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.

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 yourself...you 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?

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!

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?

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.

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.


http://meetingsnet.com/corporatemeetingsincentives/news/mpi_meetdifferent_0209/

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.

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?

Strategic Planning and strategic thinking - what should employees know?

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

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

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

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

Strategic Planning - Recession Opportunities

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

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

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

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

Strategic Planning - Great Strategic Thinking

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

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

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

Strategic Planning: How Many Market Segments?

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

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

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

Strategic Planning for Acquisitions

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

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

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

Strategic Planning - IT, Google, and Strategic Competency

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

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

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

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

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

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

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

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

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

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

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

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

Strategic Planning - Closing the Loop

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

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

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

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

Strategic Planning - Finding the way forward

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

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

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

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

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

Strategic Planning in law firms

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

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

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

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

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

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

Your balanced scorecard isn't driving action.

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

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

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

Strategic Planning - Estimating the Size of Your Markets

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

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

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

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

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