I was talking to him about the strategy development and execution processes. And he asked……………

“What about the people, where are the people in all of this?”

So I told him about the 5P’s. Of course – being the wit that he is – he immediately thought I was talking about my weak bladder. But I put him straight.

All of the companies that I’ve worked with, which are consistently Profitable, seem to have a focus on the same 4 things. Several years ago we began referring to them as People, Planning, Process and Performance. In the diagram they overlap because they are all in  action at the same time – and they intersect because they interact with each other and form a continuous loop.

Performance

I always start with Performance which provides both clear direction for the company and the benchmark against which success is measured.

It spans having Vision, Values and Mission statements, through setting and communicating clear goals, to making sure every employee understands his/her role in achieving them. And it includes comparing actual results against the goals regularly, giving feedback and adapting where necessary.

Planning

Then I usually talk about the huge difference between Planning – which is a process – and a Plan or Plans– which are outputs.

There are very few occasions when it’s necessary to write a Business Plan, the most common one being when a company is looking for funding.

But Planning is ingrained in the culture in high performing companies. An effective Strategic Planning process will produce a strategy that will work. The Annual Business Planning process is the key to executing that strategy and turning it into results.

Process

I told my friend that we focus on 3 types of Process.

Functional processes keep each area of the company – e.g. Sales, Marketing, HR and Operations areas –operating efficiently. Control processes monitor the key performance indicators – e.g. sales pipeline, product quality and lead times – and give the owner early warning of potential problems.Financial processes produce accurate and timely reports on the financial health of the company.

People

I always save People for last.

After spending 20 some years in corporations and over 12 years working with business owners there is no doubt in my mind that People is the single most important element in success.

The essence of leadership is finding, motivating and engaging the right People and creating an environment (culture) in which they can contribute fully.

A weak strategy in the hands of the right People will trump the right strategy in the hands of weak People – every time.

And that, I told my friend, is where people fit in………….

If you enjoyed this post you’ll like 6 Ways A Business Owner Can Influence Culture

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That was “The Pipeline”.

Hsieh makes the point that, unlike many companies, Zappos doesn’t believe that (individual) people are an asset. They think of a pipeline of people with varying levels of skill and experience as the asset.

Here’s why I really like this approach.

It Solves 3 Fundamental Problems

First, traditional thinking is that people are a company’s greatest asset. But if an employee leaves, the company has lost an asset.

The second problem (which we see all the time) occurs as a company grows, an employee who was considered valuable, or even outstanding, at an earlier stage of the company’s life begins to disappoint and become a liability. It’s usually a result of the employee not developing or upgrading his or her skills as the company grows.

The third problem occurs when the company deals with the other 2 problems by bringing in someone from outside the company.  The new person may bring the right skills and have great experience – but they don’t fit the company culture.

The “People Pipeline” Solution

• Bring almost all new hires in via entry level positions. This offers two benefits.
  • If they aren’t a fit for any reason the company faces the least expense and disruption by making another quick change.
  • Entry level positions will likely attract people with limited experience. The new employees are more likely to be open minded about adopting the company’s processes – and culture.

• Provide a comprehensive training program and mentors for the new hires. Then offer a series of courses, either internally or at local colleges, which cover the skills the employees will need in order to progress in the company.

• Make the route upwards quite clear.
  • Set expectations around when employees can expect to achieve each level.
  • Make completion of certain courses a pre-requisite for promotion.
  • It helps if a company is growing at the rate Zappos did (and is doing) – that generates lots of new positions in the org. chart. However, positions further up the organization will become available as people move on (natural attrition). At this point a business owner could argue that all of the investment in that person has been lost. That’s possibly true – but every company loses some employees (e.g. they move to another city, make a change in career).
  • By investing in training and offering a career path a company may keep those who would have drifted away for much longer.

• With the pipeline there is always someone ready to fill the shoes of the people who do leave, who have been training for the opportunity and who know the culture.

A Couple of Points to Consider

When Hsieh arrived at Zappos he was an experienced, successful business manager. And he brought one or two key management team members from his previous company – most notably his CFP – with him. So at least some members of the management team knew each other’s strengths and weaknesses and that they could work together.

On the other hand, one of the original Zappos team, Fred, joined as a buyer and rose to become a senior executive.

The pipeline can only be used when a company reaches an appropriate size. A start-up doesn’t have the resources.

If you enjoyed this post you’ll like 10 Strategy Tips from Tony Hsieh.

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One of my things is telling people that they shouldn’t be changing their strategy.

I do it when business owners – or CEOs – say things like “It’s time for our annual strategy meeting”. The implication – for me at any rate – is that they change their strategy every year.

But that would be just plain wrong.

Changes to a well thought-out, well-crafted strategy shouldn’t be driven simply because it’s been in place 1, 3 or 5 years.

A strategy shouldn’t necessarily be changed even if it isn’t producing results. In this situation I always look at how well (or badly) the strategy is being executed before I look at the strategy itself.

So when should a company review its strategy? And what makes that review and any subsequent adaptation, revision or recreation necessary?

Here are three occasions.

1.    When the company has outgrown its strategy.

There’s research which suggests that companies can “plateau” when they achieve certain levels of revenue. Depending on the industry those levels are around $5 million, approx. $10 -12 million, somewhere between $18 – 30 million and so on.

Typical symptoms of “plateauing” are upward spikes in revenue which can’t be maintained, increasing lead times delivering the product or service, decreasing levels of customer satisfaction and higher employee turnover.

The plateauing occurs because the things – e.g. strategy, processes – the company has done up to that point in its life can’t support any more growth. It’s like expecting a teenager to fit into the clothes they wore when they were eight.

To rekindle growth the owner either has to change the strategy, the way it’s executed – or both.

2.    Significant internal change.

This occurs when, for example, a company develops a game changing new product or service or finds a new way of doing its existing business. This gives it an edge over its competitors by e.g. reducing costs or increasing efficiencies.

To reap maximum benefit from this new competitive advantage the owner will have to adapt or change the existing strategy.

3.    Significant external change.

In this case the owner or CEO has to react to e.g.:

• A competitor who is taking advantage of a significant internal change.
• The industry “maturing”. In other words the business has been around long enough for a number of competitors to have become large enough to e.g.:
  • Reduce their costs and pass this on as reductions in the selling price or,
  • Buy up smaller players who introduce game changing technology or process improvements. This is also known as industry consolidation.
• Major changes in e.g. the economy, labour pool, legislation governing the industry, or all of the above.

Continuing with a “business as usual” approach under any of these situations is clearly not going to be effective.

To be fair, when business owners and CEOs say “It’s time for our annual strategy meeting” they usually mean that it’s time to start the annual business planning process. That is something that must be done every year.

And, since we have services which can make the annual business planning process more effective, perhaps I’m not as crazy as I look – I mean sound…….

If you enjoyed this you will also enjoy 2 Things That Cause Bad Strategy

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And I’ll bet that everyone can think of at least one favourite tune.

So what has a favourite tune got to do with a business? Bear with me for a moment and I’ll tell you.

Let’s go back to music first. I’ll bet my favourite tunes won’t be the same as yours. Mine might be classical (or bagpipes) yours might be heavy metal or hard rock. So they won’t sound the same.

But the funny thing is, although they don’t sound the same they will have some things in common.

Such as what you might ask?

Well, with a few exceptions, they probably feature more than one musical instrument. Perhaps there’s someone singing, in fact there may be backup singers as well.

Our favourite tunes will also have a musical score and – where required – lyrics for the vocalists.

The score is a great thing. It not only tells the musician which instrument to play – and when – it also tells them how the instrument must be played. Pretty detailed action plan wouldn’t you say.

Lyrics are also essential for anything other than a pure instrumental. They tell the vocalists – lead and backup – what to sing and how to emphasize the words.

OK so where am I going with this?

Well, I was listening to one of my favourite tunes the other day and a few things occurred to me.

Although each piece of music is different, like companies in different industries, they do have things in common.

The instruments – guitar, drums, key board – are like the different parts of a company – sales, operations, finance. They can play by themselves but when they work together the result can be amazing.

The score is like the strategy – it determines how the band/orchestra will get to the final result. It tells every instrument/musician how to work together while giving them a plan in the form of the notes and chords to be played.

In the better bands, the individual members have input to the score. Sometimes the situation allows them to improvise (you could say the plan is flexible). In some situations improvisation – and even innovation – is required. Jazz springs to mind.

But no individual instrument or musician has a role (departmental plan) that is more important than the score (business strategy). Think of an orchestra for a moment. The musicians in each section – e.g. strings, wind and percussion – see their own part in the piece. But only the conductor has the full score.

And that brings me to my last couple of points.

Every band has a leader – lead guitarist, lead singer, band major – who keeps the focus on the score or lyrics. Rather like the role of the CEO or business owner. He or she doesn’t have to know how to play all of the instruments; the specialists are there for that.

Some bands or orchestras become more popular than others. And, while individual players/musicians may come and go, some bands perform for a long time – years, decades or longer. Innovating and working with new material but maintaining superior quality of output. Why – because the culture, amongst other things, fosters that type of environment.

Finally, the public – you and I – doesn’t pay for the score. We pay for the result – the sound, the music, how it makes us feel.

And that’s an important perspective (particularly for consultants). No one pays for the strategy, they pay for the results – and how the results make them feel.

So, what kind of music are you going to make in 2012?

If you enjoyed this you will also enjoy Design Thinking and Strategy Development.

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You really can’t argue with those kinds of results. While doing it once may involve some luck, I think doing it twice meets the important criteria of consistency.

Hsieh spent some time between building LinkExchange and Zappos.com learning how to play poker. He realized that there were many similarities between the game and business and so he made a list of the lessons he learned from poker that can be applied to companies.

Here are the ones that deal with strategy¹ :

1. Don’t play games you don’t understand, even if you see lots of other people making money from them.
2. Figure out the game when the stakes aren’t high.
3. Don’t cheat. Cheaters never win in the long run.
4. Stick to your principles.
5. You need to adjust your style of play throughout the night as the dynamics of the game change. Be flexible.
6. Be patient and think long term.
7. The players with the most stamina and focus usually win.
8. Differentiate yourself. Do the opposite of what the rest of the table is doing.
9. Hope is not a good plan.
10. Don’t let yourself go “on tilt”. It’s much more cost-effective to take a break, walk around, or leave the game for the night.

I particularly like #5 for 3 reasons.

Firstly, it’s particularly relevant – therefore easy for people to accept – given the current global economic situation.

Secondly, it makes the point that the need for flexibility isn’t new – it’s been around for at least as long as poker (Wikipedia says the game was first reported in 1852) but in reality much longer.

And, finally, flexibility is only one of the 10 points – you also need the other 9, for example long term thinking and differentiating yourself, to be successful.

Hsieh goes on to talk about the second biggest business lesson he learned.

He realized that the game had started before he joined it. So the most important decision he could make was which table to sit at. In business, one of the most important strategic decisions a business owner or CEO has to make is what business to be in.

But Hsieh had a further insight. In poker, while you can always change tables, you can only choose from the tables which already exist. However in business you can define your own market – which is what, for example, Southwest Airlines, Apple’s iStore – and Zappos – did.

My son gave me a copy of the book for Christmas and I’m only mid-way through it. But if you haven’t read it, get a copy. It’s an easy read packed full of wisdom. And, yes, I may have another post or two from it.

_____________________

¹Delivering Happiness: A Path To Profits, Passion and Purpose, page 65

Our top 10 blog posts in 2011 were:

1. The 2 Truths Every Business Owner Has To Face which I wrote in early May was the winner by a significant margin. It talks about why many  owners ignore the second truth.
2. 4 Things Every Business Owner Must Think About deals with the 6 reasons companies are sold and the 2 factors which are common to all of them.
3. 10 Tips To Improve Your Public Speaking Body Language written by Mark Bowden of TruthPlane, is the first of our guest posts to make the list.
4. Why You Need A Consultant With Hands-On Experience is one of several posts we wrote during the year about how to work with consultants.
5. Bad Strategy – How To Spot It discusses the 4 hallmarks of bad strategy identified by Richard Rumelt in his book “Good Strategy/Bad Strategy: The Difference and Why It Matters”.
6. Leading Business Plan Execution is the second guest post to make the list. Brian Brennan a Chartered Accountant and Chair for TEC Canada wrote this piece for us.
7. Strategy, Culture and Leadership deals with how these 3 things affect the development and the execution of strategy.
8. Social Media And Strategic Planning Make Interesting Bedfellows Marie Wiese of Marketing Co-Pilot demonstrates how social media can be used to strengthen the strategic planning process.
9. 3 Surprising Strategies (Or Not) comments on 3 surprising things that emerged from the responses to our survey of 600 people in our database.
10. 4 Laws Of Effective Implementation is one of the first pieces I ever wrote. If a weak plan strongly executed really is better than a strong plan weakly executed here are 4 “laws” that will make sure you execute effectively.

If you haven’t seen them before, here’s your opportunity!

Sounds good…….

A question if I may. Did you achieve or exceed your targets for 2011?

Who’s first?

You are and yes you did achieve your 2011 targets. Excellent, congratulations.

So how many years in a row is that?                                                             

Only one, eh? Hmm.

Well yes it is important because it means that in the last 2 years you missed your goals at least as many times as you made them. And if that’s a repeating pattern you’re not getting steady growth are you?

Who’s next? No you didn’t make your targets? OK.

Oh, you almost did? Well, actually “almost” isn’t good enough. What would have happened if Apollo 11 had almost got to the moon? Or if they had almost got the Apollo 13 astronauts back alive? See what I mean?

Almost doing something is not the same as doing it.

So here’s my point. Oh, you were wondering when I was going to get to the point.

OK well here it is now………Just one more, quick question first.

Have you developed a new strategy for this year or did you change your business planning process?

Why do I ask that?

Because if you missed your targets in 2011 – or haven’t made them for more than one year in a row – and you haven’t changed or modified your strategy and business planning process, what makes you think you’ll achieve or exceed your targets in 2012?

Why would using the same tools, in the same way, result in a different outcome?

The point is, you could be sitting there full of confidence for 2012 because you completed your strategic and business planning processes.

But the seeds of more missed targets are already planted and growing – because those processes aren’t delivering results.

Well, yes, you can do something about it now. You don’t want to wait until the end of the first quarter when a chunk of the year has already gone.

Get someone impartial to look at your strategy and business planning process for you.

Who?

We can. Give us a call and ask about our Tune Up. It’s quick and inexpensive. We’ll tell you what needs to be adjusted – if anything.

And you can go back to feeling confident about 2012.

Any questions?

If you enjoyed this you will also enjoy So Tell Me, What Is Strategy? and 4 Things Every Business Owner Must Think About.

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Jim Stewart, the custodian of this ProftPATH blog has given me some space here. I just hope he doesn’t regret it.

Management consulting is that strange business whereby if we only ran our companies better, more efficiently and with an attention to the obvious we wouldn’t need the service. Sure, there is the argument that having an outside opinion is a good thing but I tend to think we use that ‘outside opinion’ as a way to confirm long-held beliefs and then we use the assessment as a cudgel on the inefficiencies that we always knew existed. Some of us are blind to the obvious, but most are just insecure about doing anything about it. Maybe if we had better employees, or trusted them more we wouldn’t need management consultants.

But you know why having a relationship with a competent management consultant is a good thing? It gives you someone you can just plain talk to about stuff you can’t talk about to spouse or subordinates. It’s pretty lonely running an SMB and a good MC is vital to your mental health. Forget about the details about capital expenditures, or going over the P+L, sometimes you just need someone to talk to about the pressures and frustrations of running a business.

I think, as a trusted advisor, that’s the greatest role a management consultant can play. We’re only human.

More About Paul:

At first pursuing a potential career in nuclear physics, Paul chose, instead, to develop his creative skills. After graduating from Ryerson’s Radio Television Arts program he started Chato Art Ink, one of Toronto’s more successful independent design firms. He stopped designing to take up comedy, helping to form the now legendary Frantics Comedy Troupe, and will be forever remembered as Mr. Canoehead, “Canada’s aluminum-headed crime fighter.” Paul then joined the Canadian Broadcasting Corporation rising to the position of Head of TV Comedy. After considering a move to Los Angeles to take up a position as VP of Development at a major Hollywood studio, Paul instead chose to exercise his interest in computers. He started Electramedia and in the intervening years produced the hugely successful CD-ROM game Jewels of the Oracle, hundreds of corporate presentations, videos and Internet sites. In 1997 Electramedia switched its focus 100% to the Internet and most recently has become Your Web Department™.

If you would like to contact Paul email him at paul@yourwebdepartment.com

It continued to bother me this year but I didn’t say anything to anyone. I couldn’t, I wasn’t sure how to put it.

Then I found out that someone else felt the same way. He has a much higher, more public profile than me. And he wasn’t afraid to speak out.

That tipped me over the edge.

Just as I took my first couple of tentative steps, I discovered there’s someone else, also with a higher profile than mine, who is talking about it too.

I feel so much better. So I’ll say it out loud……..

The words strategy and strategic are being overused and misused. And it’s wrong because it’s causing confusion and doing harm.

It first became clear to me………….

…..when I read Richard Rumelt’s book “Good Strategy: Bad Strategy, The Difference and Why It Matters”.  I believe 3 of Rumelt’s 4 major hallmarks of bad strategy involve misuse of the words strategy or strategic.

He describes “Fluff” as a superficial restatement of the obvious combined with a generous sprinkling of buzzwords.

Rumelt’s example of fluff is a major bank stating “Our fundamental strategy is one of customer-centric intermediation.” Intermediation, accepting deposits and lending them to others, is what all banks do. And this one’s processes didn’t make it any more customer friendly than its competitors. The statement is fluff not strategy.

Then there’s “Mistaking goals for strategy”. For example he talks about a document labeled “Our Key Strategies” which was no more than a list of goals with no reference to a key strength the company could leverage to achieve the goals.

The third one is “Bad strategic objectives”. Rumelt talks about “dog’s dinner objectives”, a list of things to do with the label strategies or objectives, where 1 of the “to do’s” is to create a strategic plan. There are also “blue sky objectives”, which are simply a restatement of the desired state of affairs.

And now there’s someone else……………….

…..who is making a similar point. This week Harvard Business Review published a blog post by Joan Magretta called “5 Common Strategy Mistakes”. I think 3 of them also involve confusing strategy with something else.
First is confusing marketing with strategy. Doing that, she argues, means overlooking the point that a strategy not only requires a value proposition, it also requires a unique configuration of (companywide) activities that best delivers the value.

Next is confusing competitive advantage with what you’re good at. Companies often look inward, see a strength – and overestimate it. But to form the basis for a strategy a strength has to be something the company does better than its rivals. And that judgment can only be made by the market.

Finally there’s thinking that growth or reaching a revenue goal is a strategy. Sound familiar? Mistaking goals for strategy is on Rumelt’s list too. It’s not the goal (e.g., reach $50 million in revenue), nor is it a specific action (e.g., launch a new product, enter a new market, make acquisitions). Strategy is the set of integrated choices that define how you will achieve the goal; the actions are the path you take to execute or realize the strategy.

Now that I feel better, that I’m not alone…………

…..I’m going to continue speaking about it.

Because it will only get better if we get it into the open, get people, business owners, talking about it.

We have to stop overusing and misusing strategy and strategic. It’s causing confusion and doing harm to the most important part of a company – its business strategy.

By the way, you can see my first couple of tentative steps here and here

Strategy – and strategic – are becoming greatly over used words. And in some cases they’re being imbued with mystique and complexity in order to create a need for “expertise”.

Why should we care? I can think of 2 reasons.

1. Strategy should be simple.

A strategy shouldn’t be an ethereal concept or a complex by design – in fact quite the opposite. Look at the Wikipedia definition – “a plan of action designed to achieve a particular goal.”

What could be more straightforward? A strategy has 2 parts. Part 1 – designing the plan and part 2 – translating it into action which achieves a specific goal.

It sounds simple – but the mystique and complexity can start with the words and phrases that are used to describe the design part of business strategy. I’m thinking of environmental scans, key competencies, scenario planning, strategic options etc.

To be fair there are some companies and clients with whom it is essential to use these buzz words in order to be considered credible.

But for everyone else – particularly for companies which haven’t worked with consultants before – the strategy design process should be kept clear and simple.

Another thing I’ve never been comfortable with is the point of view that a strategy must be perfect, a thing of great beauty. Making things of great beauty is the job of artists and plastic surgeons. Business people need to be pragmatic.

Anyway, many strategies which were judged imperfect or impossible – e.g. Steve Job’s strategy for Apple in 1987 and Herb Kelleher or Richard Branson’s entry to the airline industry – resulted in great successes.

And if a strategy isn’t made to work, to deliver results, what does it matter how nice it looks or sounds – which brings me to the second reason we should care.

2. The focus should be on the translating into action, achieving the goal part.

Research has shown, fairly consistently, that the majority (around 70% by some estimates) of strategies aren’t implemented or they fail.

Assuming that at least some of them were practical and simple, and yet still were never turned into action, what chance do complex strategies stand?

And here’s something that has always struck me as ironic.

Some of the reasons for designing a new strategy or changing/adapting an existing one are outside the control of the business owner and his/her team – e.g. competitive action, changes in the industry.

But all aspects of translating a strategy into action are totally under their control.

Makes you think, doesn’t it?

3. Final thoughts.

A business strategy is the means by which owners achieve their vision for their company. To do that it can’t be shrouded in mystique or only be a thing of ethereal beauty. And it can’t be complicated.

A good strategy informs all parts of the company about what they must do and how they must work together. It translates into the specific actions that must be completed to achieve clear goals which lead to the realization of the vision.

It turns the vision into results.

And don’t forget – a weak strategy implemented strongly will always beat a strong strategy implemented weakly.

 If you enjoyed this you’ll also enjoy 3 Things Which Shape A Good Strategy and 6 Tips For Getting Better Results in 2011 and Why You Want A Consultant With Hands-On Experience