Archive for the ‘Planning’ Category

Strategy Working? Then Don’t Make These 5 Mistakes

Tuesday, April 22nd, 2014

“Why do business owners, who have grown their companies successfully, then go ahead and do silly things?”

Far too often the answer is “Well it seemed like a good idea at the time…….”Don't tinker with a strategy that works

To be fair, we get to look at the outcome with the gift of perfect hindsight. But it happens often.

Why? Let’s take a look at 2 companies.

Company A

In only 5 years, three friends built a retail business to $50 million in annual sales.

Then they hired an experienced executive to be their President. He thought they should start selling a product which complimented their core offering. The founders agreed and the company charged ahead.

They had to change the format of their retail outlets but that was just a tweak to the original strategy, right?

Unfortunately, they underpriced the new product and sold it on credit. Their original business was cash only and many traditional customers turned out to be poor credit risks.

In less than a year the new venture had tanked. Because the founders had been absorbed in saving it, the core business took a massive dive too. And it was expensive to get out of those new leases.

It took several years to recover.

Company B

An established supplier of skin-care products, it sells via independent sales ‘consultants’.

To continue growing, the owners had to make a choice. Use temporary, short-term bonuses to motivate average performers. Or analyze the top performers and train everyone on their techniques.

They tested both alternatives.

Performance dropped immediately the short-term bonuses stopped. But sales, in a tough market, grew when they trained everyone on the top sellers’ techniques.

So they gradually rolled the training out throughout the company.

The mistakes (or lessons)

  1. If you survive the first few years and have strong year over year growth – your strategy is working.
  2. You may still have to adjust it if there’s new competition, changing customer demand, technological innovation or all three.
  3. But you’re no longer a start up, so you can’t bet the farm tinkering with alternatives while neglecting the strategy that works.
  4. However, you’re not a big corporation (yet) with enough resources to experiment with several new strategies at once.
  5. So, continuing to run and build the core business has to be #1 priority. Innovations and changes have to be tested on a small scale to mitigate risk

Company B did it. Can you?

 

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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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The Three Cs of Strategy Execution

Tuesday, April 15th, 2014

This week’s guest is Dick Albu, the founder and president of Albu Consulting, a strategy management consulting firm focused on engaging and energizing leadership teams of middle market private and family business to formulate robust business strategies and follow through on execution of key strategic initiatives.

 

 

 

What is one of the most common missing links when it comes to successful strategic planning? Most CEOs we speak to will agree its strategy execution. You can have developed a mediocre plan, and an exceptional execution process will lift that average plan to new heights. Without a solid execution process in place, strategic plans are useless documents that sit on shelves collecting dust. More importantly, without a formal strategy execution process, organizations fail to achieve their goals.

At Albu Consulting, we believe that strategy development and strategy execution work hand-in-hand. They are partners in a dynamic, continuous and collaborative process. Strategy development does not end after a two or three day offsite and execution is not just project management. Rather, joined together strategy development and execution act as a strategy management system of continuous improvement to achieve the results you want.

How can you provide the leadership to make strategy happen? Consider these three Cs of strategy execution that can help you achieve your long term strategic goals.

Communicate – All too often strategy is kept a secret by the CEO only to be shared with a few members of the leadership team. Often it is implicit, lacking a written document that articulates the specifics of the strategy. Unfortunately, if people down through the organization don’t know about the strategy, it is hard for them to connect with it. Strategy needs to be the fabric of how everyone in the organization makes decisions. It should be a part of everyone’s day-to-day responsibility. Strategy is the link that defines “what” needs to be done, “why” it is important, “how” it will be executed.

Commitment – We are always amazed at how engaged managers and employees become once they are brought into the strategy management process. When employees participate in the development of the strategy and better understand how they can contribute to its success, their level of commitment increases. Collaboration within departments and across functions improves, and the result is both top-down and bottom-up cooperation and feedback. Once you have made the case to everyone in the organization, and included them in the strategy management process, translating strategy to action becomes much easier.

Change – Business is dynamic and unpredictable. It is difficult to imagine it any other way. Flexibility in business is absolutely necessary, but it needs to have purpose. Without purpose, organizations tend to “chase” opportunities that are off strategy. Your strategic plan should define and guide business decisions and help your organization stay focused and on task. By managing change through one-on-one coaching, team meetings and leadership reviews, you will embrace change with confidence. Change is necessary and organizations become better for it, but it needs to be on strategy.

Strategy execution is an integral part of the strategy management equation. The pace and complexity of business isn’t getting any easier. Effective strategy execution should not be viewed as additive work, but rather the centerpiece of what the organization needs to accomplish to achieve and exceed its long term goals.

Dick can be reached at 203-321-2147 or RAlbu@albuconsulting.com. For more information on Albu Consulting visit www.albuconsulting.com.

Stick To The Knitting – Or Diversify?

Tuesday, April 8th, 2014

I’ve followed software developer 37signals for a few years. I read CEO and founder Jason Fried’s column in Inc. magazine.Should companies stay focused on their core strengths or diversify?

I use their products. Some of our clients like Basecamp, their project management software, to manage strategy execution. We use Highrise for ProfitPATH’s CRM system.

I have a pretty high regard for the company and was intrigued, therefore, by an announcement they made in February.

Moving forward, they are going to focus on a single product – Basecamp. To make the point they even changed the company’s name from 37signals to Basecamp.

According to Fried, the product accounts for over 80% of the firm’s revenue¹. So some would argue that they must diversify, put resources and effort into growing other products to spread the risk. Otherwise they are making a big mistake, putting all of their eggs in one basket.

But are they?

Keeping a company focused on its core strengths is not a new idea. In the 1950’s Peter Drucker spoke of the need to make choices about what not to do. Peters and Waterman became famous for the phrase “stick to the knitting” when “In Search Of Excellence” was published in 1982.

What if, instead of focusing on the fact that Basecamp is 80% of the company’s current revenue, we ask 3 completely different questions?

  • What share do they have of the market for project management software?
  • What features do users want that Basecamp doesn’t currently offer?
  • Can the company grow market share, and add those new features, without increasing their payroll or overhead?

There are companies who focus tightly on a limited product offering and whose profitability is well above the average for their industry – e.g. Trader Joe’s, the U.S. retail chain².

On the other hand, there are companies who have diversified too much and who have failed. A recent example is Google’s acquisition of Motorola Mobility (which they later sold to Lenovo).

There is no one answer that can be applied universally. There are a number of factors which affect decisions like this. So I will continue to watch 37signals/Basecamp with great interest.

By the way, can anyone think of a Canadian company that has also changed its name to the name of its leading product…………..?

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¹ “When Staying Small Is The Bigger Bet”, Jason Fried, Inc. Magazine, March 2014, page 108
² “Basecamp’s Strategy Offers A Useful Reminder: Less Is More” Ron Ashkenas’ HBR Blog, 10 Feb 14

 

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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

 

 

Successful? Your Company Still Has To Change

Tuesday, April 1st, 2014

Two statements that we often hear are:Change your attitude to the future for successful growth

• “Why change? We’re successful and what we’ve been doing has got us to here.”

• “What got us here won’t get us to where we want to go.”

Business owners who make them have two things in common. Their companies have been profitable and throwing off cash for a number of years. And they’re successful – in their own, and everyone else’s, eyes.

But their attitude to the future is completely different.

Who is right and who is wrong?

Getting an answer means either waiting for several years to see how things turn out, or trying to make an informed guess about what will happen.

Let’s start with the fact that a company doesn’t exist in a vacuum.

Are there things that affect results that a company can’t control? Yes, and a couple of easy examples are the economy and the firm’s competitors.

What are the odds – the probability – that those things will behave differently in the future than they did in the past?

Will, for example, the recession continue to ease or get worse again; or a competitor introduce a new technology, change their pricing, promotion or distribution strategies?

Does it really seem likely that these external influences will behave in exactly the same way in the next 5 years as they did in the past?

What about things the company can influence? For example:

  1. Will the people who held key positions during the growth continue to be as effective as the company gets bigger?
  2. Will the company’s existing processes and technology be able to handle increased volume? Can either be changed without disrupting operations?
  3. Does the company have the financial resources to fund continued growth? Or will it need to take on debt or find an investor?

Here’s my point.

Growth is the result of the complex interaction of many factors. Most of them are constantly changing, some at a faster pace than ever before. The timing and extent of the change is often beyond the control of owners and managers.

Is it reasonable to assume that by holding constant the factors which can be influenced – even if that’s possible – the net outcome will be the same?

I don’t think so. I’m firmly in the “what got us here won’t get us to where we want to go” camp.

 

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

Use These 3 Tips To Make Your Next Critical Decision

Tuesday, March 25th, 2014

I am a Libra; my astrological sign is the balancing scales. I don’t, however, believe in astrology.Weighing all the factors when making critical decisions

On the other hand, I do tend to see both sides of an argument.

Which can make decision-making interesting for me. So, I read articles about it.

I saw one the other day which featured Ram Charan¹  who co-wrote “Execution”, one of my favourite books on strategy.

He’s been working with accomplished business leaders for almost 30 years, watching them making some really difficult decisions.

Charan says they do 3 things when faced with a critical decision.

  1. First they focus on the end goal. They are very clear and specific about what has to be achieved. There is no ambiguity in their thinking.
  2. They consider all of the options or alternatives. They do not hesitate to think “outside the box” using their imagination and creativity, but temper the results with pragmatism.
  3. Then they go and get different points of view. Why, because critical decisions often deal with complex issues and the business world can move very quickly now. Getting diverse input helps them see as many aspects of a situation as possible.

Having done that, they use their judgment to focus on the 2 or 3 most important factors affecting the decision. Finally they think through the consequences of their decision. And come up with contingency plans to deal with them.

Of course they do these things simultaneously and complete the process relatively quickly.

The important point is that none of these steps are beyond the ability of the average business owner. A trait that entrepreneurs have to guard against, however, is the temptation to skip the third step – even when they’ve grown their companies to a point where they’ve hired a management team.

And, by the way, when I think I’ve looked at both sides of an argument for long enough, I recall advice I was given many, many years ago. A good decision is commendable; a bad decision is regrettable; but no decision at all is unforgivable.

Then I just do it.

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¹ “What the Best Decision Makers Do”, HBR Blog Network, 24 Oct 13
http://blogs.hbr.org/2013/10/what-the-best-decision-makers-do/

 

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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

5 Tips For Ensuring A Smooth Transition In Ownership

Tuesday, March 18th, 2014

There are 3 things that a business owner must do to ensure their exit plan goes well. The first is to pick the right buyer – and I talked about that last week.5 things that will help make the transition to the new owner go smoothly

The second is to make the transition to the new owner silky smooth. Here are 5 things that can be done to make that happen.

1.  Identify the stakeholders. Regardless of whether the company is sold to a 3rd party, members of the management team or to a family member, there are 5 groups of people who will be affected.

They are the employees; customers; suppliers; bank or other investors; and family members.

And there may be a sixth – a “regular” or Advisory Board.

2.  Communicate with them. There is some information they will all need to be given. But there is some that only has to be shared with specific group(s).

And the method, e.g. face-to-face or in writing – and timing of the communication will vary.

3.  Time the transition well. Ideally that would be:

  • When the economy is forecast to do well.
  • After 3 years of good results.
  • When the seller is still in good health.
  • At a time of year that is not the company’s busiest period.

4.  Plan and project manage it. Many ‘baby boomer’ owners seem determined to avoid thinking about their exit until the last moment. That creates problems from a tax planning, and every other, point of view.

Careful planning is vital when one family member is to be chosen over others. It takes time to assess business acumen and to design and implement a development program.

5.  Anticipate the 3 things that will happen during the transition. The first is that productivity will go down. People will be preoccupied trying to guess what the future holds and what the change means for them.

Not everyone will be happy. Some key employees may leave and, worse, some family members will feel slighted.

Finally, there may be more mistakes because people are distracted. And there are unexpected problems at every other time, so it’s logical to expect them during the transition.

Most business owners will only sell one business during their life. And there are very few other things they will do only once.

Doesn’t that make putting time and effort into getting it right seem like common sense?

 

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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

Slow and Steady Growth Is The Key To Success

Tuesday, March 4th, 2014

My last post introduced Inc. magazine’s study of over 100,000 U.S.-based, mid-size companies.The key to success is slow and steady growth

Their goal was to find “sustained growth champions”, which they defined as companies that added head count each year from 2007 – 2012.

Less than 1.5% of the companies qualified.

The magazine selected a sub-sample of those to help them find the managerial DNA of success, and called it The Build 100.

According to Inc., companies grow in different ways. They might, for example:

  • Have several years of expansion before their growth rate slows and then declines.
  • Grow sporadically either with the economy or industry, or as a result of the business owner taking, or missing, opportunities.
  • Grow quickly and then plateau.

The Build 100 companies didn’t, however, do any of those things. They grew slowly and steadily.

The conclusion being that incremental growth, repeated over time, achieves better results than short – or long – bursts of growth.

And that finding corresponds closely with what Jim Collins and Morten Hansen found when they were researching “Great By Choice”.

Collins and Morten describe how John Brown, the CEO of Stryker, set a goal of 20% growth in net income – no more, no less – every year.

Was he successful?

A $ invested in Stryker from its IPO in 1979 until 2002, multiplied more than 350 times. The return on a $ invested in a comparable competitor fell well below that.

Let’s go back to the Inc. project. They studied companies over a 20-year period and found 3 very interesting things.

  • The faster a company grew in one period the less likely it was to grow again – and the more likely it was to fail. (Why? Perhaps because they stretched their processes, resources and everything else too far and either ‘broke’ them or had to do some serious repair work.
  • Growth over several periods had no influence on the odds of future survival or growth.
  • The more frequently a company added people (head count) year over year, the more likely it was to grow again.

I find that last point particularly interesting. Remember 3 of the 5 things the Build 100 have in common are related to employees. Is the timely addition of people who “fit” a key to fuelling steady growth?

What do you think?

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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

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.

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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

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

 

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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

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