Posts Tagged ‘forecast’

Is Strategy Static or Variable?

Tuesday, January 28th, 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.

 

 

In last month’s issue of AlbuonStrategy we discussed three reasons why strategy fails (3 Reasons Strategy Fails).  I would like to follow up on that conversation with a question—is strategy static or variable?  From our own client experience, we believe there is both confusion and difference of opinion about the answer to this question.

Would you agree that strategy is a dynamic, continuous and adaptive process and it needs to be managed over the long term?   Let’s be honest, as sound as you might feel your strategy is today, you should never stop questioning it.  Strategy is simply a bet on the perceived future.  No one has yet found a way to predict all that will happen in the future. Rather, we accept a forecast of the future based on our current knowledge and past experiences for our business and industry.

Think about the surprises you have encountered in your business:  Technology changes, departure of key employees, competitors gaining advantages, loss of a major customer, etc., etc.  These are just a few examples of disruptions that might cause a change of course at any point during the implementation of your strategy.   In our experience, we have seen how effective this “variable” mindset can be.  The bottom line is if you accept and operate under the concept that strategy is dynamic, continuous and adaptive, you will develop a heightened awareness of internal or external changes that might impact your strategy and be better prepared to deal with these challenges in a deliberate manner.

So are all elements of your strategy variable?  No.  While your strategy needs to be dynamic, continuous and adaptive, the strategy’s foundation should be static.  The strategy’s foundation defines the way you play and win in the market. Think of it as the way you create value for your business and the capabilities that support your advantages.  Not to say that the strategy’s foundation cannot change, because it can, but it usually takes a commitment of time and resources over the long term.  This is why a client of ours decided to limit the product categories they participate in, or another international business restricted itself to operate in only a few select countries.

What are the differentiating capabilities that support your strategy’s foundation?  How do these capabilities define what business you are in and how you do business with your customers?   If you are clear about what comprises your strengths and capabilities, you will make better strategic decisions more often and with more confidence.

Your strategy needs to be variable to deal realistically with the unpredictable and stay relevant in the fast changing business world we live in.  At the same time, the foundation of your strategy needs to remain constant so that short term strategic decisions build off your value proposition and differentiating capabilities.  Are you prepared to manage this paradox?

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

Share

Top Ten In 2013……

Tuesday, January 7th, 2014

The votes (page views) have been counted; the results can be announced!

Our top 10 blog posts in 2013 were:

1.   6 Challenges Fast Growing Companies Face, which won by a good margin, discusses the 6 challenges of execution which, if not dealt with, could prove fatal.

2.   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.

3.   The Difference Between A Strategy And A Plan talks about the difference between strategy and planning and why it’s important to understand what these terms mean.

4.   6 Ways A Business Owner Can Influence Culture looks at the ways a business owner can develop a culture which will help increase operating profits and build shareholder value.

5.   Adaptive Strategy – A Way To Profits In The New Normal? looks at an alternative strategy that is built on the 3 R’s (Responsiveness, Resilience, Readiness) required in a changing environment.

6.   3 Times When You May Need To Change Your Strategy explains when a company should review its strategy and what makes that review and any subsequent actions necessary.

7.   6 Things We Can All Learn From Family-Owned Business puts forward 6 simple things business owners can implement to achieve better long-term financial performances.

8.   Strategy, Culture and Leadership deals with how these 3 things affect the development and the execution of strategy.

9.   10 Commandments of Business Development are the basic, common sense principles every business owner can apply to their business development efforts.

10.  How To Keep Control When You Work With Consultants provides steps business owners can take to maintain control when they work with consultants.

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

Top Ten In 2012……

Tuesday, January 15th, 2013

The votes (page views) have been counted, the results can be announced!

Our top 10 blog posts in 2012 were:

1.    Do You Know What You Don’t Know? was the winner by far. It talks about how consultants and business owners are doing the same thing wrong, with the same outcome.

2.    Why Would Anyone Hire A Management Consultant? is a question put to business owners whose businesses have stopped growing.

3.    6 Ways a Business Owner Can Influence Culture outlines how a business owner can influence the culture in his/her company.

4.    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.

5.    Things Really Good Consultants Say outlines what consultants who get results and deliver a great service say while pitching for business.

6.    Strategy, Culture and Leadership deals with how these 3 things affect the development and the execution of strategy.

7.    3 Times When You May Need To Change Your Strategy explains when a company should review its strategy and what makes that review and any subsequent actions necessary.

8.    6 Challenges Fast Growing Companies Face discusses the 6 challenges of execution which, if not dealt with, could prove fatal.

9.    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.

10.    So Tell Me, What Is Strategy? In some cases strategy and strategic are being imbued with mystique and complexity in order to create a need for “expertise”.  Here are 2 reasons why should we care.

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

Are You Growing Too Fast?

Wednesday, October 3rd, 2012

We routinely tell business owners that a company can get into trouble when it’s growing just as easily as it can at any other time.

I’ve grown used to the looks of disbelief that come our way. And to the predictable question, “How can growing be a bad thing?”

The answer, of course, is that growth isn’t bad in concept. Like everything else, it’s the execution that is either good or bad; it’s how the owners manage what’s going on.

There was a good example of how things can go wrong – and how badly wrong they can go – in the HBR last month.

A family owned printing company saw sales hit an all-time high just as everything fell apart in 2008. The problem was that the bottom line wasn’t growing and they were eating into their line of credit because cash was tight.

All it takes is a decline in margins caused by price cutting – to drive an increase in sales – and a slowdown in customer payments because credit rules have been relaxed (also to bring on new customers) and cash becomes a problem.

In a mature industry like printing where the products have become commoditized, price cutting becomes a way of life.

It’s also a business in which you have to understand and watch costs carefully. Under-estimating a job can turn it into a loser quickly. And so can making a mistake and having to re-run the job.

How do you avoid getting into trouble while growing?

1. Don’t “buy” new business. Rather than compete on price, find ways to add value. Or offer “de-featured” versions of existing products and services at a lower price point.

2. Get a really good understanding of your operating costs and how they react when sales increase.

3. Keep a tight grip on inventory (if you have one) and Receivables (and most companies have those). Move quickly to get rid of customers that don’t pay on time.

4. Spend time getting to know your cash flow and how it is affected by growth. Remember – cash is king. A profit is good but you can’t take it to the bank. They only accept cash.

5. Don’t rely on your Income Statement to tell you what’s going on. It can tell you what has gone on – but it can’t give you a glimpse of the future. Only a cash flow forecast, your aged receivables, inventory turns and metrics like these will do that.

This is hardly an exhaustive list but it covers most of the basics.

One of the bosses I worked for never let us talk about sales; he insisted we talk about profitable sales. I thought he was nitpicking at the time but, in retrospect, I was young and foolish and he was much more seasoned and savvy.

Guess how we talk about sales now.

If you enjoyed this post you’ll also enjoy 5 Tips To Improve Margins and The Bottom Line…..

Click here and automatically receive our latest blog posts

6 Challenges Fast Growing Companies Face

Tuesday, August 28th, 2012

I’ve mentioned Inc. magazine www.inc.com several times before. It’s a great resource.

There’s a well-researched article in the current issue about 6 challenges fast growing companies face. They’re all about execution – and if the owner doesn’t deal with them well any one of them can be fatal.

1. Your business outgrows its staff. One or more hard working, loyal employees who had the skills required to make a great contribution when they joined the company can no longer deliver. Owners are torn, knowing that the business wouldn’t be where it is without Joe or Mary – but that they just can’t cope and are hurting the company now. The solution needn’t be just to let them go but the owner needs to deal with the situation quickly and honestly.

2. You wait too long to hire.  A classic dilemma. Hire people before you need them and you add to overhead and risk having to lay them off if the orders you thought were coming don’t. The alternative is to risk service and credibility if the business does materialize. One solution – hire all-rounders who you can train and slot into more than one position.

3. Your business lacks the right systems. Two potential causes here. Either you don’t implement processes and systems quickly enough or the system you chose doesn’t work as advertised. I know which one frustrates me most – the latter. There’s nothing worse than dealing with implementation problems and delays – so have a solid contingency plan in case it happens.

4. You run out of money. We’ve said it before, and I’ll say it again, the most important document for a business owner is a cash flow forecast. Keep it up to date, study it often and it will provide the information you need to stay out of trouble. Because growing companies have to invest before invoices are cut, never mind paid, they become less, not more, liquid.

5. You can’t keep up with demand. This is the most dangerous point for fast growing companies according to the article. The owner takes on debt to finance additional capacity – or people – and the demand doesn’t appear. According to the author the best solution is to manage growth so that it happens in small rather than large increments. But that’s not always easy to do.

6. The problem is the owner. If you’ve built a company – i.e. been successful – why would you have to change? That’s a reasonable question. But I notice, after 15 years of working with business owners, that the ones who grow their companies successfully are the most open and willing to change themselves. If the business can outgrow an employee, why can’t it outgrow the owner?

You can read the full article 6 Classic Ways to Crash Your Company here.

Click here to automatically receive our latest blog posts.

Cop Out Or Common Sense?

Wednesday, July 18th, 2012

“How can you be sure that you’re not just taking the easy way out?”

“If you let yourself off the hook once, won’t it be easy to do it again?”

Last week’s post clearly touched a few nerves. I understand that some business owners feel strongly that a sales budget shouldn’t be cut mid-year. But I have an answer for those 2 (and the other) questions which were fired at me this week.

You’re not taking the easy way out if……….

1. At the beginning of the year you applied your execution “know-how”¹  to the setting of the goal. You do that by inviting the key people responsible for achieving the goal to participate in setting it. Before giving the goal the “go ahead” you persist in asking probing questions until you understand how the goal will be reached. Questions such as:

• Which products will generate the sales? (e.g. old or new)
• Who will buy them? (e.g. existing customers or new ones)
• What compelling reason will they have for buying them, now?
• Who is responsible for getting the sales and making, delivering and supporting the products?
• How will they need to work together and why will they do that?
• Are our reward systems strong enough to make them want to work together?
• How will our competitors react?
• What are the milestones along the path to reaching the goal?
• Who is accountable for reaching the milestones – and do they know that they are?

2. By doing this you ensure that:

• The goal is linked to the company’s capability for delivering the results.
• There is strict accountability for reaching each and every milestone.
• There are contingency plans to deal with the unexpected things that life consistently throws in the path of even the best laid plans.

3. Even if, despite all of that, unexpected circumstances force you to consider lowering the goal, you:

• Relentlessly seek out and focus only on the facts – not opinions, emotions, feelings or anything else – which have caused the situation to change since the goal was set.
• Evaluate the alternative responses to those facts using logic and experience.
• Conclude that the only alternative that makes business sense, in the long term, is to lower the goal.

You’re not letting yourself “off the hook” because………..

Lowering the sales goal is not the result of an emotional reaction. Nor is it a step which is taken lightly.

The decision is based on facts (about circumstances which might not even have existed at the time the goal was set). It’s a rational, well thought out response to the situation.

To act in any other way is not a logical approach to business and so flies in the face of common sense.

¹ “Execution: The Discipline of Getting Things Done”, Bossidy and Charan, Random House, 2009, pages 32 and 38

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

Click here and automatically receive our latest blog posts

Can You Lower Your Sales Goal During The Year?

Tuesday, July 10th, 2012

The meeting was moving along well until the topic of the annual sales target came up.

The leadership team wanted to lower it to a point significantly below the previous year’s actual results. They believed that the arguments for doing so were logical and made good business sense.

• Actual performance at the end of the first quarter was well behind target.

• Research, admittedly informal, revealed that sales producers made a limited contribution in their first year with the organization. Things improved in the second year. But it took 3 years for them to produce sales at a rate which would keep the organization at the level of the previous year.

• Because of growth, almost half of those responsible for producing the sales were in their first year with the organization.

• There had been a number of large non-recurring sales in the previous 2 years. And while it was reasonable to hope there might be some this year, it seemed unwise to plan on them.

Some of those at the meeting were shocked. After all, this was only the end of the first quarter.

The target was set a few short months ago. The leadership team believed it was possible then. How could they argue it was impossible now!

Then the view was expressed that companies couldn’t (or didn’t) change their budgets once the year started.

We hear this quite often and my response is usually “Who says they can’t”? There’s no external authority that says it’s not allowed.

Publicly traded companies regularly revise their budgets during the year (ask any RIM shareholder). They call the new set of estimates a forecast.

Why can’t privately owned companies do the same? What happens if, for example, it becomes apparent that the company can or will exceed its budget? There isn’t a leadership team I know that won’t revise upwards.

The challenge is when it comes to a downward revision. Our first response is that it’s giving up, quitting, losing. But that’s an emotional reaction.

What happens, for example, if the economy tanks; or a competitor introduces a new technology; or people with needed skills can’t be found; or financing for additional resources couldn’t be obtained?

All of these events can be demonstrated to have happened. They’re not a matter of opinion, they’re facts. To cling to a budget that was developed either before any of those things occurred or which assumed their impact would not be as great as it was seems illogical.

I mentioned some of the facts in this case earlier. Here are some others.

• Every member of the current leadership team was new to their role when the budget was developed.

• No analysis of the drivers of the organization’s previous results had been done in recent times. So none was available to help or inform the new team. 

• The previous leadership team had been in place for only a year and had other challenges to deal with.

• The handover period between the teams from was relatively short.

After some heated discussion the budget was lowered.

If you enjoyed this post you’ll also enjoy Where Do The People Fit?

Click here and automatically receive our latest blog posts

Don’t Let The Summer Heat Cause A Winter Chill

Thursday, July 21st, 2011

It’s almost the end of July, it’s hot and it’s vacation season. The heat saps your energy and getting ready for; switching off during; and scrambling to catch up after vacations takes most of your attention.

Together they make it easy for business owners to lose sight of fact that it’s the end of the second quarter and planning, budgeting, whatever you call it, for 2012 will be starting soon.

So what, you ask? Here’s what – your annual business planning/ budgeting/ whatever you call it process is the engine that drives your growth. If you don’t approach it with that in mind you’re setting yourself up to underachieve in 2012.

Based on mistakes we’ve seen made repeatedly in 10 years of strategy consulting there are several things you need to think about now. Here are a couple to get you started……

1. Don’t postpone the second quarter/mid-year review. Hold it ASAP.

Quarterly reviews are a reality check. What’s really happening in the industry, to our customers and with our competitors? How does that compare to our assumptions and how has it affected our forecasts? What can we do to leverage this reality in the next 2 quarters?

How many of the programs we planned have we actually put in place? Are they yielding the results we wanted? What has worked well that can be we build on? Which programs are behind time and how do we adjust for that?

The answers to these questions and others like them, asked in the quarterly review, will allow you to put form around what the situation will be at year end and give you a jumping off point for forecasting sales and bottom line in 2012 and beyond.

If you haven’t been doing quarterly reviews, or have let them slip, this is the time to start or re-start them.

Don’t let vacations be an excuse for postponing them.

2. Waiting until the week before the annual business planning session to start thinking about next year isn’t nearly good enough.

You’re going to make as accurate a guess about what the future holds as possible. To do that you’re going to have to make assumptions which will underpin your financial forecasts, priorities and action plans.

On what information will you base the assumptions? Something you read in an economic outlook from a bank or industry association or in articles about your industry or competitors on the web?

Or are you going to get out and talk to your customers and suppliers about what is happening in their world and what that will mean for you? Why not put a simple but systematic process in place to ask the same, key questions from several sources?

But that will take time; it can’t be done in the week or two before the planning session. Who is going to see whom and ask them what has to be decided soon – using output from the second quarter review. And the meetings will have to be arranged – and everyone has a full, busy schedule.

If information is power – or at least confers power – why settle for anything less than the best information available? Decide what you need and how to get it now – then start collecting the information soon.

3. Quick tip.

Dealing with the summer heat and vacations, doing the things that are urgent, can take the focus off preparation for the thing – the annual business planning process – that is important. If that happens and business catches a chill next year, it will not be this summer’s heat that’s to blame.

More in future posts, but today is the hottest day so far this year – so I’m off to get a Frappuccino. Staying cool is hard work!

4 Tips to Make Sales Forecasting Easier……………

Monday, September 7th, 2009

If we could forecast the future accurately, most of us would spend our lives at a racetrack or casino rather than at work. But forecasting the future is something we all have to do as business owners – either to set internal goals, to obtain additional financing and for other reasons. Forecasting is, however, one of the most difficult and frustrating things that we have to do and few things cause as much anguish and soul searching as sales forecasts.

Tip # 1. Forget trying to predict the future and focus on using “informed judgment”. Many attempts at forecasting fail because those involved, from sales reps. to business owners, don’t have the detailed knowledge of their market, their competitors, their customers and potential customers that is essential for making good estimates. They are less than fully informed when they make their judgment of what will happen – and that’s a failure of work and effort, not of technique.

Tip # 2. Remember that we can only control some of the things that have an impact on our forecasts, for example, the number of dealers we approach, the effectiveness of our promotional tools and our price strategy. There are others factors which directly affect the odds of our success but which are beyond our control. Some are known and can be reflected in the assumptions on which are forecasts are based, for example the price of crude oil, low pay scales for offshore labour. But there are others to which we can only react, for example an unexpected outbreak of SARS.

Tip # 3. The most common mistakes, in my experience, are that we overestimate how much we can sell and how quickly we can sell it. Avoiding those mistakes is hard enough when estimating how much more our existing customers will buy of the products they currently use. Adding any “new” dimension just adds complexity.

Forecasting increased sales to current customers should be easy. We either increase the volume of existing products, start selling them products they don’t currently buy and/or increase prices. But if the account managers don’t have the skill – or don’t make the effort – to get as much information about, for example, what is happening in the customer’s own business and how that affects our offering to them, we will be trying to forecast with less than detailed knowledge. So, we can’t make informed judgments – fertile ground for overestimating what can be sold.

What happens if, for example, we’re going to start selling an existing product in a new geographic market? If our competitors already offer a product in that region/province/country, how much of our sales will come from the market share we’ll take away from them and how much will come from the continuing growth of the market? To begin, we must understand how our product quality, lead times and prices compare with our competitor’s and how much it will cost to get our message heard over their promotional “noise”. We can do some simple, inexpensive research to gain the detailed knowledge required to answer those questions.

When it comes to taking market share away from competitors, we have to make 2 sales. Firstly convince the customer to stop buying from our competitors and then convince them to buy our product – which is untested in this marketplace. But for most business owners, who are natural optimists and driven, type ‘A” personalities, it is not difficult to underestimate how long this will take!

Estimating the sales that will come just from market growth may seem easy by comparison. All we have to do is to convince the remaining distribution channels to sell our widget – make 1 sale instead of two (always assuming our competitors have left some distributors for us). But estimating how long our new distributors will need to ramp up requires information to help us assess how effective the distributors will be. We also want our share of the market to grow at least as quickly as the market itself. The future market growth rate can be forecast using the actual growth rate for the last 2 or 3 years (either as is, or adjusted upwards or downwards). The rate at which we grow depends on how good a Marketing plan we have. Developing an effective Marketing plan requires informed judgment. Anything less, combined with that optimistic approach of the entrepreneur, will, once again, result in overestimates.

Tip # 4. Even if you’ve worked hard and spent time gathering detailed knowledge which you used to make informed judgments, don’t stop when you develop a “final” set of numbers. Unless you’ve been unusually pragmatic in arriving at this first forecast, call it your best case. Now think of the things that are most likely to go wrong, assume that they will, change your spread sheets accordingly – and call that your worst case. Finally, it’s unlikely that everything will go against you but it’s equally unlikely that everything will go your way so take a third approach, which avoids either of the extremes, run the numbers again – and call that your most likely case.

Post History