benefits. First, you get a better understanding of how the successor fits with the overall strategy and culture of the organization. Secondly, the successor gets a good look at how strategic thinking works while the outgoing executive is still in place.

Here are a few tips from successful transitions that I have seen in the past 20 years:

1. Start early! It's never too soon to think about transition.
2. Don't dwell on the weaknesses of candidates...almost always, other people can handle the things they can't, but DO look for candidates with big strengths in key areas.
3. Involve internal candidates in your strategic planning as soon as you can.
4. Use vacations and other absences to give candidates time "in your shoes"
5. Mentor the candidate positively - I've seen really good successor candidates abruptly leave companies because they were negatively mentored.
6. Help the candidates get a good sense of their own strengths and weaknesses as managers
7. Start working on professional development for the successor as soon as you can
8. If you see a big red flag come up on any candidate be willing to try another candidate

strategic+planning strategic+planning+process management business, succession+planning

Clues from Strategic Planning: Identifying a successor to the CEO

The strategic planning process is a great place to learn about the members of the management team. After a couple of sessions with a team, I can generally tell who is likely to do a good job on implementation, who understands your strategy, and who is going to have the best information about certain strategic issues. All of these are important traits in a CEO, but anyone who says "A CEO must have trait A, trait B and trait C" probably doesn't understand how much the existing management team can affect the leadership needs of different companies.

Here's a thought process you may find useful: every management team needs good implementers, good strategic thinkers (planners), and good idea people (creatives). While every manager has some of each of these skill sets, the best at each of the three will likely have less of the other two. This is because the mindset of, say, a good implementer, is about doing, while the mindset of a good planner is about thinking ahead. Neither is necessarily better than the other (although some are better for certain functions in your organization). Strategically, these three management approaches need to be present, in strength, in your top management team.

When thinking about who will succeed your current CEO, you want to watch your team for evidence of one of these three strength areas:

Implementers will be very effective working on action plans, and will generally have all their homework done, well and on-time. Action plans written by Implementer types will have lots of steps, most of which are specific, concrete actions.

Planners will likewise be very prepared for your meetings, but are likely to analyze more. An action plan written by a Planner type will have many more preparation and analysis steps.

Creatives will bring a lot of clever ideas to the table - but many of them will be impractical. Creative types tend to turn in homework that is incomplete but peppered with brilliant insights, and their action plans often contain just a few really critical steps.

I won't tell you that one of these makes a better CEO than others - because different companies, at different life stages, can benefit greatly from each of these. What I will tell you is that it will pay to be aware of these three styles and strengths in your own management team, especially when you are doing your strategic planning. An effective CEO always brings one or more of these skill sets to the company, and being aware of how that mixes with the rest of the management team can help you in your selection process.

strategic+planning strategic+planning+process management business, succession+planning

Do You Need Succession Planning?

Do you need to do succession planning? Of course, the knee-jerk answer to this question is "yes", but let's take a closer look.

Companies that do no succession planning usually survive the transition period from one CEO to the next. There is no clear data on the correlation between profitability and succession planning, but research on market leaders versus laggards in various industries do note some correlation between market leadership and certain succession planning practices. Those practices are:

1. Management development programs
2. Early identification of successors
3. Mentoring of identified successors

All of these take time, and they can cost money, as well, so it's a good idea to understand why you are doing succession planning before you start. Also, you want to match the investment you make in the process with the outcomes you expect. It's quite possible for a smaller firm to spend tens of thousands of dollars on the succession planning process with little measurable output on the bottom line.

I'm not saying that you shouldn't do succession planning, but I am saying that you need to choose an approach that will match your organization's resources, and the value that you will get from a successful transition. If you are already doing strategic planning, there are some specific steps you should consider adding. Over the years, I've noticed companies doing well with succession when they have undertaken projects to do the following:

1. Inventory strengths and weaknesses of the management team
2. Assure the management team has easy access to a wide range of development opportunities (eg seminars, conferences, coaching, etc.)
3. Involve possible internal successors in the strategic planning team and the action plan teams
4. Discuss possible successors with a knowledgeable outsider who is familiar with your organization
5. Arrange opportunities for non-task oriented interaction between possible successors and those who might mentor them

It's clear from available research that some succession planning activities pay off handsomely, so you may want to examine this activitiy as a possible strategic initiative for your organization. Here are a few items that suggest a high value for succession planning that may come up in your strategic planning:

1. There are predictable reasons to expect an ownership transition, such as impending retirement of the founder/CEO, or health issues
2. Succession questions are making your team reluctant to commit to a clear strategic vision
3. There is an identified weakness in the next level of management or the pool of likely successors


strategic+planning strategic+planning+process management business, succession+planning

Some thoughts on Succession Planning and Strategic Planning

I'm not an expert on succession planning - at least, not in the same way I am an expert on strategic planning. Yet there are quite a few important links between the two disciplines. In particular, when succession planning involves the top management in any organization, it can have far-reaching strategic impact.

In my experience, one of the most important intersections of the two disciplines occurs when strategic planning is an ongoing part of the organization's overall strategic management. Strategic planning will very likely help you towards a successful transition in five distinct ways:

1. Strategic planning situation analysis will likely identify succession as a key issue early
2. Strategic planning will help the departing CEO to evaluate the strategic thinking of his or her top management team
3. Strategic planning can expose the new CEO to the strategic thining of the departing CEO
4. Strategic planning is an excellent joint activity for the new and departing CEOs during the transition period
5. Strategic planning helps to stabilize the organization during what might be an otherwise disruptive period

While you probably don't need benefit number one, if you are already concerned about succession planning in your organization, the other four benefits are all excellent reasons why a routine, disciplined strategic planning process should precede any planned succession and continue through the transition period.

strategic+planning strategic+planning+process management business, succession+planning

Strategic Planning - learning by reflection

This is the tenth is a series of articles about how to get more from your strategic planning.

10. Reflect on Success and Failure

All organizations that are successful over long periods of time are learning organizations. This requires that the management team learns from its experience. It's worthwhile, periodically, to take some time to reflect on both your sucesses and your failures, because each has something to teach you about what works and what doesn't work. The most important thing to question is why you succeeded where you did...and also, why you failed. Do not make the mistake of focusing on one over the other, because they both offer great learning opportunities.

One of the most difficult things to do in reflecting on success and failure is to separate the effects of good decisions and good situations. This is important, because we want to learn to make good decisions under any circumstance, but circumstances are unlikely to co-operate by repeating themselves. A good example of this can be found in Disney's efforts to restore profitability in their theme park business after 9/11. The situation caused almost all of the decline in profitability, yet the management team made many shifts in strategy hoping to find a better way to make money with the park operations. In the final analysis, profitability returned as the economy resumed growth and people resumed travelling to the Disney parks. On reflection, it would be easy to confuse increased profitability in this case with good strategy, but many strategies would have resulted in increased profitability in that situation. Likewise, Wal-Mart's same-store sales numbers suffered as the economy recovered - not as a result of poor strategy, but rather because some consumers, who shifted to buying at discount stores when the economy got tight, shifted away when things improved. In my mind, these are both cases of what I think of as "living by the sword and dying by the sword". In your own strategy, if you succeed by riding the pendulum one direction, think about how you can succeed as it swings back.


strategic planning, strategy, management, business, marketing, entrepeneurship, growth, learning

Strategic Planning - Pricing for profit

This is the ninth in a series of articles about how to get more out of your strategic planning.

9. Don't Underprice

It's hard to push the idea of charging for value when some of the most notable strategic success stories of recent years have been commodity players. After all, if low prices worked for Southwest Airlines and Wal-Mart, shouldn't they work for everyone? The answer is NO. In any industry - any industry at all - there is only ONE winning company that follows the low price strategy, and that only occurs if that company has a real, tangible, differentiating advantage in cost (not price - cost). In many industries, what this means is that there is a crowd of bottom-feeders all thinking they will be the next Wal-Mart - with none of them succeeding. I can think of very few more certain recipes for failure than to pursue the low price strategy without a serious cost advantage based on strategic competency.

It's a hard fact that 90% of pricing mistakes are underpricing. The reason is quite simple - we are reluctant to lose customers for any reason, and - often - we have trouble believing in the true value of what we are selling. To succeed, we have to escape this trap. There are two essential ideas necessary for this:

1. Understand your true value and be confident in it. - it's much easier to hold your ground on price when you know what your added value is worth. The sale makes more sense to everyone - pay X get Y value, or pay less and don't get it.

2. Be willing to lose customers on price. Good products, high quality and excellent service are not for everyone. What this means is that some customers just aren't willing to pay for anything more than the minimum value. Your task is to get those low-value customers to but from someone else, so you can focus on the customers who value what you do well.

This is one of the hardest tips I've given, because it's terribly difficult to watch customers go somewhere else. Just remember, at the end of the day, it's not how much you sell, but how much you make that really matters.

strategic+planning strategic+planning+process management business pricing

Strategic Planning - executing better

This is the eighth in a series of articles about how to get more out of your strategic planning process.

8. Execute Better

Execution is the Achilles' heel of strategic planning. Far too often, we create elegant, wonderful strategies that fall short of our expectations simply because of lackluster execution. There may be many reasons for this, but there are two very common reasons which can be mitigated by proper strategic planning processes.

The first common reason execution becomes an obstacle is that we always want to commit to more than we can actually accomplish. In terms of Simplified Strategic Planning, this amounts to setting more strategic objectives than your team can realistically implement. There are two basic rules of thumb I use for matching our commitments to our capacity. The first is an absolute number - no team will be effective implementing more than 10 strategic objectives. Sure, you may get more than 10 objectives done, but with real strategic objectives, you will certainly be taxing every part of your organization to do so. And why not? Because you will eliminate your ability to handle unforeseen events, and cripple your organization's ability to take advantage of serendipitous opportunities. The second rule of thumb is that you generally want as many objectives as you have effective implementation leaders in your organization. While it's possible for an implementation leader to do a great job on two or even three strategic objectives, you will be reducing his or her ability to perform in any other function in your organization. You also will lose a certain amount of focus, which is usually going to reduce effectiveness. Please note that this rule of thumb refers to "effective implementation leaders" - not "strategic planning team members". While we like to assume that all of the members of our strategic planning team will be effective implementation leaders, this is often not the case.

The second common reason execution stumbles is that we often do a poor job of monitoring our progress on implementation. Most strategic plans are poorly designed for monitoring - there are few, if any, measuable milestones and no built-in process for routine monitoring. In addition, we have a tendency to put the monitoring of strategy implementation at the bottom of our priority list, because it is seldom urgent. As we've pointed out so many times in our strategic planning books and strategic planning seminars, you must commit to monthly monitoring of your progress if you want good execution on your plans.

strategic+planning strategic+planning+process management business discipline execution implementation

Strategic Planning - the power of segmentation

This is the seventh in a series of articles about how to get more out of your strategic planning.

7. Segment Better

This tip goes with some of the previous tips very well. When I tell people they need better market segmentation, I don't mean that they need more market research data, or anything like that (although some of you surely do need more market data). What I really mean is that your segmentation looks just like everyone else's segmentation.

Remember tip #3, "Be different"? This is perhaps one of the easiest ways to become different that I can think of. You see, when you define a really unusual market segment that no one else uses, you start to think strategically about how to provide better products and services for that market. Because you are the only person targeting that segment, it doesn't take long before you become the preferred supplier for that segment. Now, that may not lead to 100% market share (although sometimes it does!), but it will enable you to have the first, best shot at any customer within that segment.

Here is a good way to re-think your segmentation productively: Take a look at a list of your 10 favorite customers - the ones you really make great money on. Ask - do any of these customers belong to a grouping that is NOT recognized as a segment in my industry? If your industry is segmented by consumer age and gender, for example, perhaps you should target by ethnicity, or hobbies. If you are in a B to B market that is segmented by industrial classifications like automotive and appliance, consider segmenting by size, ownership or creditworthiness. Not every segmentation you consider will work, but those that do will create golden opportunities for you!

strategic planning, strategy, management, business, marketing, entrepeneurship, growth, market+segmentation, segmentation

Strategic Planning - Understanding Value

This is the sixth in a series of articles about how to get more out of your strategic planning.

6. Understand Value

Now, when some people say value, what they really mean is "cheap", and that's not what I'm talking about here. I'm talking about (Q+S+E)/P. Here, Q=Quality, S=Service, E=Effectiveness and P=Price.

The hardest part of understanding this is to know that each customer has his or her own approach to value...and that the definition of value may change depending on the circumstances. For example, let's say my wife asks me to get a loaf of bread on the way home. Am I going to drive 10 miles to Sam's Club and buy a 12-loaf bundle? Of course not - I value my time more than that. So I have my choice of three stores within 2 miles of my home - one is cheaper, almost as cheap as Sam's, one is dreadfully expensive, but very high quality, and the third is pretty expensive but there is never a line there because the store is very well staffed.
Where will I go to get that loaf of bread? If you said "it depends", you are right. If we are having a fancy dinner, I might stop at the really expensive, high quality store. If I'm pressed for time, I might stop at the really quick store. And if I have to buy a lot of other, very commodity oriented stuff (like Kleenex and bleach), I may go to the cheap store. But in each case, my value equation has changed.

To take advantage of understanding this, you have to accept that you won't always get every customer - and, in fact, sometimes you won't get 100% of the business from ANY customer. This is OK...as long as you do get some customers some of the time, and their reasons for choosing you are well integrated into your operations, marketing and pricing. What do I mean by this? Take the expensive, high quality store in the example above. Their operation includes more highly paid people than either of the other stores, because they spend a good deal of time and money on learning about the best products and why those products are better. This helps the store to sell a pound of salami for $18, because every staffer involved can explain to you why you would choose this product over a $3.69 package of Oscar Mayer salami from another store. In addition, choosing just the right - often unique - products to sell takes a lot more know-how than goes into merchandising in a more run-of-the-mill store. And, of course, there must be additional margin to compensate for the increased difficulty of running a specialty store.

So - do you understand the value your customers see in you? Most successful companies have a firm, clear answer to this. Often, profitability problems are the result of mixing two reasons (cheap and high quality, for example), because the underlying operational requirements of optimizing different reasons usually clash, creating inefficiency. A proper strategic focus will greatly increase your ability to create strategic alignment around one, good reason to be preferred by your customers.

strategic+planning strategic+planning+process management business value marketing strategic+competency

Strategic Planning - the power of speed

This is the fifth in a series of short articles about how to get more out of your strategic planning.

5. Respond Faster

"Time is money". We've all heard that, right? But does your company operate that way? Many times, I've seen companies succeed wildly simply because they do things faster than their competitors - usually, a LOT faster. This works simply because all of us, as consumers, would prefer to have whatever we want whenever we want it. In many cases, we are prepared to pay a huge premium to someone who can save us just a little time - sometimes even paying this premium for a product or service on inferior quality.

How can you use this? First, in your strategic planning, you need to understand the time performance standards of your industry. Do 90% of your competitors turn around a customer order in a week? A day? An hour? Obviously, this can vary a lot, depending on the business you are in. But whatever that standard is, you need to ask the question "Are there many customers who would find it valuable to be served in half the time?". Usually - but not always - the answer is yes. In many cases, customers will be willing to pay a premium of 10-20% to get the same product or service in half the time.

Knowing that your customers will pay a premium for faster service is only half the battle. Naturally, you actually have to deliver on this - and make sure the customer knows you deliver. A simple time-flowchart can help you to identify where your customers' time is spent in your operation, and give you some ideas about how to cut that time down. This analysis should be done in the strategic issues section of the strategic planning process (page 5.2). Here are the top five time wasting places I've found in various industries over the years:

1. Credit approval
2. Waiting for engineering
3. Communicating the order slowly
4. Packaging for delivery
5. Waiting to be delivered

Granted, these are more applicable to products than services, but service examples tend to be very industry-centric (ie. an airline wastes time in different places from a restaurant). Anyway, try doing a little flowchart of your own operation and see if you can't find some treasure for your customers - chances are, they will be glad to pay you for it!

strategic+planning strategic+planning+process management business customers speed time competitive+advantage

Strategic Planning - more power outside the box!

This is the fourth in a series of articles about how to get more power out of your strategic planning.

4. Think Outside the Box

Some people will point out that "think outside the box" is a lot like yesterday's tip - "be different" - and it is. But there is more to thinking outside the box than just being different. Perhaps the most important way your company can get outside the box is to focus on the actual need your are serving for your customers, rather than just your product or service. By "actual need", I mean the reason your customer is buying from you. For example, Harvard professor Ted Levitt liked to cite the case of a company that made drills - the need was the hole, not the drill. Far too often, we get hung up on the thing we do and completely miss what it does for our customers.

How can you use this? Stop for a moment and think about why your customers are buying from you. Then ask two follow-up questions: (1) Is there any other way this need could be met (besides buying what we sell)? and (2) Is there something we can add to what we sell - maybe a completely different product or service - that will enable us to meet our customer's needs even better than we do right now?

There's much more to thinking outside the box than thinking broadly about customer needs, but this is a good way to free yourself from the constraints of doing things the way you always have. Give it a try - you'll be glad you did!

strategic+planning strategic+planning+process management business customer+needs strategic+competency

Strategic Planning - the power of uniqueness

This is the third in a series of short articles about how to increase the power of your strategic planning

3. Be different

On the surface, it's obvious that you want your company to be different. But look at your company with a more objective eye - just how differently do your customers see you? One of the interesting things we've discovered from years of doing strategic planning with companies in many different industries is that being truly different is usually more important than being better. This is because everyone claims to be better - but few companies have the courage to be truly different.

Using the strategic competency tools in the Simplified Strategic Planning process, you should be able to identify some ways that you can distinguish your company from the competition. My challenge to you is to ask this simple question: What would happen if we turned this up a notch? Or even, how far could we turn this up? Can we expand upon our difference to the point that our competitors simply walk away, shaking their heads? I always like to ask this question, because - and this is the important part - if you can get your competitors to walk away, then you will not have any competition.

strategic+planning strategic+planning+process management business uniqueness strategic+competency

Strategic Planning - the power of focus

This is the second in a series of short articles about how to increase the power of your strategic planning

2. Get More Focus

This approach should be in every strategic planner's toolbox, but many planners avoid it because there are some very difficult trade-offs involved. It is simply impossible for even the biggest, richest company to be all things to all people. Despite this, I constantly encounter companies who want "one stop shopping" to be their strategic competency. Now, one stop shopping can be a nice competitive advantage IF you have the resources, and IF you know who your customers are very well, but many companies pursue this approach long before either of those is true.

Why is focus so important? Look at it this way: if you spend all of your time and money trying to develop a reputation for great service in five different industries, don't you think you might get beaten by a company that spends the same amount on just ONE industry? Yes, you have the other four industries to fall back on (and I can hear the "don't put all your eggs in one basket" crowd shouting this), BUT...chances are you will run up against a focused strategy in EVERY market, eventually, because it WORKS!

So...how can you get more focus? One simple approach is to make a list of your five least favorite customers and ask why you don't like them...or maybe, why they don't like you. This is always a useful exercise, and often yields some surprising answers. But more importantly, I strongly suggest you go through the Strategic Competency exercises in the Simplified Strategic Planning process (on pages 3.2 and 5.2)...and use that compenteny to define your focus. You'll be glad you did.

strategic+planning strategic+planning+process management business focus strategic+competency

Strategic Planning - the power of discipline

This is the first of a series of short posts on how to increase the power of your strategic plan.

1. Be Disciplined in Your Strategic Planning

This is a funny way to have more powerful strategies...and it's important in two different ways. First, you should have the discipline to create a strategic plan.
This means you have to take the time - even make the time - to sit down and write out exactly what your plan is. I've seen companies succeed without a formal strategic plan, but I've seen a lot more companies fail. One of the key things to do here is to set dates when you are going to get things done. In many companies, it helps to have an outside facilitator who will set and keep you to this schedule.

The second way you need to be disciplined is in actually following what you say in your plan. It does no one any good to, for example, say we are going to be focused on a given market, and then turn around and sell everything to everyone who shows up with money to spend. It's very, very powerful to mean what you say and say what you mean in your strategic planning, so be sure to think long and hard about anything that may be an obstacle to that. If you don't, your plans will lack credibility, and ultimately, it will be very difficult to get people to support your strategic vision. If you do follow through on what is in your plan, however, people will see a winner - and enthusiastically support the next thing you plan.

strategic+planning strategic+planning+process management business discipline

Strategic Planning - making a funky schedule work

Often, I'm called by someone who wants to get their strategic planning done in a two to three-day meeting. This reflects a disease in the world of strategic planning that I call "retreat-itis" - the illusion that a proper strategic plan can be created in one sitting by the management team. The most common issue with doing this kind of schedule is that the team has no chance to research their data and assumptions used in strategy formulation - leading to a poor foundation for decision making. In addition, on the implementation planning, there is no opportunity to check on resource requirements or schedules, and so the implementation plans are unrealistic, at best.

So, how can we make this work? First, if possible, I ask the team to do the best job they can filling out the worksheets in sections 1, 2 and 4 of the Simplified Strategic Planning manual before the "retreat". This gives us a base of researched and considered data to work from. It's not ideal, because I haven't really given the team good instructions on how to use the worksheets, but it's better than nothing. The real sticking point for most teams here will be market segmentation, so I sometimes do a simple segmentation for them on the phone.

The second thing I do to adapt to this is to tell the team that implementation planning won't be a part of this process - it simply can't be fit in to a 2 day retreat. If the client insists, we can try to do it in a 3 day retreat, but I warn the client that we will be missing some key data, and that I usually allow weeks of preparation for the implementation planning.

As I said, this isn't ideal, but the next time you have to do a quickie strategic plan, you can at least get the company a little closer to the results of the standard schedule outlined in our Simplified Strategic Planning course.

strategic+planning strategic+planning+process management business

Money Loves Speed!

I just noticed a short bit in Terry Brock's excellent Achieve Your Success blog, in which he quotes Andrew Palmer, saying "Money Loves Speed". This is so true, especially in marketing, but equally in other facets of business.

The reason for this is twofold: first, speed assures that there is a tighter feedback loop between planning and execution (think shooting the rapids vs. drifting lazily down a river). Second, speed reduces the "t" component in time value of money calculations - and since those express value as (1+r) raised to the power of t, you get a geometric payback!

I've been using this recently by tightening up the timing of my marketing cycle for our Simplified Strategic Planning seminars...we used to begin advertising analysis nearly two years from the date of the program, and we are constantly looking to shave days off of the cycle. Web marketing is one of the best "fast cycle: marketing approaches you can use - because you can usually assess a campaign in a matter of days rather than weeks.

New Strategic Planning Exercise - Refining Your Strategic Competencies

One of the most exciting strategic planning concepts developed in the past ten years is strategic competency. While this term is probably over-used and mis-used, it is a very powerful tool when used properly. Remember that a strategic competency is a combination of skills, processes and knowledge that creates significant value for your customers and differentiates you from your competition. I have yet to see an example of a company that has been wildly successful using more than one strategic competency. That's right, you only get one, so choose wisely.

Some decent, well-known examples of strategic competencies are Disney (family entertainment), Honda (small engines) and Starbucks (high-end coffee experience). If you'd like to hear more about this concept, please refer to Simplified Strategic Planning or comment here, and I'll post more.

A client I've worked with for some time wanted to create a more focused strategic competency than the one they have been using for two years.

Rising to this challenge, I asked the team to think of 3 different types of customers:

1. A customer who loves us and would never leave for a competitor
2. A customer who has left us for a competitor and come back
3. A customer we would be better off losing to a competitor

I then asked : Why do the customers in 1 and 2 love us? What is their main reason for preferring us? What to they tell us about ourselves?

Following this, I also asked the team to think about what customer 3 was really looking for that doesn't mesh with who we are.

I expected answers to be all over the map. I was astonished at how consistently the answers reflected the value of the personal relationships that customers have with this client.
If you have already figured out a strategic competency but are uncomfortable with it for any reason, I strongly recommend you add this exercise to your strategic planning - you may find that it really helps refine the competency to something much more unique and valuable!

I'd love to hear from anyone who is using strategic competency as a central part of their strategic planning process also - both failures and successes are grist for the mill of learning, so please share!

strategic+planning strategic+planning+process management business

Strategic Planning: The Easy Way to Innovate is - the Hard Way!

People, quite naturally, prefer to do easy things. Easy things are — well, easy. It often seems, when we look at our businesses, that the more things we can make easy, the more profitable the company will be. To a point, this is true. If you are putting more effort than you need to into creating your product or service, the time and effort involved may well be coming right out of your bottom line. Recognizing this, most managers will put plenty of effort into taking effort out of your processes.

But wait — there's a catch. Management is not just about minimizing cost — it's also about maximizing value. Some of the effort involved in your business creates tremendous value for your customers, and chances are you aren't even sure where the greatest value lies.

When companies set out to innovate strategically, they often rush off in the same direction as everyone else. In many industries — especially high-tech industries — this causes markets to mature very quickly as unique specialty items that took tremendous R&D investment become "me-too" commodities. If the innovation is a compelling one that creates real, preferred value for the customer, this commoditization is almost inevitable. The only place this is unlikely to occur is when your competitors — for whatever reason — do not copy your valuable idea.

Let's look at an example of this. For the past several years, AMD and Intel have been slugging it out over the microprocessor market. Intel, with deep pockets and first-mover advantage, decided to define the game in terms of core microprocessor clock speed. This is why, when you buy a computer, you are told that a 2.8 Ghz CPU is better than a 1.5 Ghz CPU. Superficially, this is absolutely true — the faster clock speed on the CPU makes it process program instructions faster. For some time, AMD made the mistake of playing the game as defined by their competitor (almost always a bad move). Recently, however, AMD has departed from classifying their products by clock speed (which is what Intel still does). AMD now wants users to evaluate their products by effective speed rather than clock speed — and, of course, they have helped to create the means for customers to measure effective speed. This is an interesting twist in the history of CPU innovation, because today, AMD chips with slower clock speeds are being pitched against Intel chips based upon testing that is purported to depict the real-life speed of a computer using that chip. There is tremendous debate about the testing of system speeds in the technical press today, which means — to some extent — AMD has moved the game of innovation into the realm of measured effectiveness for the customer, and away from CPU clock speed. Customers, of course, will benefit from this move towards real-world comparisons and away from slavish pursuit of the gigahertz — and AMD is hoping that it has the know-how to keep up with Intel in the redefined race. For us, the most interesting part of this is that we are seeing two excellent competitors investing heavily in markedly different paths of innovation for the very same product.

The concept that competitors might not copy something that is strategically valuable seems absurd on its face. After all, why wouldn't you copy a product that enables a competitor to gain valuable market share, often at higher margins? There are three main reasons why competitors do not copy innovations:

1. They are unable to copy the innovation
2. They choose not to copy the innovation
3. They are prevented from copying the innovation

There is one other situation that occurs frequently, and that is:

4. The competitor copies the innovation weakly because they fail to focus

If your company is seeking ways to innovate, each of these reasons may offer ways to avoid competition and earn a substantial return on your innovations. By understanding each of these, you may be able to identify useful types of innovation that will give you a leg up in the marketplace.

First — and this is one of the best — competitors sometimes are simply unable to copy a new product or service. The reason this is a very good situation should be clear — if you do something valuable for your customers that your competition cannot copy, you have created something that looks an awful lot like a strategic competency, which we all know is practically a license to print money. Unfortunately, this situation is less common than we would like to think. Additionally, we may embark upon a project expecting that our competitors will be unable to copy us only to find out, much to our disappointment, that this is not true. The worst thing about such a disappointment is that it is likely to turn up only after we have spent strategically significant amounts of time and money. However, if you want to avoid this disappointment, there is a key choice you must tend towards in your strategic decision-making: you need to focus your efforts on the hard stuff. The reason that difficulty becomes strategically attractive here is that it increases the likelihood that our competitors, in fact, cannot copy our innovations.

What are the things that will make a competitor completely unable to copy an innovation? In general, these will be technical issues — issues of know-how and capability, quite distinct from intellectual property issues, which are properly dealt with below. Let's take a look at issues that will completely prevent competitors from pursuing an innovation:

1. The competitor does not understand the innovation
2. The competitor does not have the correct equipment or people
3. The competitor cannot afford the investment
4. There is a trick to the innovation that the competitor cannot copy

The first three of these can be related to the others, and — to some extent — they all boil down to resources. With deep pockets, most deficiencies in capability can be eliminated. This is not always the case with the first issue, however — if you don't understand the innovation, you may end up investing in equipment and people that are inappropriate for success with the innovation. It is possible, however, for an intelligent competitor to invest in (1) — understanding, so this is not insurmountable. It is also possible for a competitor to correct (2), by spending to get the right people and the right equipment. The last two issues may be insurmountable. If investment is required, and a competitor cannot get the required capital, that competitor is, for most purposes, shut out of the market.

The fourth issue — the clever trick — is the dream of most entrepreneurs. If there is a clever trick involved, you can maintain a monopoly on the innovation almost indefinitely, or at least until your competitors figure out a way to steal the secret from you. A good example of this was the formula for gunpowder, which was a closely guarded secret for the first decade or so of its use in Europe. Everyone could tell that charcoal and sulfur were involved, but the use of saltpeter, and its proportion in the mix was a secret that took years to leak out, effectively giving the monks who discovered it a monopoly on its manufacture. Thus, while Roger Bacon is credited with the European innovation in the 13th century, the first European use of guns in warfare was not noted until nearly 100 years later.

The second reason why competitors may not copy us is that they choose not to copy. Why would this happen? Basically, competitors are likely to decide against copying good ideas when they think that either (1) the cost is too high, (2) the payoff is too small or (3) they just don't like the idea. Historically, many companies have used high cost as a barrier to entry, and this can work very well if you have deep pockets and your competitors do not. Small perceived payoffs can be just as good a barrier to entry, but it requires that you know something that your competitors don't. And dislike for an idea can also be a powerful barrier to entry. Let's examine how a competitor might reach the conclusion that they should not copy an idea.

First, the cost being too high: naturally, the cost might actually be too high, but this is one we don't want to use, because it would hurt us, too. Much preferred would be that the competitor's perceived cost is too high, while our actual cost is not. There are two key ways to hit this mark: one, choose innovation projects that appear to be expensive at first — and turn out not to be, or two, choose projects where you have some actual cost advantage in the innovation process. Both of these options require that you know a great deal about your product, service or processes — companies that are just dabbling will not likely succeed in either. In addition, the case where there is a real cost barrier to entry can be quite powerful if you have deep pockets and your competitors do not.

The second reason a competitor might decide not to copy your strategic innovation is that they perceive the payoff as being too low. If the actual payoff is low, this is not a very good situation to get into. In some cases, however, the perceived payoff may be much lower than the actual payoff. Some industries are perceived as dull and unrewarding. If you can gain entry into such a business, the perception of low payoff will help you almost as much as if it was real.

You will also find some cases where the low payoff is a reality for the second player in a market. This is often true with simple innovations that create strong brand preference. For example, Domino's Pizza gained tremendous leverage from being the first nationwide pizza chain to advertise delivery. The players that followed them had all of the expense of building a delivery capability, but none of the brand preference that Domino's generated during the years when "Domino's Pizza Delivers" was a distinction.

The final reason a competitor may decide against copying you is one of my favorites. Sometimes, a competitor just doesn't like the direction you are going. The beauty of this is that your competitors effectively leave you with a monopoly by making this choice. This can come about because people have had bad experiences with some kinds of business, or simply because of a gut reaction. For example, after the collapse of the dot.com bubble in 2001, many people assumed that all internet business was inherently unprofitable. This has created an opening for innovators who have developed new models of profitability for internet companies who would have been crowded out during the boom years of heavy internet investing.

The third reason why competitors may not copy us is that they are prevented from copying by someone else. Usually, this is a legal situation (as in the case of a technology covered by patents), but it may be driven by other forces as well. While many companies rely on this tactic in support of their strategic dominance, it has one major flaw: the prevention that makes this tactic effective is outside of your control, and may only be temporary in nature. The very best use for this tactic is to give you a head start on the next innovation, since — at some point — it may be possible to get so far ahead of your competition that they effectively give up on the direction you have taken. Some of the more interesting examples of this kind of prevention lie outside of the classic cases, where there is legal protection of intellectual property. These often occur because of pressure — real or imagined — brought to bear by customers of your competitors. For example, you may sell your products through distributors who are adamantly opposed to direct sales by their suppliers. In such a case, an innovator who starts selling directly to customers ends up taking a risk that competing companies are unwilling to take — the risk of cutting off the distribution channel that makes up most of their sales. In this situation, it is the customer who is preventing the copying — but the results are nearly the same as if you had a patent on direct sales.

So, what can we do to take advantage of understanding the difficulties of copying innovations? Simply put, we must throw as many of these obstacles in the way of our competitors as we can. The chart below is a basic outline of ways to take advantage of these ideas.

Innovation is a great way to differentiate your company and attain higher than average profitability in your business. Too many companies get on an innovation treadmill by improving their offerings in predictable, copyable ways. With a little care, you can innovate strategically, and truly put your company in a position that yields long-term advantage in the marketplace.

Robert Bradford is President of Center for Simplified Strategic Planning, Inc. He can be reached via e-mail at rbradford@cssp.com.

Center for Simplified Strategic Planning has prepared a new book Elements of Innovation: How to Achieve Innovation in Mid-Sizeand Smaller Companies how to handle the issues of innovation. This is the perfect book for you if you want to:

1. Increase the "innovation quotient" of your management team
2. Stimulate creative thinking
3. Create a company culture that fosters innovation
4. Get more employees searching for new ways to create value
5. Get a measurable return on you innovation investment
6. Inject innovation in to your strategic planning
7. Establish an ongoing process for commercializing ideas

Technorati tags:
strategic+planning business strategy innovation

Strategic Planning and IT

In many companies, IT can be the wonder weapon of strategic superiority, enabling the forward-thinking company to leave its competitors bleeding in the dust. Just as often, however, IT can be far less than strategic in its impact, and, in the worst case, hamper the strategy of an otherwise well-oiled machine of a company. Mike Shaffner, in his "Beyond Blinking Lights" blog, looks at the problem of "being more strategic" from the IT manager's point of view.

I certainly recommend reading this, if you are in IT, or if your company uses IT as a strategic asset.

Tags:
strategic+planning management IT strategy business

If you are interested in Strategic Planning...

You might check this blog out, also...
Strategic planning information and strategic planning resources at your fingertips.

Where customers come from...

First, for anyone who has been reading my old strategic planning blog, welcome back. I intend to post to this blog a bit more often, usually with insights from my work as a strategic planning speaker and consultant. I welcome any comments or questions, especially those which might inspire me to write useful responses that will help you get better results from your strategic planning.

This week, I'd like you to think about the results from a market data analysis I did for a local business that had a store on Main Street in Ann Arbor. I think the data shows a LOT about how consumers think, in many many markets. We simply asked customers how they decided to come into the store. Here is a breakdown of the answers:

wWord of Mouth! 46%

wRepeat! 28%

wEmployees! 18%

wLocation: 14%

wAdvertising: 10%

And where do most of us spend our time and money? This particular business, like many, spent the most time and money on the bottom three items. Now...I would say that spending time and money on GOOD employees ALWAYS pays off in the long run, so I'm not going to quibble with that. But...how much thought have you put into how you generate word of mouth and repeat business lately?

For more strategic planning info, please be sure to visit my website!

When to plan? NOW

Every year, it seems, I end up doing strategic planning with a company that I met years ago - sometimes five or ten years ago. The most disturbing part of this phenomenon is that most of these companies were quite excited about strategic planning when I met them, but never followed through on the process. When I see how much more successful my ongoing clients are - the ones who are using a disciplined approach to keep their strategies alive every year - it makes me sad to think that some companies don't get the benefit of this amazing process because they just never got around to doing it. I think, maybe, some people balk and the time and money involved, but rationally, those are pocket change compared to the revenue and profit growth these companies have failed to reach. So...are you in a cycle of strategic planning right NOW? If not...what's stopping you? If you need some advice about how to clear the roadblocks from a successful strategy, please get in touch - that's why I'm here!