Archive for February, 2014

Sustainable Growth – How To Achieve It

Tuesday, February 25th, 2014

I don’t think I’ve mentioned it for a while, but I’ve been a big fan of Inc. magazine for many years. Founded in 1979, Inc. provides small business ideas and resources for entrepreneurs.Advice to business owners on achieving sustainable growth

I’ve been a subscriber since 1997 (I think) and have followed it through 3 changes of editor, 2 changes of ownership and more changes of format than I care to think about.

It’s been interesting to watch how a magazine that gives advice about how to start and grow companies has fared itself. Inc. has had its challenges but it has dealt with them well – thus far at least.

Recently they set out to answer a question very dear to my heart. Why do so few companies manage to grow consistently?

They carried out a study of more than 100,000 U.S. based, mid-size companies (85 to 999 employees). The goal was to identify those that added head count each year from 2007 – 2012.

Less than 1.5% of the companies qualified.

Inc. selected a representative sub-sample and asked those companies – who now form the Build 100 – to help them find the “managerial DNA of their success”.

The project will run through 2014 but they’ve already come up with some fascinating information.

The companies are not all in the same industries; they don’t all serve the same customers; they’re spread throughout the U.S.; and some have been in business for much longer than others.

Here, however, are some of the things they do have in common:

  • Over 80% said that sharing financial success with their employees helped them grow. (I don’t know if that’s just sharing the information about success, paying rewards based on success, or both.)
  • More than half of them say that people/talent and customer service were the only drivers of competitive advantage.
  • 1 of the top 3 things, which triggered growth “breakouts”, was a big change in leadership/senior management.
  • 2 of the top 3 obstacles to growth were attracting top managerial talent and training future managers and supervisors.
  • 81% said the sudden loss of a key employee was a major concern.

Notice that all 5 of them are about people? I find that fascinating!

Stay tuned, I’ll offer more of my thoughts on some more of their findings over the next few weeks.

If you enjoyed this post you’ll also enjoy The People Pipeline

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Jim Stewart is the founding Partner at ProfitPATH. He has been working with business owners for over 16 years to increase profits and improve the value of their companies. LinkedIn

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Strategic Planning – 3 Things That Are Wrong With It

Tuesday, February 18th, 2014

We all know that picking a strategy means making choices.3 things wrong with strategic planning

But that means making guesses about that great unknown, the future. What happens then if we make the wrong choice? Could we destroy a company?

That’s why, according to Roger Martin¹, we turn choosing a strategy into a problem that can be solved using tools we are comfortable with.

And we call that strategic planning.

But, Martin says, companies make 3 mistakes when they confuse strategy and strategic planning.

1.  Putting the cart before the horse:

All strategic plans have 3 parts:

•  A vision or mission statement,
•  A list of initiatives required to achieve it,
•  The results of those initiatives expressed as financial statements.

These financials typically project 3 – 5 years into the future, making them “strategic” (although management typically focuses on only the first year’s numbers).

But the dominant logic in these plans, says Martin, is affordability; the plan consists of whichever initiatives fit the company’s resources. And that’s putting the cart before the horse.

2.  Relying on cost-based thinking:

The company is in control of its costs – it can, for example, decide how much office space it needs and how to promote its products.

And costs are known, or can be calculated, so fit easily into planning.

This thinking is extended to revenue forecasting and companies build detailed, internal forecasts by, for example, salesperson or product.

But these projections gloss over the fact that customers control revenue and that they decide how much a company gets.

3.  Basing strategy on what the company can control:

A number of well-known models are used for strategic planning. But they can be misused. Take Mintzberg’s concept of emergent strategy.

Martin believes it was intended to make business owners comfortable making adjustments to their deliberate strategy in response to changes emerging in the environment.

However, because waiting, and following what others are doing, is much safer than making hard choices and taking risks, emergent strategy has been hijacked to justify not making any strategic choices in the face of unpredictability.

But following competitors’ choices will never produce a unique or valuable advantage.

What do I think?

I like Martin’s views but the crux still lies in linking planning to execution, turning desire into results.

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“The Big Lie of Strategic Planning”, Harvard Business Review, January 2014,
http://hbr.org/2014/01/the-big-lie-of-strategic-planning/ar/pr

 

If you enjoyed this post you’ll also enjoy Bad Strategy – How To Spot It

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Jim Stewart is the founding Partner at ProfitPATH. He has been working with business owners for over 16 years to increase profits and improve the value of their companies. LinkedIn

Strategy, Capabilities – and The Beatles

Tuesday, February 11th, 2014

It’s 50 years since the Beatles first appeared on the Ed Sullivan show and took the USA by storm.What it takes to develop a dynamic capability

At that time I was 12 years old, living in Scotland and proud of my collection of Beatles songs, all of which were recorded on the EMI label.

Now EMI was an interesting company. For example, during World War 2, they built the first airborne radar.

And in 1971 one of EMI’s engineers introduced the first commercial CT scanner. However, like many other companies, it never profited from its invention.

Why? EMI knew the market of CT scanners lay in the US, but it didn’t have manufacturing capabilities there. In the time it took to build a plant, GE and Siemens had reverse-engineered the CT scanner – and the rest is history.

This is a classic example of a company having a good strategy, but not the capabilities to exploit it.

Clearly, capabilities are crucial to success. But what are they and why are they so important?

David Teece¹  defines a capability as “a set of learned processes and activities that enable a company to produce a particular outcome”.

Ordinary capabilities are like best practices. They start in 1 or 2 companies but spread throughout an industry.

Dynamic capabilities are, on the other hand, unique to each company. They’re based on things a company has done successfully in its past and captured in business models developed over many years. As a result they’re difficult to imitate.

A business owner must do 3 things to make a capability dynamic.

First, identify and evaluate opportunities in the market. Then quickly mobilize the company’s resources to capture the value in those opportunities. Finally create an environment of continuous renewal.

Why are dynamic capabilities crucial?

EMI discovered the hard way that spotting an opportunity isn’t enough. The resources must be in place to quickly take advantage of the opportunity.

And Nokia is an example of what can happen when even market leaders aren’t in continuous renewal. Teece believes they missed the smartphone revolution because they relied on R&D which took place in Finland. Apple, based in San Francisco, was much more in touch with North American consumers’ wants and emerging technologies.

Developing dynamic capabilities could be a way to survive in a world where change is taking place more quickly than ever before.

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¹ “The Dynamic Capabilities of David Teece”, Strategy + Business, 11 Nov 13
http://www.strategy-business.com/article/00225?pg=all&tid=27782251

 

If you enjoyed this post you’ll also enjoy 5 Tips for Fast Growth in a Slow Economy

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Jim Stewart is the founding Partner at ProfitPATH. He has been working with business owners for over 16 years to increase profits and improve the value of their companies. LinkedIn

3 Ways Human Nature Sabotages Strategy

Tuesday, February 4th, 2014

Human nature is a wonderful thing.3 ways human nature sabotages strategy

Ask 10 people how long it will take them to complete a task and I’d guess 7 or 8 of them will underestimate the time required.

That proportion might increase if the 10 are all type A personalities – i.e. business owners or entrepreneurs.

We see this when we take teams through our strategy and business planning processes.

For example, at a specific point, we prioritize the things they need to do to close the gap between their company’s current state and where they want it in 3 years’ time.

Typically the teams want to tackle more items than is humanly possible given their resources.

There’s no ideal number of items – the complexity of each item is only 1 of the variables – but we’ve seen time and again that completing a few key tasks produces better results than taking on too many.

One point teams overlook is that the items that didn’t make the cut aren’t going anywhere. They’ll still be on the list when the top priorities have been dealt with, and can be tackled later in the year.

People don’t believe us when we tell them this. Why, because in our hectic world there are so many distractions that it’s becoming unheard of to finish a project that takes more than 10 minutes to complete.

So, we tell people to block off time in their schedule 2 or 3 days a week to work on the priorities. And we tell them to allow nothing – not voice mail; not email, not their colleagues, not even their boss – to distract them during that time.

A company’s culture can be an incredibly powerful, positive force. But it can also multiply the negative impact of human nature.

This dark side prevails when, for example, carrying a superhuman workload is considered to be the only way to prove your commitment to the company.

A negative culture is often unwittingly fostered, and maintained, by the business owner or management team. So we work on them by, amongst other things, reminding them that Michael Porter said, “the essence of strategy is choosing what not to do”.

Does that work? Do people change?

The smart ones do and, strangely enough, there appears to be a direct correlation between leaders who change and companies being successful.

 

If you enjoyed this post you’ll also enjoy The Single Biggest Thing A Business Needs To Grow

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Jim Stewart is the founding Partner at ProfitPATH. He has been working with business owners for over 16 years to increase profits and improve the value of their companies. LinkedIn

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