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Archive for December, 2008

What Buffet Looks for in a Company

Monday, December 8th, 2008

What’s the number-one attribute Warren Buffet, arguably one of the most successful investors in the world, looks for in a company? “Sustainable competitive advantage,” he told an interviewer. If one of the most successful businessmen of today puts this at the top of his list, you should too. Not only competitive advantage, as a term, widely overused, it is also widely misunderstood. You are not alone if you have ever wondered what a competitive advantage really is and what you do with it. So what is it exactly? And if Buffet examined your company, would he find what he’s looking for? Let’s find out.

The 30-second competitive advantage challenge
Here’s the 30-second challenge to determine if you know your competitive advantage. Ready? Go. I meet you at one of the numerous local networking events and you introduce yourself “Hi, I’m Bob Jones with ABC Company.” “Hi Bob. Nice to meet you. Tell me a little about your company. What is your company best at?”

… 29, 30. Time’s up! Could you answer my question in less than 30 seconds, succinctly with clarity? If yes, skip this column. If not, don’t worry, you are in good company. The majority of businesses are also trying to figure out what they are best at. Honestly this question is hard to answer. You have to narrow your focus more than you are comfortable with. By the end of this column, you will be able to share your competitive advantage with confidence.

What competitive advantage is and isn’t
Often starting with what something isn’t is easiest. Your competitive advantage is not a list of your strengths. Not to down play strengths as these are important too. But if your competitive advantage(s) list is only comprised of strengths it is not a “competitive” advantage. Key word – competitive. If you don’t have a competitive advantage comprised of more than strengths, you don’t compete. You exist.

The management team from a mid-sized financial services group reported that its competitive advantages were:

  • Good reputation in the community
  • Skilled staff
  • Outstanding team and well-respected leader
  • Knowledgeable
  • Strong client list and loyalty
  • Flexible and responsive

Blah, blah, blah. Right? You’ve heard all this before and so have I. Couldn’t you say this about most any professional service firm? This is what a competitive advantage is not. This is a list of strengths.

A competitive advantage is something you do that is unique. The key here is to compete you have to have a unique advantage. Looking at the list from the financial services firm above, you can see that this is not a list of unique stuff. Basically anyone in business today needs to achieve that level of competency just to be in the game.

Think of your competitive advantage as your organization’s DNA – a collection of genes or assets that makes you unique. When you are true to your DNA, you are healthy, fit, and successful. When you compromise your DNA, you feel uncomfortable, slow and are exerting more effort than you should.

Your competitive advantage is what you, your company or your department does better than anyone else. The sustainable part refers to your ability to continue to do those things over a long period of time. And yes, you can have more than one advantage and you can develop advantages as well. You don’t have to possess them all now.

The easiest way to find you competitive advantage is to answer these questions

1. What is my company best at in my market?
2. Why?

By answering these questions, the financial services firm discovered the following are really its competitive advantages:

  • Ranked in top 10 percent of money managers who beat S&P nationally
  • Fastest-growing American Funds money manager in ‘00, ‘01, ‘02
  • Only firm ever featured by American Funds in its advisory newsletter

Wow. Doesn’t that say a lot more than a good reputation and a skilled staff? This is the transition you need to make when explaining the competitive advantage of your organization or department. Here are a few more examples from businesspeople who answered the question “What is my company best at?”

  • Sandy, an interior designer, determined she was best at increasing developers’ sales ratio by 35 percent and was the only design team chosen by the top 10 luxury developers in the state.
  • A clothing manufacturer named Joe said he was the best at wearable clothing because “Our clothes fly off the racks.”
  • The emergency service division of a county in Washington is the best at providing disaster management, response and recovery efforts for all agencies within its’ service territory because of its skilled people and emergency response equipment.

Stating your competitive advantage succinctly
Let’s go back to the fictitious networking event from the beginning. I said you needed to be able to answer the question “What is your company best at” within 30 seconds. It’s time to try it again using the formula below.

FORMULA FOR A COMPETITIVE ADVANTAGE
A statement that explains what your company is best at.
Your business name
+ What you are best at
+ Why
Honda is best at developing precision engines and power trains because its products are the leaders in reliability and technological advancement
Bikram Yoga is best at productizing the yoga experience and practice because it is packaged for franchising
Google is best at optimizing searches for any type of information because it continues to innovate and push technology past what was thought possible
Now it’s your turn…

What do you do with it?
Now that you have figured it out, what do you do with it? When you really have it nailed down, it will help you and your staff know:

  • Which opportunities to pursue and which to pass by
  • Where to allocate resources and where to cut back
  • How to do what you already do well, better
  • Know the difference between an opportunity versus a distraction
  • When to outsource (to another department or externally) and when to keep it in house

You can run your business without a clear understanding of your competitive advantage, but it will be for not. Why? Because mission, vision, goals, and objectives tend to change and shift over time. Your competitive advantages, when you have identified them, will endure and grow stronger. You may choose to use them in different ways, which is why the other elements of your plan tend to morph. But what makes your company unique will stay constant.

The leading organizations in this world have a razor sharp understanding of their competitive advantage. Everything they do builds and nurtures their DNA. You don’t have to be a Fortune 100 company to be that effective and that good. Running your business on the basis of your competitive advantages is the most important thing you can do as a leader of your organization or department. (It’s especially important if Buffet stops by.)

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The Ten-Step, One-Day Strategic Plan

Monday, December 8th, 2008

You don’t have to kill a tree or shut down the office for a week to create a successful strategic plan. In fact, you can write a strategic plan for your business in just one day. It doesn’t have to be an overwhelming or a monumental task. It doesn’t have to be perfect or fancy. Just grab a few key people in your organization, turn off the phones and let’s get started.

Step One – Be the best.
The result of a well-developed and executed strategic plan is to develop a competitive advantage. Just what is a competitive advantage? Business lingo aside, it is simply the answer to: What can your company potentially do better than any other company?

Understanding your competitive advantage is critical. It is the reason you are in business. It is what you do best that draws customers to buy your product/service instead of your competitor’s. Extremely successful companies deliberately make choices to be unique and different in activities that they are really, really good at and they focus all of their energy in these areas. You may decide to incorporate your competitive advantage into your mission and/or vision statements.

Step Two – State your purpose.
A mission statement is a statement of the company’s purpose. It is useful for putting the spotlight on what business a company is presently in and the customer needs it is presently endeavoring to serve. It also serves as a guide for day-to-day operations and as the foundation for future decision-making. To write a mission statement, answer the questions: What is our business? What are we trying to accomplish for our customers? What is our company’s reason for existing?

Step Three – Visualize the future.
A strategic vision is the image of a company’s future – the direction it is headed, the customer focus it should have, the market position it should try to occupy, the business activities to be pursued, and the capabilities it plans to develop. Forming a strategic vision should delineate what kind of enterprise the company is trying to become and infuse the organization with a sense of purposeful action. Think big! To write a vision statement, answer this question: What will our business look like in 5 to ten years from now?

Step Four – Take an inventory.
The SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis helps you look critically at your organization. It is a tool to help produce a good fit between a company’s strengths and its opportunities.

Assess your strengths and weaknesses by answering these questions: What do we do best? What do we not do best? What are our company resources – assets, intellectual property, and people? What are our company capabilities (functions)?

Assess your opportunities and threats by answering these questions: What is happening externally that will affect our company? What are the strengths and weaknesses of each competitor? What are the driving forces behind sales trends? What are important and potentially important markets? What is happening in the world that might affect our company?

Step Five – Profile your customers.
If you want to move your company from being successful to wildly profitable, you need to meet your customers’ needs and wants better than your competitors do. Develop a customer profile by answering: What are our customers needs, motivations, and characteristics? How do we uniquely provide value to our customers? What should we improve to grow our customer base?

Step Six – Write your goals and objectives.
Goals and objectives are like stair steps to your mission and vision. Realistic goals and objectives are developed from the SWOT analysis and customer profile. Objectives set the agenda, are broad, and global in nature. Write two to five objectives that give action to your mission/vision and will take a few years to achieve. Then, develop goals to achieve each objective. Goals should be measurable, quantifiable, and support your objectives. Think about achieving them in a one-year timeframe. Effective goals must state how much of what kind of performance by when is to be accomplished and by whom. Make sure both your goals and objectives build on your strengths; shore up your weaknesses; capitalize on your opportunities; and recognize your threats.

Step Seven – Assess your resources.
Now that you have completed your goals and objectives, it is time to do a resource assessment. One of the biggest stumbling blocks to all well laid strategic plans is time and money. As with every business, budgets are never big enough to do everything you want to do. Prioritize key goals by asking: Do implementing the goals make financial sense? Do you have the human resources to achieve your plan?

Step Eight – Take action.
Tactics set specific actions/action plans that lead to implementing your goals and objectives. Basically write a to-do list for each goal. A quick way to develop your tactics is to answer this question: What roadblocks exist to achieving my goal? Use the answer to develop action items for each goal. Assign responsibilities and deadlines to ensure implementation. A great method to get buy-in from your staff is to assign a goal to each employee. Ask him/her to write the action plan and be responsible for making sure each task is accomplished.

Step Nine – Keep score.
In step six, you wrote goals that were measurable. Put these measurements and targets on a scorecard (in Excel), which acts as an instrument panel guiding your company towards achieving your vision. With the scorecard, you can actively track your progress on a monthly basis.

Step Ten – Make strategy a habit.
A leader devoted to the successful implementation of the strategy and plan is key. The plan needs to be supported with people, money, time, systems, and above all communication. Communicate the plan to everyone in your organization. Hold a monthly or quarterly strategy meeting to report on the progress toward achieving the goal. Don’t forget to take corrective actions when needed and adapt as the environment changes.

Conclusion
My last word of advice is that a plan is a living document. It does not have to be perfect or 100 percent complete to start using your strategic plan. A business without a plan is like a car without a steering wheel. A rough draft is better than no plan at all. Put your plan on paper so you can look back on 2004 and celebrate your well-earned success. Happy Planning!

Erica Olsen (Erica@m3planning.com) is a principal of M3 Planning, a business development firm that helps companies understand who they are, where they are going, and how they will get there. She is also an instructor and a writer.

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Find Your X-Factor In Executing Strategy

Monday, December 8th, 2008

Running a business today is like sprinting towards a finish line that is just out of reach. It can leave you gasping for breath, exhausted and overwhelmed. But it doesn’t have to be that way–not if you discover your company’s X factor. That’s what allowed company’s such as Starbucks, WR Hambrecht, Bikram Yoga and University of Phoenix to dominate their industries or markets. By finding their X factor, specifically the advantage that put them at least two times ahead of competitors in a key area like customer loyalty or employee retention, they left their rivals miles behind and unable to catch up.

What is exactly is an X factor? It is using your company’s unique skills and resources to implement strategies that competitors cannot implement as effectively. Also known as a competitive edge. It’s the secret ingredient(s) that can help you run faster, see the finish line more clearly, cut out the clutter, and focus only on what will help you ultimately reach success.

To build a business that dominates, you need to discover that competitive edge that puts your company ahead of its competitors and provides value to your customers. A closer look at some well-known companies and local small businesses will provide you with some ideas where you might find the basis for your X factor. Some X factors seem so logical. But if your competition is not doing it, it’s a competitive edge no matter how simplistic. Additionally, the X factor for most of the companies below is a combination of elements.

Breaking the Mold: Break the mold by revamping a product or service, developing a new process, partnering with your competitor, selling to customers you would never dream of reaching, reorganizing around customers instead of products, or productizing your service. If it has never been done before, ask why and can I deliver value to my customers?

Who is doing it? WR Hambrecht changed the institutionalized IPO process that only allowed connected investors to get in on the ground floor of public offerings. The company created OpenIPO, an online auction system that allows all interested investors to participate in the pricing and allocation of IPO shares. In the face of fierce competition from Wal-Mart and eBay, Best Buy is reorganizing its stores’ product offerings and layout around five specific customer types. By implementing this unique, never-been-tried organization, Best Buy provides more value and creates loyalty by serving these specific customers better than any one else.

Leveraging IT: It has often been cited that information technology contributes to business profitability through reduced costs, better control of scarce resources, and increased customer satisfaction. Studies abound that indicate that those companies that invest more in IT relative to others in their industry are the most likely to outperform their competitors.

Who is doing it? University of Phoenix coordinates its 21,000 faculty members and 200,000+ students through its extensive online infrastructure. All curriculum and textbooks are digital as are all class management tools, grades, learning resources, and online tutors. Across the globe faculty and students login to the same system, increasing efficiencies university wide, timeliness of educational material, and consistency of teaching. A local Reno service firm has integrated its time tracking and invoicing system into one seamless process. The result is minimal lost billable time, detailed invoices (which clients love), and a high efficient invoicing process. Bills are in the mail on the first of the month, it’s A/R cycle is reduced, and cash flow increased.

Niching Out: Expert knowledge and customization are hot trends. On the service side, becoming an expert in an industry is a long-term strategy, but you create an edge by building a knowledge base and relationships in a specific industry that can be impossible for others to replicate. On the product side, providing exactly what the customer wants can be difficult to achieve in a cost effective manner, but not impossible. In both cases, you will outperform your competitors because you are delivering unmatched value to your customers.

Who is doing it? Nationally, the computer industry has become commoditized. But Dell left everyone in the dust with custom-built PCs. Locally, the staffing industry is becoming more and more cluttered and competitive. Instead of going head-to-head, a local staffing agency has decided to only recruit and provide talent for a specific, niche business function.

Delivering Consistency: Customers expect to receive the highest quality product or service every time they do business with you. No matter what the industry, delivering consistency can be a competitive edge that is hard for others to copy. The trick is to understand what about your business sets the expectation and how to create a process that ensures consistency. Consistency leads to customer loyalty, increased brand awareness and repeat business.

Who is doing it? Starbucks is the shining example of providing a consistent experience every time, everywhere. Bikram Yoga is a franchised yoga company (there are two in Reno/Sparks) that offers the same, unique yoga class in every studio across the country.

The companies cited above have, by and large, realized above average returns due to an increase in revenue and reduction in expenses. They focused on developing and growing that competitive edge by continually investing resources into improving it.

You also should make it a top priority to find your company’s X factor and put it to work for you. In fact, failing to develop an edge puts a business in danger because it is easy to get off course. Fortunately, there are unlimited ways to find an X factor. The key is to pull yourself away from day-to-day operations long enough to think more broadly about your business. And whether you find your strength in doing something differently, leveraging IT, finding a niche, being consistent or filling a void, by maximizing your X factor, you can catapult your company into first place.

Erica Olsen (Erica@m3planning.com) is a principal of M3 Planning, which helps companies build market-focused cultures through customer-driven strategic planning, empirical market research, and measurable marketing approaches. She is also an instructor and a writer.

For more information: If you have any questions regarding these articles, or desire further information, please contact us.

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Strategy Books

Monday, December 8th, 2008

Aaker, David A. Strategic Market Management. 6th Ed. New York: John Wiley & Sons, Inc., 2001.

Best, Roger J. Strategies for Growing Customer Value and Profitability, 2nd Ed. Upper Saddle River: Prentice Hall, 2000.

Collins, Jim. Good to Great.

Dobni, Brooke, Dawn Dobni, and George Luffman. “Behavioral Approaches to Marketing Strategy Implementation,” Marketing Intelligence & Planning 19/6 [2001] 400-408. MCB University Press.

Day, George S. Market Driven Strategy – Processes for Creating Value. New York: The Free Press, 1990.

Cook, Kenneth J. AMA Complete Guide to Strategic Planning for Small Business. Lincolnwood: NTC Business Books, 1994.

Kaplan, Robert S. and David P. Norton. “Putting the Balanced Scorecard to Work,” Harvard Business Review, September-October 1993, p.134-147.

Kaplan, Robert S. and David P. Norton. The Balanced Scorecard-Measures that Drive Performance, Harvard Business Review, January-February 1992, p.71 to 79.

Kaplan, Robert S. and David P. Norton. “Linking the Balanced Scorecard to Strategy,” California Management Review, Fall v39n1, 1996, p.53 to 79.

Porter, Michael. Competitive Strategy – Techniques for Analyzing Industries and Competitors. New York: The Free Press, 1980.

Slater, Stanley F, Eric M. Olson, Venkateshwar K. Reddy. Strategy-Based Performance Measurement. Business Horizons. July-August 1997, p.37-44).

Thompson, Arthur A., Jr. and A.J. Strickland III. Strategic Management Concepts and Cases. Boston: Irwin McGraw-Hill, 1999.

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Leadership Articles

Monday, December 8th, 2008

Citrin | Goett | Publisher’s Weekly | Hiam

The first article, Six Principles for Leading During Uncertain Times, by James Citrin, describes six principles that great leaders follow. Due to the change in the time with continuous economic upheaval, geopolitical turmoil, and technological change, successful managers are those that effectively lead during uncertain times.

  • During these uncertain times, business leaders should follow these six principles:

    • live with integrity and lead by example
    • develop a winning strategy or big idea
    • build a great management team
    • inspire employees to achieve greatness
    • organize for flexibility and responsiveness
    • implement consistent management systems.

In order to become an effective manager and lead during uncertain times, one must follow a set of clear enduring principles which will provide a clear road map for finding success during turbulent times.

The Chief Executive Officer (CEO) is known as the premier leadership position in the corporation. This leadership position is often the epicenter of actions that can drive organization to success or failure. How does a corporation deal with leadership problems or drastic changes? What is the best strategy and organizational mind-set a company can have in this situation? Both of these questions are answered by the example of Herb Kelleher. When Herb Kelleher, a previous CEO of Southwest Airlines, decided to move-on from his position of great power, he did something highly unordinary that shook the company in astonishment. Mr. Kelleher chose not one, but two successors. This untraditional way of passing leadership confused many in the company. Power, or “the conch,” can be a difficult thing for leaders to share. “Everyone believes that corporate success hinges on the abilities of a single exceptional leader. Does it have to be that way? Maybe not. Maybe over the next two decades, the Southwest succession plan will take hold and a different pattern will emerge” (Goett, 2001). This kind of paradigm shift is difficult to adjust to on both personal and organizational levels. Since there is no common historical pattern to reference, it is almost always impossible to forecast the affects of this kind of change. The bottom line is that an organization, and each person who independently helps to make up its structure, must chose to be dynamic and open-minded. Trustworthy leadership is the foundation of enabling a dynamic organization. The success that was achieved at Southwest under Mr. Kelleher’s leadership is exemplary of what kind of leadership can warrant such trust.

Every successful strategic planning process requires leadership. Without a leader, the process will certainly lack direction, passion, and most likely success. In an article from the Publisher’s Weekly entitled, “Strategy and Leadership, Explained,” an important question is posed; “How can managers at established companies stimulate creativity and passion in the workplace?” (Publisher’s Weekly, 2002). The article, which is a review of 5 different books on strategy and leadership, answers this question in a variety of ways that I find practical, and immediately useful. Overviews of the most interesting points are as follows:

    A) Make well informed, swift choices. Be a strategic conversationalist in order to bring people on board.

    B) Even if your corporation is huge, adapt a mindset like an entrepreneur. This will be contagious and help to create passion.

    C) A leader voices his or her statements clearly, simply, and smoothly. You can use your voice and manner of speaking to captivate and motivate your peers and subordinates.

This handbook presents techniques and tools to help in decision making at a top executive level. It presents nine key areas:

    1. Financial decisions
    2. Leadership skills
    3. Manufacturing and Operations
    4. Marketing
    5. Organization and human resources
    6. Product development and innovation
    7. Sales Management
    8. Strategic Planning
    9. General Decision-making

For the strategic planning area, there are 17 different analyses, tests, and checklists to guide decision makers. I particularly have used the ADL (Arthur D. Little) Life-Cycle Matrix to help companies evaluate where they are positioned with products and markets. At Xerox we used the Delta Group, or Boston Consulting Group, for the change to the new “Document Management Company” strategy – and the BCG Growth Share Matrix is presented in this handbook, which looks at cash-flow characteristics of a product portfolio on a quadrant format.

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Thinking Strategically

Monday, December 8th, 2008

Strategy Articles to Guide Your Thoughts

James L. Morrison, 2000. “From strategic planning to strategic thinking”.

An article written by James L. Morrison titled, “From Strategic Planning to Strategic Thinking.” Mr. Morrison is reviewing another article written by Mintzberg, H. titled, the fall and rise of strategic planning. Mr. Morrison does not give his opinion on Mintzberg articles, but he picked the main points and talked about them. One question that people usually ask is, are strategic planning and strategic thinking the same thing? According to Mintzber, strategic planning is about analysis (breaking down a goal into steps, designing how the steps may be implemented, and estimating the anticipated consequences of each step). On the other hand strategic thinking is about synthesis, about using intuition and creativity to formulate an integrated perspective, a vision of where the organization should be heading. Mintzberg stated that most people have the assumption that strategic planning, strategic thinking, and strategy making are synonymous.

Instant Strategist, 2002. ” Strategic Thinking.”

An article written by Instant strategist titled, “Strategic Thinking”. In the article they explained what is a strategy and who needs it. One very interesting point in this article is when it talks about e-strategy. Strategic planning has been in existence for many years. In fact, from a military standpoint, strategic planning has been around since biblical times. However, things have changed.

E-strategy is best described in the following sentences taken from this report.

“In the pre-Internet, or old economy, businesses moved only as fast as they could to interact with their clients and suppliers to transfer goods and services. For the most part, such activities were relatively slow compared to the level of speed, connectivity, and interactivity that we experience in today’s connected economy.

These three new elements, connectivity, interactivity, and speed, make business cycles much shorter, and force companies to plan faster and smarter strategies in order not to miss the train. Business cycles will become even shorter over time, as technology, innovation, and consumer behavior ascend the connected economy escalator.”

According to this article, start-up companies use different strategies than large companies. These are called Core (start-up) and Branch strategies (large companies). The best example of the interaction between the core and branch strategies is to look at the way a tree grows. In the early stages, the small trunk begins to grow branches. Similarly, a start-up initially has just a core strategy, but as it grows, it develops branches-some of which grow their own branch strategies.

Bottom Line Innovation Associates, Inc. 2003. ” Improving the Bottom Line…Innovatively.”

A video training course offered by Bottom line Innovation Associates, Inc. These are a three-part video set by Charles Prather. Each video provides good information and teach management to gain knowledge in the following:

  • Video 1- Innovation 101 – the basics of creativity
  • Video 2- Solving impossible problems by thinking out-of-the-box
  • Video 3- Your creativity style and its implication for your work and life.

This is a good and very inexpensive way to trained employees and gain more knowledge in strategies. This set of videos s also comes with a book.

Transition Learning, 2003. “Strategic Thinking in the 21st Century.”

An online module titled, “Strategic Thinking in the 21st century.” This online module feature interactive activities, simulations, expert videos, original articles, classic pieces from the literature, and references to further resources. The program can be delivered solely online or via a blended online/on-ground model.

Some of the features that learners can benefits from are:

  • Develop an ability to see the challenges facing their industry
  • Apply new concepts and skills to their own work
  • Increase their own and their organization’s competence
  • Find value in the learning experience
  • Stay interested and engaged with the material
  • Tailor the program to their workforce.

Beinhocker, E.D. & Kaplan, S. (2003). The real value of strategic planning. Sloan
Management Review.

The Real Value of Strategic Thinking, (2003) published in Sloan Management Review proposes the idea that few strategic decisions are made in the context of a formal process because a company’s most important strategic decisions are made as developments unfold. The authors contend that companies that achieve success use strategic planning not to generate strategic plans but as a learning tool to create a preparedness within an organization to make strategic decisions as the need arises. According to authors Kaplan and Beinhocker, the goal of the strategic planning process should be to make sure that the key decision makers ” have a solid understanding of the business, share a common fact base, and agree on the important assumptions” (p.8). When managers have this foundation, good strategic decisions can be made throughout the year.

The authors argue that the utility of strategic planning is really whether the participants are better prepared for the real-time job of strategic decision making. A number of real-world examples are presented in which companies were presented with opportunities for growth through acquisitions that were not anticipated. Understanding their business, armed with a common fact base and agreement on important assumptions prepared the executives to make sound strategic decisions that in retrospect, were the correct ones.

The conclusion drawn in the article is that strategic planning for the sake of preparing plans is unjustified and leaves managers unprepared to make sound decisions as the need occurs. By repositioning strategic planning as a learning process, formal strategic planning will prepare managers to make better strategic decisions.

“Thinking Strategically”, by Avinash K. Dixit and Barry J. Nalebuff.

The book is intended to act as a competitive edge resource for business and strategy. The main purpose of the book is about how to outmaneuver your competitors in strategic planning. The book, “Thinking Strategically” explains good strategy planning by providing case studies from business, sports, the movies, politics, and gambling. Examples of how to apply strategic thinking in business and everyday real life were also presented. Several useful models in the book were given as examples on how one can anticipate the competitor’s response in your industry. For example, decision trees and game trees can be used to look ahead and reason back what the opponent will do. The trees can also be utilized to predict the choices made in a game of strategy. In addition, they can act as a tool to look ahead at the decision makers’ future choices as well as the competitors in the industry by putting yourself in their shoes.

PSC-RD: Strategic Thinking

This article by Eton Lawrence (1999) suggests that strategic thinking is not just a new version of strategic planning. Instead, strategic thinking is a complimentary and critical addition to the process of strategic planning, implementation, and management. Strategic thinking requires taking a critical look at the underlying factors that lead to successful strategic planning. Laurence (1999) suggests that strategic thinking is essential for both strategy formulation and execution. This article would be a good primer for anyone embarking on a strategic planning mission.

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Talking Points in Support of Strategy

Monday, December 8th, 2008

Need some more talking points to convince your boss or board of directors to do a strategic business plan? Here are some points to help you make your case:

Failing to Plan is Planning to Fail

If organizations fail to anticipate or prepare for fundamental changes, they may lose valuable lead time and momentum to combat them. These fundamental elements of business are customer expectations, employee morale, regulatory requirements, competitive pressures, and economic changes, and they’re always in flux. Many times businesses achieve a level of success and then stall. Strategic planning helps you to avoid the stall and get off the plateau you find yourself on. Accidental success is dangerous.

Succeeding without a plan is possible, and plenty of examples exist of businesses that have achieved financial success without a plan. If you’re one of them, consider yourself lucky, but ask yourself this questions: Could you have grown and become even more successful if you were better organized? I’m willing to bet your answer is yes.

Another danger is that the lack of a strategic plan negatively impacts the attitude of an organization’s team. Employees who see aimlessness within an organization have no sense of a greater purpose. People need a reason to come to work everyday (besides the a paycheck). Lack of direction results in morale problems because, as far as your employees are concerned, the future is uncertain, unpredictable, and out of control. These depressing conclusions can only be seen as a threat to employment, which negatively impacts productivity.

To avoid these dangers, you need to get rid of the naysayers (including possibly yourself). Questioning the value of strategic planning is normal because planning can be intense and costly, but if the attitude that planning isn’t necessary becomes part of your corporate culture, it can prove deadly.

What makes great companies great

Becoming the best at something is often achieved by modeling the behaviors of winners and putting those behaviors into practice. Here are the characteristics of a high-performance company:

  • Has a purpose that focuses the energy of all its members (typically, that purpose is to be the best there is or ever was)
  • Simultaneously and continuously maximizes the self-interests of all its stakeholders
  • Outperforms all others (by any measure) not because of what propels it, but in spite of any and all obstacles that impede it
  • Makes it possible for ordinary people to perform in an extraordinary fashion
  • Transforms its people into “owners” of the organization’s destiny
  • Is a healthy organization committed to being great, no matter what it takes
  • Knows that the execution is more important than the strategy

While a strategic plan is the means, growth and high-performance are the end to those means. Need more talking points to convince you board or your boss about the need to do strategic planning? Check out the growing list here.

The Best of the Best Do Planning

High-performance organizations have fundamental differences that set them apart from other organizations. Anecdotally, these companies are better than their competitors at everything they do. They work more diligently and incessantly to improve faster than their competitors.

There are tons of studies out there that dig into the hows and whys of companies that are ahead of the pack. But instead of getting lost in the details and differences of these studies, take a look at the basics.

At the end of the day, high-performance organizations accomplish extraordinary results, and they do it with ordinary people. The key to achieving is to structure an organization so ordinary people can regularly accomplish outstanding things. Enter a strategic plan.

If you keep waiting for extraordinary people to come along and make things happen, you’re going to wait a long time. Instead, your goal should be to transform your organization in such a way that your people are capable of delivering high performance every minute and every hour of every day.

Download Talking Points as a printable pdf document.

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MyStrategicPlan, owned by M3 Planning, is a strategic planning firm that works with growth-oriented organizations to develop and execute their strategies. Our products and service help organizations save time, get focused and obtain better results. Our strategy framework is market-focused, balanced scorecard based and research driven. We offer a 100% No Questions Asked, Money-back Guarantee.

For more information or to request a proposal, please contact us at 775-747-7407. Don’t forget – Your success takes planning!

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Strategy Tools

Monday, December 8th, 2008

Websites and Additional Planning Resources

http://www.meansbusiness.com/

Meansbusiness.com, is a great site with current information on all different aspects of business. The site has a learning center that headlines ten different business areas. The areas of subject are: organizing work and people, knowledge and learning, career development, sales and marketing, products and services, digital enterprise, internet economy, finance and profitability, strategy and competition, and leadership and change. Within each of these subjects, news editors scan over 100 prominent magazines, newspapers, journals, and web sites in search of the latest and most original business thinking. These ideas are selected for their originality, cogency, and relevance in today’s rapidly changing economy.

This is a great site to find new and different ideas and approaches to today’s business. Moreover, the ideas in the news section of the learning center are published biweekly.

http://www.entarga.com/

The site www.entarga.com is a web site that looks at different approaches for planning for the future. Comprehensive business planning involves numerous, separate activities. The key to success is knowing not only how to implement each planning phase, but how they interact and build on each other. This web site details six planning approaches; strategic planning, leadership development, organizational learning, knowledge management, marketing planning, and a guide to prepare your own plan.

This site is an excellent resource with great information dealing with strategy and planning of the future. The site is an excellent site to obtain information and bring new approaches to light when planning for a company.

http://www.mindtools.com/

Another web site, mindtools.com, is a site that specializes in helping the user understand the essential skills and techniques that will enable them to excel in their career, whatever their profession may be. The site has two subject areas. The first is the creativity, problem-solving and management skills area. This area is broken down into five subjects: information and study skills, creativity tools, tools for mastering complexity, techniques for effective decision-making, and project planning and management skills. The second area deals with personal effectiveness skills. This area is broken down into four subjects: job-hunting skills, how to use time effectively – time management, techniques for controlling stress, and tools to improve your memory. Within the site, it recommends different resources to help fulfill each of the subject areas. These resources include books, web sites, computer programs, and consultants.

Institute for Strategy and Competitiveness

Based at Harvard Business School, the Institute for Strategy and Competitiveness is led by Michael Porter, one of the most influential individuals in the study of strategy. The institute “studies competition and its implications for company strategy; the competitiveness of nations, regions, and cities; and solutions to social problems” (ISC Website, 2003). The institute’s website is located at http://www.isc.hbs.edu/.

On their website, the institute provides a limited number of articles, but those that they do provide are very valuable to those who are studying strategy management. The institute also provides abstracts to many of the articles that they have published, a listing of speeches by their members, interviews, reviews, and much more.

www.metabridge.com

Michael Management Corporation (MMC).

This website http://www.michaelmanagement.com, is a consulting firm that has an SAP webinar. Tom Michael, President/CEO, founded the firm. They are “a leading consulting firm specializing in business strategy and e-business issues. MMC has been highly involved in SAP consulting since 1993. Focused on capital investment functionality, MMC’s consultants and developers regularly work to develop innovations and advances in the field. The California-based firm has never had trouble attracting top-notch consultants and quality clients.”

SAP webinars are an extension of the SAP user group, ASUG, and are very informative. I found the general nature of MMC’s website and articles helpful on a daily basis. The most recent one I used was to enhance my knowledge of fixed asset accounting approaches.

Que book, Business Analysis with Excel

A reference set would not be complete without one QUE manual – my dog-eared copy of this reference is in use weekly for some analysis or another. Chapter 13 deals with “Managing Scenarios”, and addresses how to use sensitivities on assumptions to study a particular business case for differing outcomes. This tool closes the loop on my original strategic reference in number I above, the Scenario discussion book.

Carlberg, Conrad. 1995. Business Analysis with Excel. QUE Business Computer Library. Que Corporation, Indianapolis, IN.

CFO magazine.

I subscribe to CFO magazine, a journal that also includes a quarterly CFO-IT issue. The provide up-to-date information about current topics, such as Sarbanes-Oxley regulation, CEO and CFO mandates to shareholders in the new SEC oversight world, and great case studies from companies of all sizes and disciplines.

The Spring 2003 issue had a special section on strategy feedback software, or CPM, products, that use a form of balanced scorecard for feedback on how well the company is implementing strategy. One package, COGNOS, is interesting for a smaller company as it is more affordable than SAP or Oracle. However, the article does mention that SAP is certainly on the bandwagon to add a CPM (Corporate performance management) module. Since IGT has just added SAP system, I will be looking forward to using this tool in the future.

CFO Magazine. Published monthly, with quarterly special topic issues. Published by CFO Publishing Corp, Boston MA. It is a subsidiary of The Economist Newspaper Group, Inc.

Bain & Company

This Bain & Company website provides strategic planning for companies. Bain & Company launched a multi-year research project in 1993 to gather facts about management tools, and to track their use. The objective was, and continues to be, to provide managers with the information they need to identify, select, implement and integrate the tools that will improve bottom line results. Over the past eight years, Bain has assembled a database that now includes over 5,600 senior manager respondents from over 20 countries in North America, Europe, Asia, Africa and South America.

This year’s results revealed that executives are opting for classic, “tried-and-true” management tools to address fundamentals of cost and corporate direction over “new economy” tools. “During a year when executives jumped on the Internet bandwagon to seek quick and easy growth, they found no new tool paved the road to riches,” said Darrell Rigby, founder of the Tools Survey. The most widely used tools cited by senior managers in 2000 remain the same as in 1999: Strategic Planning (76%), Mission and Vision Statements (70%), and Benchmarking (69%).

In addition, the site provides the management tools for the site’s visitors free. For example, under Management Tools is a list with links to important words and terms utilized in management. When you click on the links, it provides a description and uses of each tool. The strategic management tool link on the site give you a description of what strategic planning is, the methodology, the common uses, and a list of selected references for the topic. Some of the other links on the page includes, balanced scorecard, core competencies, growth strategies, mission and vision statements, strategic alliances, and strategic planning. All of the links contain information on each topic that would be helpful to use as reference guide for business.

Center for Simplified Strategic Management

CSSP is an organization that helps companies in determining the proper strategic course of action. This site is a great resource for strategic management gurus. In addition, you can join CSSP at no charge. By being a member you can have access to their Strategic Planning Newsletter, seminar information, and strategic planning book. The newsletter has strategic planning newsletters that apply to the business world. The seminar information link contains dates and times of upcoming seminars around the United States. The Simplified Strategic Planning book by Robert W. Bradford and J. Peter Duncan with Brian Tarcy is a link that is all about trying to sell site visitors the book. According to the site, the book is for Simplified Strategic Planning: A No-Nonsense Guide for Busy People Who Want Results Fast! The site also contains other links that include the company’s planning services, tools and resources, article archives for strategic management.

E-Business Forum

This web site is from the Economist Intelligence Unit that is designed to help executive build strategies for the global digital economy. The site features e-business news, tips on best practices, and the ability to search for the latest research reports

McKinsey Quarterly

This site is an on-line journal that offers great information on recent management and industry issues in strategic management in different industries. Furthermore, the site offers a monthly e-mail newsletter that gives you the ability to access all new articles.

Quick MBA

This was probably the most useful site that I found that was has all the business information linked into one site. There is a wonderful section on strategic management. This portion of the site gives you a resource, which outlines the fundamentals of game theory. Additionally, there are also strategic models found throughout the site, such as the ones from Porter.

Ideas @ Work on the Air.

The web site has an archive of radio programs that offers insights from leading management thinkers and professionals in business today. The information is based on articles in the Harvard Business Review, the Harvard Management Update, and Harvard Management Communication Letter newsletters.

Professional Organizations

Many professional organizations are dedicated to optimizing strategic thinking. These organizations are located throughout the world. The Strategic Management Society, The Strategic Planning Society, and The American Management Association are few of the organizations available for interested parties. Activities and publications are common among these organizations. These functions and information include conferences, awards, list of reference sites, journals, and influential information.

http://www.alliedworld.com

Allied Business Intelligence Inc is a well-respected New York-based technology research think tank whose findings influence the strategies of many large companies. The group states on their website: “ABI’s research has appeared in most of the major media sources of the world, such as The Wall Street Journal, The New York Times, The San Jose Mercury, The Dallas Morning News, The Economist, The Financial Times of London, and literally thousands of other sources.Nearly every technology company of the 30 firms that make up the Dow Jones Industrial Average – and over half of the NASDAQ 100 rely on research from ABI to assist them in their strategic planning and tactical marketing” (ABI, 2003).

Even with the changing economy, companies are still looking to technology to expand into new marketplaces and improve operations. However, these projects require a significant expense and time in planning to implement the strategies. Allied Business Intelligence produces reports to aid companies in their strategic planning. For example, the company is presently featuring a story on whether “Hot Spots,” or areas where people with wireless networking hardware on their portable computing devices can access the Internet, are profitable. An example of a company that is betting that it will boost the sales of their products is Starbucks who has implemented Wi-Fi technology in many of their shops.

Other examples of the types of reports on emerging technologies that the company produces are ones on fuel cells, semi-conductors, and speech recognition. The group not only predicts the success of new technologies, but also will identify potential markets for its use, which executives can use as a guide for their research and development spending.

The Society of Competitive Intelligence Professionals

http://www.scip.org/

The Society of Competitive Intelligence Professionals is a global organization for those involved in the practice of collecting competitive intelligence. The society defines the term as the legal and ethical collection and analysis of information regarding the capabilities, vulnerabilities, and intentions of business competitors (SCIP, 2003).

Those who form the strategies of their organizations rely on the competitive intelligence to determine the direction that their competitors are taking their companies and thus are able to better position themselves in the marketplace. The society produces conferences, “Webinars,” an online archive of articles related to the field, and a quarterly journal.

Competitive intelligence is important to strategy formulation in that it allows a company to better determine the plans of other companies in the future marketplace. In some companies, there may only be one person who scans through websites looking for information, but a recent SMM/Equation Research survey of 291 sales managers revealed that 89 percent ask their salespeople to double as information agents (Neuborne, 2003).

The society emphasizes in many places on their website that all methods that they develop and advocate are ethical. However, the downturn in the economy has caused some to violate ethical standards as seen in the recent cases of Oracle rummaging through Microsoft’s garbage and Princeton hacking into Yale’s scholarship computer (Neuborne, 2003).

http://www.strategy-business.com

Strategy + Business (s+b) Magazine is a phenomenal resource published by the global management and technology consulting firm, Booz Allen Hamilton that has a readership of over 100,000. According to their website, “Alone among major business publications, s+b draws on a combination of journalists, academics, consultants, and corporate strategists to contribute articles that set the agenda for business leaders and guide them through its execution” (Strategy + Business, 2003).

Rather than providing a single tool for strategy formulation, s+b provides articles and viewpoints on much of what is happening in the study of strategy. A look at the current issue shows the publications emphasis on strategy formulation with articles such as: “Symantec’s Strategy-Based Transformation,” “The Better Half: The Artful Science of ROI Marketing,” and “The Man Who Saw the Future” about the father of scenario planning.

The magazine also archives their articles on their website giving free access to anyone who signs up for access. Booz Allen Hamilton is able to effectively advertise conferences and seminars through their website while providing users free access to their articles.

Keeping up with current issues in strategy formulation is important to those interested in the field. Strategy + Business appears to offer the best source of changing trends in the field.

On-line Bulletin Board.

A student named Robert Williams posted an Internet bulletin board asking for opinions with respect to strategic planning and policy implementation. Mr. Williams is asking people how much time and effort should be afforded for contingency planning.

I think this is a great resource for information and a good approach to get opinions from different people that are involved in strategic planning. Bulletin boards provide you with positive and negative feedback that will enable you to use the best methods for planning your strategies.

JAE Enterprises

The fifth example for this homework is an advertisement from JAE Enterprises, Inc. JAE Enterprises is a business-consulting firm, specializing in developing organizations through grant writing, fundraising and business planning. This firm can help companies to decide or establish strategic plans. Most of the strategic plans for a company must lead you to success. Firms like JAE Enterprise can advise you what strategies used by other companies that have lead them to failure. They have data that supports their recommendation for the use of a particular strategy.

Strategic Management Text and Tools for Business Management

The management professor writes the strategic management site from the University of Rhode Island named Robert Comerford and Dennis Callaghan. The website contains an abundance of information on strategy. The site has six chapters that include topics on the introduction of strategic management, environmental, industry, and internal analysis, strategy formulation, strategy evaluation, functional strategies, and strategy implementation, and control. Each chapter has detailed information on each topic.

Chapter 1 has information regarding the evolution of strategic management, strategic management effectiveness. Then, Chapter 2 provides detailed information on how to conduct an environment, industry, and internal analysis. Chapter 3 explains how strategy formulation works. This chapter tells one how to create proper goal formulation and action plans for strategy. One helpful table I found in this chapter is on the following page.

Next, chapter four gives techniques on how to evaluate and select strategies, such as strategies for each portion of the product’s or service’s life cycle.. Chapter five contains information on functional strategies and how to implement strategy. Finally, chapter 6 provides strategy implementation and control. The site has information on the types of strategy implementation and control. Plus, the site has links to appendixes that have information on analyzing and writing cases, sources of business information, merger strategy, and global strategy choices.

Contemporary Strategy Analysis

This site gives you an overview on the book by Robert M. Grant is Professor of Management at Georgetown University and at City University, London. His research includes corporate diversification, organizational capabilities and knowledge management, and strategic and organization change within the oil and gas industry. The site contains summaries about each of the five parts of the book. Part I is titled, “The Concept of Strategy”‘, Part II is called, “Tools of Strategic Management”, Part II titled, “The Analysis of Competitive Advantage”, Part IV is, “Business Strategies in Different Industry Context”, and Part V is named, “Corporate Strategy”. Each link goes into detail about what the chapter contains. Also, the site has helpful links to related books and titles on strategy, slides, and sample chapters of the book.

Methodology: Six Sigma

A Google™ search for “Six Sigma” (in quotation marks) yields 73 pages of results showing the popularity of this methodology. In evaluating tools for strategy formulation, one must consider what has been successful in other companies. Jack Welch, the former CEO of General Electric, openly endorsed Six Sigma and GE’s success with it inspired many other Fortune 500 companies such as 3M, Home Depot, and Ford to adopt the strategic methodology (Barakat, 2002).

Started at Motorola in the 1980s, Six Sigma, which translates into 3.4 defects per million opportunities, uses a variety of statistical models to measure the company’s performance on a slew of internal processes (Barakat, 2002). The reason that this management system is being included as a tool for strategy formulation is because of its implications for company strategists. To adopt the program, there is a significant cost to the corporation to hire or train quality experts, namely the green and black belts. The strategy of the corporation will be adjusted based on the statistical analyses of the company’s processes.

Since it became popular, Six Sigma philosophies have been adapted to other industries outside of manufacturing. For example, Fort Wayne, Indiana claims that it was Six Sigma management practices that have improved the response time of their public works department, which now patches 95% of all of the city’s potholes within 24 hours of being reported.

“The New Strategy and Why It Is New” by Demos, Chung & Beck

In contrast to the last two tools, the article “The New Strategy and Why It Is New” is not based on the past successes of other companies. This article, available on the Strategy + Management website at http://www.strategy-business.com/press/article/?art=24966&pg=0, discusses how strategy formulation is a now a more integral part of the management process rather than a traditional annual event as it was in the past (Demos, Chung & Beck, 2001). Part of the change, according to the authors, is the changing competitive market. Previously, companies would compete with individual companies, but modern companies have formed so many strategic alliances that competitors must now consider the teams of competitors when creating strategy (Demos, Chung & Beck, 2001).

The article also discusses the need for company strategies to be dynamic to adapt to the rapidly changing market (Demos, Chung & Beck, 2001). As part of this need, the authors discuss strategic business transformation, which also involves the option horizon and adaptation round. Strategic business transformation is defined as the semi-continuous changing strategy of a company. The option horizon “requires using the traditional tools of strategic analysis – gaining insight into the economics of competition in relation to the fulfillment of customer needs, searching for opportunities to reduce costs, choosing the right technologies, and determining appropriate levels of vertical integration” (Demos, Chung & Beck, 2001). Lastly, to explain the concept of adaptation round, the authors state: “Once the next games are defined, the company must adapt to win them, navigating the path from now to then while protecting the value of the existing franchise” (Demos, Chung & Beck, 2001).

Van der Heijden, Kees. 1996. Scenarios – The Art of Strategic Conversation. John Wiley & Sons., Chichester, West Sussex, England.

Kees van der Heijden was instrumental in guiding Shell Oil in its use and development of strategies for business development. I had first hand experience with Shell’s approach when I was a Senior Project manager for Mobil Oil, and I was part of several joint ventures with Shell both in the United States and Europe. We had quarterly meetings to review and develop scenarios centered around deep sea oil field expansion.

The book develops from a discussion about why planning is necessary. The points are made that up-front investment in planning may avoid the need to think through a crisis situation from scratch in the heat of the moment. Planning provides a path that guides all stakeholders in a common direction, and provides a memory or learning system so mistakes are not repeated.

Kees then presents the principles of scenario planning, where he pulls in SWOT analysis with the overall mission or aim of the business, and the development of policies from that assessment.

The most useful part of the book to me part three, which covers the practice of scenario planning. He completely covers the steps from the initial interview, through gathering of data, performing analyses, and development of scenarios and options. He concludes the book with tips on how to institutionalize, or cascade, the use of scenarios throughout an entire organization.

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Balanced Scorecard

Monday, December 8th, 2008

Performance Measurements for Success

Traditional financial measures – ROI, net profit, sales growth, and market share – fail to capture the true picture of a firm’s value propositions because they focus on the past. They tell the story of what has happened to the organization. They explain the results of past transactions and disregard what the future benefits could be. Traditional financial measures are only part of the information that managers need to successfully guide their organizations through highly competitive marketplaces.

During the 1990s, two Harvard professors and consultants – Kaplan and Norton, devised a tool, the Balanced Scorecard, to rectify the deficiencies in relying primarily on traditional financial measures. A Balanced Scorecard allows better measurement of a firm’s capabilities to create long-term value by identifying the key drivers of this value. The drivers are then translated into four categories of measures- customer, internal/operational, innovation/learning, and financial. The financial measures are typically focused on short-term results; while the other three categories are coupled to future oriented activities needed to successfully sustain the enterprise.

Obviously financial health is critical for any business organization- cash in the bank is necessary to pay the bills. However, many managers become nearsighted as a result of this requirement and believe that by making fundamental improvements in their operations, the financial numbers will resolve themselves. This is an utter fallacy. For example, if a firm has a goal of increasing net profit from 10% to 13% for the current fiscal year, there are a number of interrelated factors that must be in place to succeed. Possibly customer satisfaction must be enhanced to increase the number of customers or increase the loyalty of existing customers. May be the product/service’s defect level must be decreased to boost customer satisfaction? So if the manager waits until the end of the fiscal year to determine if he/she was successful, there will be a “history” lesson on the events of the past period. However, if the defect rate is currently monitored or customer returns observed, the manager can make mid-course corrections to the firm’s strategy in order to accomplish the goal of increasing net profit. In other words, the manager should develop and monitor measures of drivers of that net profit goal.
As such, managers should develop strategic measures that are specifically tied to their firms’ unique strategy. There is not a “one size fits all” Balanced Scorecard. The following is the basic categorization for balanced measures of firm performance.

I. Financial perspective-how do we look to investors? Measures that indicate whether the company’s strategy, implementation, and execution are contributing to bottom line improvement.

  • Cash flow
  • Sales growth
  • Market share
  • ROE

II. Customer perspective-how do customers see us? Customer concerns in four categories.

  1. Time-measures time required for company to meet customers’ needs.
  2. Quality-defect level as sent to customers.
  3. Performance-how company’s products/services contribute to creating value for its customers.
  4. Cost-not just price of goods/services, but what does it “cost” the customer when he finally uses it.

III. Internal/Operational perspective-what must be excelled at?

  • Business processes that have the greatest impact on customer satisfaction.
  • What competencies are needed to maintain market leadership?

IV. Innovation/Learning perspective-can we continue to improve and create value?

  • Ability to innovate, improve, and learn ties directly to company’s value.
  • Launch new products.
  • More value for customers.
  • Penetration of new markets.

Caution- a balanced performance measurement tool is not a collection of disparate financial and non-financial measures. It is more than supplementing traditional financial measures with non-financial measures. It is a process of developing interrelated measures, some leading and some lagging, that uniquely depicts a firm’s strategy in attempting to create competitive advantage.
A scorecard:

  • focuses manager’s attention on a handful of measures that are critical for the firm’s success.
  • is a way to clarify, simply, and then operationalize the mission and vision of the organization.

(Excerpted from Robert Kaplan and David Norton (1992), Harvard Business Review, January-February, pages 71 to 79 and (1996), California Management Review, Fall v39n1, pages 53 to 79.)

What is the Balanced Scorecard?

The balanced scorecard institute certainly has a lot to say about the use and value of the balanced scorecard. One of the problems, however, is that the information can get rather detailed, and make for a rather poor quick reference. This particular site does a nice job of presenting a concise overview, and also offers links to an interesting perspectives section on each of the four major points.

(Excerpted from Robert S. Kaplan and David P. Norton (1993), Harvard Business Review, September-October, p.34-147, (1992), Harvard Business Review, January-February, p.71 to 79 and (1996), California Management Review, Fall v39n1, p.53-79.)

The balanced scorecard is:

  1. a measurement system that provides a comprehensive framework that translates a company’s strategic objectives into a coherent set of performance measures
  2. a management systems that can motivate breakthrough improvements.

A balanced scorecard is both a general measurement system to incorporate non-financial measures with traditional financial ones, as well as a central management system to motivate breakthrough competitive performance in implementing a company’s strategic vision. It is a process of developing interrelated measures, some leading and some lagging, that uniquely depicts a firm’s strategy in attempting to create competitive advantage.
It is the translation of a business strategy into a linked set of measures that define both the long-term strategic objectives, as well as the mechanisms for achieving and obtaining feedback on those objectives. A balanced scorecard:

  1. Focuses manager’s attention on a handful of measures that are critical for the firm’s success.
  2. Is a way to clarify, simply, and then operationalize the mission and vision of the organization.

Performance Measurements for Success
The scorecard functions as the cornerstone of a company’s current and future success. Traditional financial measures – ROI, net profit, sales growth, and market share – fail to capture the true picture of a firm’s value propositions because they focus on the past. They tell the story of what has happened to the organization. They explain the results of past transactions and disregard what the future benefits could be. Traditional financial measures are only part of the information that managers need to successfully guide their organizations through highly competitive marketplaces.

Get Balanced. Four Critical Areas

During the 1990s, two Harvard professors and consultants – Kaplan and Norton, devised a tool, the Balanced Scorecard, to rectify the deficiencies in relying primarily on traditional financial measures. A Balanced Scorecard allows better measurement of a firm’s capabilities to create long-term value by identifying the key drivers of this value. The drivers are then translated into four categories of measures- financial, customer, internal business processes, innovation and learning. The financial measures are typically focused on short-term results; while the other three categories are coupled to future oriented activities needed to successfully sustain the enterprise. The information from the four perspectives provides balance between external measures like operating income and internal measures like new product development. It provides a balanced picture of current operating performance as well as the drivers of future performance.

Measure Areas that Lead

Obviously financial health is critical for any business organization- cash in the bank is necessary to pay the bills. However, many managers become nearsighted as a result of this requirement and believe that by making fundamental improvements in their operations, the financial numbers will resolve themselves. This is an utter fallacy. For example, if a firm has a goal of increasing net profit from 10% to 13% for the current fiscal year, there are a number of interrelated factors that must be in place to succeed.
Possibly customer satisfaction must be enhanced to increase the number of customers or increase the loyalty of existing customers. May be the product/service’s defect level must be decreased to boost customer satisfaction? So if the manager waits until the end of the fiscal year to determine if he/she was successful, there will be a “history” lesson on the events of the past period. However, if the defect rate is currently monitored or customer returns observed, the manager can make mid-course corrections to the firm’s strategy in order to accomplish the goal of increasing net profit. In other words, the manager should develop and monitor measures of drivers of that net profit goal.

The Balanced Scorecard at a Glance

Managers should develop financial and non-financial measures that are specifically tied to their firms’ unique strategy. There is not a “one size fits all” Balanced Scorecard. The Balanced Scorecard provides executives with a comprehensive framework that can translate a company’s vision and strategy into a coherent and linked set of performance measures. The measures should include both outcome measures and the performance drivers of those outcomes.
Rather than using the Balanced Scorecard as a traditional control and performance measurement system, it is being used as a measurement and management system to implement a company’s strategic vision. It is being used to articulate and communicate the strategy of the business; to help align individual, organizational, and cross-departmental initiatives to achieve a common goal; and as a communication, information, and learning system. Thus, the measures must provide a clear representation of the organization’s long-term strategy for competitive success.

Generic Strategic Measures for the Four Perspectives

The Balanced Scorecard should be viewed as the instrumentation for a single strategy. Strategic measures are those that define a strategy designed for competitive excellence. Properly constructed scorecards contain a unity of purpose since all the measures are directed toward achieving an integrated strategy.

Financial Perspective How do we look to investors?

The financial performance measure will vary based upon the long-run objective and strategy of a business in the growth, sustain, or harvest stage. In general companies use the following three categories to achieve their business strategy:

  • Revenue growth and mix
  • Cost reduction/ Productivity improvement
  • Asset utilization/ Investment strategy

Measures that indicate whether the company’s strategy, implementation, and execution are contributing to bottom line improvement are the following:

  • Cash flow
  • Sales growth
  • Market share
  • ROE
  • ROCE – return on capital employed
  • Economic value added

Customer Perspective How do customers see us?

In customer perspective, the company measures the business performance in targeted segments. In general, customer concerns can be grouped into the following four categories.

  1. Time-measures time required for company to meet customers’ needs.
  2. Quality-defect level as sent to customers.
  3. Performance-how company’s products/services contribute to creating value for its customers.
  4. Cost-not just price of goods/services, but what does it “cost” the customer when he finally uses it.

Measures are customized to the targeted customer groups from which the business expects growth and profitability. The following are customer measures:

  • Market share
  • Account share – the account share of those customers’ business
  • Customer retention – retaining existing customers, customer loyalty, percentage of growth due to existing customers
  • New customer acquisition – number of new customers, total sales to new customers, number of customer responses to solicitations and the conversion rate, solicitation cost per new customer acquired
  • Customer satisfaction – provides feedback on how well the company is doing. It customer’s complete buying experience. It includes uniqueness, functionality, quality, price, time
  • Customer profitability – measures not only the extent of business they do with the customers, but the profitability of the business in the targeted customer segment. This financial measure can help keep customer-focused organizations from becoming customer-obsessed.

Internal Business Perspective What must be excelled at?

The internal business process perspective identifies the most critical internal processes for the organization’s strategy to succeed. The internal perspective examines the following process categories:
Innovation Cycle

  • Identify the market
  • Create the service offering

Operations Cycle

  • Build the services
  • Deliver the services

Post-sale Service Cycle

  • Service the customer

Measures should be focused on…

  • Business processes that have the greatest impact on customer satisfaction, such as factors that affect process cycle time, process quality, employee skills, and productivity.
  • Business processes that achieve the organizations financial objective.
  • Core competencies and processes that are needed to maintain market leadership.

Learning and growth perspective Can we continue to improve and create value?

The learning and growth perspective identifies the infra-structure that the organization must build to create long-term growth and improvement. Ability to innovate, improve, and learn ties directly to company’s value. Organizational learning and growth can be categorized into three main areas:

  • People
  • Systems
  • Organizational procedures

In order to achieve business objectives, companies most like will have to invest in re-skilling employees, enhancing information technology and systems, and aligning organizational procedures and routines.

The following are measures for people, systems and organizational procedures:
People

  • Employee satisfaction
  • Employee retention
  • Employee training
  • Employee skills

Systems

  • Real-time availability of accurate customer and internal process information to front-line employees
  • Ability to launch new products
  • Ability to create more value for customers
  • Ability to penetrate new markets

Organizational procedures

  • Alignment of employee incentives with overall organizational success factors
  • Rates of improvement in critical customer-based and internal processes

Examples of Measures Building a Health Care Strategic Balanced Scorecard Framework (Kaplan & Norton conference promotion materials)

Financial

  • Patient revenue
  • Funding and contributions
  • Cost management

Customer

  • Patients
  • Referring physicians
  • Payers
  • Community
  • Academics

Internal Processes

  • Planning
  • Innovation
  • Relationship management
  • Care delivery
  • Operations efficiency

Learning & Personal Development

  • Recruiting, training, retaining
  • Cultural values
  • Tools, knowledge, information

Relationship between Measures and Performance Drivers
A Balanced Scorecard should have a mix of outcome measures and performance drivers. Outcome measures without performance drivers do not communicate how the outcomes are to be achieved. Conversely, performance drivers without outcome measures may fail to reveal whether the improvement have resulted in expanded business and enhanced financial performance.

The chain of cause and effect should pervade all four perspectives of a Balanced Scorecard. Additionally, all aspects of the measures on a Scorecard should be linked to specific targets for improving customer, and eventually, financial performance. For example, the return on capital employed (ROCE) may be a outcome measure in the financial perspective. The driver of this could be repeat and expanded sales from existing customers due to on-time delivery (OTD). Thus, customer loyalty and OTD are listed under the customer perspective. To achieve OTD, the company may need to achieve short cycle time in operating processes and high-quality internal processes. Thus both factors are listed under internal perspective. In order for processes to improve, employees skills will need to improve, which is thus listed under learning and growth perspective. For another example: refer to Exhibit 8 – National Insurance: Lag and Lead Indicators (Kaplan and Norton, “Linking the Balanced Scorecard to Strategy,” 1996)

You should be able to look at your measures and infer the business strategy the company is intending to use to get to breakthrough performance. What are you doing that’s unique? Your measures should address which customers you’re going after; which market segments are you attacking; what you have to do exceptionally well to get penetration and share into those markets and those segments; and what kind of new product developments do you need to deliver to achieve long-term value for your customers and shareholders. You should feel really upset if a competitor gets hold of your scorecard.

It is important to build a scorecard that accurately reflect the business strategy. The scorecard:

Describes the vision of the future for the entire organization. It creates shared understanding. It focuses change efforts. It permits organized learning at the executive level.

IMPLEMENTING THE STRATEIG PLAN VIA BALANCED SCORECARD

The real benefit comes from making the scorecard the cornerstone of the way you run the business. Imagine an organization in which everyone understands the strategy and his or her role in executing it. A high performance workforce prepared and motivated to achieve the results. An organization so agile that strategy can be tested and adapted in a continual process of feedback, learning, and innovation. Where all resources are aligned toward a unified strategy view. This new management model is called the Strategy-Focused Organization (SFO). (Kaplan & Norton promotional brochure)

Kaplan and Norton present a SFO framework that describes the five principles that organizations use to achieve breakthrough performance. The principles transform the Balance Scorecard from a measurement to a leadership and management system. Each SFO principles actively support the roles of leadership and management.

  • Translate the strategy to operational terms
  • Align the organization to the strategy
  • Make strategy everyone’s job
  • Make strategy a continual process
  • Mobilize change through executive leadership

Rockwater, an undersea construction company, did a correlation study between employees attitudes and customer satisfaction. What they discovered is that the customers in the top quintile of satisfaction were being served by employees in the top quintile of satisfaction as measured by the attitude survey.

Software: Dialog Strategy 2.0

The Dialog Strategy 2.0 software system, available for free from the Dialog Software website at http://www.dialogsoftware.com, is used to help design and implement a Balanced Scorecard strategy. The version that is available for free on the company’s website has limited features with more advanced versions available for $199 and $399.

The website of the company has limited information on the program, but the free version of the program does come with an extensive instruction manual. The interface of the program is not intuitive, but it does include an example of an organization that may benefit from implementing a Balanced Scorecard strategy. A screenshot of the interface is on the following page.

Even with its faults, the program would be helpful for anyone trying to implement or trying to learn the Balanced Scorecard. For most organizations, however, the commercial versions with the additional features would probably be more beneficial.

balancedscorecard.org

What is a balanced scorecard?

  • This portion describes the management system of the balanced scorecard measurement. It provides a diagram indicating the four areas of score card: The learning and growth, businesss process, customer, and financial perspectives
  • This portion of the web site also discussed that the balanced scorecard builds to the total quality management ideas
  • Double-Loop feed back is also discussed which focuses on both the process outputs and the outcomes of the business strategy
  • Discussion of outcome metrics: “You can’t improve what you can’t measure”
  • Management by fact discussion, analysis of factual data allows for a clear view of the company from multiple angles.

The learning and growth perspective

  • Knowledgeable people are an organizations main resource. Thus mentoring and training are very important

The business process perspective

  • Mission oriented process
  • Support process

The customer perspective

  • Customers must be analyzed for the types of services and products being provided to them and there satisfaction of them.

The financial perspective

  • Risk assessment
  • Cost-benefit
  • To much emphasis on financial data can lead to an unbalanced scorecard

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Financial Assessment

Monday, December 8th, 2008

Attaining Financial Success | Estimating Revenue and Expenses | Projecting Your Financial Future

Ensuring Your Plan Makes Cents

Now that you have completed your goals and action, it is time to assess the financial viability of your strategic plan. While your action items and goals are top of mind, you need to estimate the costs associated with the implementation of each item. All best laid strategic plans are all subject to time and money. In this section, we not only look at the estimated expenses, but also at the potential revenue. This will help you make decisions about when to implement certain action items and if your cash outlay will generate the required revenue to meet your financial goals. As with every business, budgets are never big enough to do everything you want to do. As a reminder, a business can be considered a financial success when it:

  • Stays in the black and turns a profit.
  • Has a healthy balance sheet.
  • Generates good cash flow.
  • Produces a good return on investment for its shareholders.

Attaining financial success, starts with a financial assessment that is based on historical record and future projections. By looking at the past to help plan and predict the future, you can gain much better control over your company’s financial performance. A good financial plan gives you a detailed picture of the financial health of your business and the viability of your strategic plan. It also helps you know if you are getting off track during implementation so you can take action before any thing serious occurs, like running out of cash. To conduct a financial assessment of your strategic plan, take the following steps:

  • Estimate revenue and expenses
  • Conduct a contribution analysis to determine if your strategies positively contribute to the bottom line.
  • Combine all of your numbers in a one-year and three-year financial projection.

Expense and revenue estimating is an imperfect science. However, it is meant to give you a idea of the additional cash outlay required to implement each area of your plan, and the revenue you can expect to generate. In the previous exercises, you identified potential expenses for action items as well as potential revenue for each target market group. Here you combine that information with your current operations to get a complete financial picture. It is important to identify large expenses that might prohibit implementation. Ideally, your market research will give you a rough idea of how much you can anticipate generating.

Use the following formula to determine estimated revenue. Number of customers x average sale per customer x number of sales per customer per year = Estimated Revenue this Year Expenses: Listing expenses associated with any goal or action in the plan that are not part of your normal operating expenses. Additionally, estimate your current operating expenses by forecasting each item based on how it will need to increase to accommodate for the expected growth. Contributing to the bottom line Just because a market looks attractive, does not always mean you can serve it profitably. Before your creative folks start churning out cool ads, do a quick contribution analysis. A contribution analysis determines whether a particular target customer group contributes to the overall financial well-being of the company. In other words, is this customer group profitable? This analysis provides you with a projection of whether your strategy will generate revenues in excess of expenses. If the contribution analysis determines that the dollar investment in the strategy required to reach this target customer group cannot be justified, you must rethink and adjust customer goals and financial goals. Eliminate the groups that do not positively contribute to the bottom line. Those that do are used in your financial projections in the next step.

By putting all of your revenue and expense numbers together and projecting them out over three years, you can see in black and white how successful your business will be. It also allows you to grow the business without running out of cash. Growth in sales always incurs additional cash requirements to generate and support the additional revenues. When used properly, financial projections help you determine what additional assets will be needed to support your increased sales and what impact that will have on your balance sheet. In other words, the plan indicates how much additional debt or equity you will need to stay afloat.

All commonly-used financial and accounting system packages come with functions to create financial projections. Use these tools to create your financial projections by plugging in assumptions based on your strategic plan. If your system does not allow for projections, create an Excel document. Your financial projections include forecasting out all three of your financial statements. Produce projections by month for year one and then by year for the next two years.

Project the income statement. Use the estimated revenue for each target market group that you determined in the section Estimating your Revenue and Expenses. Plug in the expenses and operating expenses as well, and use all three figures to determine your net profit (or loss). Project the balance sheet. As sales go up, so do other areas of the business — variable assets (accounts receivable, inventory and equipment), variable liabilities (accounts payable and accrued expenses) and (hopefully) net income. If your net income plus the increase in variable liabilities equals or exceeds the increase in variable assets, the company will have the resources to finance itself. If not, you must bring in additional debt or equity. Use your current balance sheet to determine the various asset and liability accounts in your business. Project cash flows. Using the information in steps one and two, project how these numbers will impact your cash flow, paying special attention to how much new debt or equity you will need to inject into the business and when. Like much of the work you have done up until now, creating financial projections is not an easy task. But don’t skip this exercise or you’ll be missing an important part of developing a sound strategy. Undoubtedly one of your financial goals is to increase your sales and/or profitability. Once you have completely your projections, even if they are very rough, double check to make sure your goals match up with your numbers. Figures don’t lie, but liars figure. The financials will tell you what goals to keep and what to cut. Keep the goals with a positive story. Revised the ones with a negative ending. Show me the money! The cold reality is you’re in business to make money. If you’re not making a return on your investment, at some point, you don’t have a business, you have an expensive hobby. Ouch! That hurts, I know, but it’s the truth. If you don’t believe this, then you can skip this section. But if you do, your financial assessment concludes with an analysis on your ROI (return on investment). After all, there’s no sense in implementing a plan if it won’t yield the desired return. As an owner, you’re either investing in or drawing out of your business. If you’re investing for growth, you ought to have a clearly defined payback period and strategic plan to get you through it as fast as possible. Your payback period should match up with your owner’s vision. Business owners often plan for growth without considering how long it will take to get a payback or developing the action plans to get there. By looking at how quickly you will get paid back for your investment, it forces you to answer the question if you are comfortable with the time period. If it is too long, too big of an investment, then don’t invest. Revise your strategic plan by removing some goals and action items until you develop a plan you can live with. Remember, the plan works for you, you don’t work for the plan.

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Goal Setting

Monday, December 8th, 2008

Criteria of Goals | Short Term and Long Term Goals | Categorizing Goals

Questions to Ask:

Nothing is meaningful without a context. Once you know…

  • What needs is our company trying to meet? (Competitive Advantage)
  • Why is our company is trying to meet these needs? (Purpose)
  • What is our company is going to do about needs categorically? (Objectives)
  • What is our company’s strengths, weaknesses, opportunities and threats? (SWOT)

…then you have established the context for steps that the company will take in meeting the needs by setting realistic, measurable Goals. (Bobb Biehl)

Developing Goals

Realistic goals are developed from the SWOT analysis. They are not wishful thinking.
Goals describe objectives that are specific with respect to magnitude and time.
A goal is a realistic, measurable, time-dated target of accomplishment in the future.
Goals are like stair steps to your mission and vision. Goals become the bridge to turn your mission and vision to reality.

Setting goals converts the company’s mission, strategic vision and objectives into specific performance targets, something the organization’s progress can be measured. Goals represent a managerial commitment to achieving specific performance targets with a specific time frame. Companies who set goals for each objective area and then press forward with actions aimed directly at achieving these performance outcomes typically outperform companies who exhibit good intentions, try hard, and hope for the best. (Thompson Strickland, p.36)

Goals ought to serve as a tool for stretching an organization to reach its full potential; this means setting them high enough to be challenging to energize the organization and its strategy. Company performance targets that require stretch and disciplined effort are best. Bold, aggressive performance targets pushes an organization to be more intentional and focused in its actions. Setting bold, audacious goals and challenging the company to achieve them improves the quality of the organization’s effort, promotes a can-do spirit, and builds self-confidence. (Thomas Strickland, p.3,5,41)

For goals to function as yardsticks for tracking an organization’s performance and progress, they must be stated in quantifiable or measurable terms, contain a deadline for achievement, and state how much of what kind of performance by when. “You cannot manage what you cannot measure…And what gets measured gets done.” (Bill Hewlett, cofounder of Hewlett-Packard)

Stating goals in measurable terms and then holding managers accountable for reaching their assigned targets with a specified time frame:

  1. provides strategic decision making for what to accomplish
  2. provides a set of benchmarks for judging the organization’s performance. (Thompson Strickland, p.36)

Performance target goals must be established not only for the organization as a whole, but also for each of the organization’s separate businesses, product lines, functional areas, and department. Every unit in a company needs concrete, measurable performance targets that contribute meaningfully toward achieving company objectives. The ideal situation is a team effort where each organizational unit strives to produce results in its area of responsibility that contribute to the achievement of the company’s performance target goals and objectives. (Thomas Strickland, p.3,5)

Goals must state How and What
Goals must spell out how much of what kind of performance by when.

  • How much is to be accomplished
  • What kind of performance to be accomplished

This means avoiding generalities like “maximize profits,” “reduce costs,” “become more efficient,” “or increase sales,” which specify neither how much or when.

Goals must state When – Specific Deadline

  • When it is to be accomplished
  • Be specific and contain a deadline for achievement

The goal to “increase our market share” is not specific.
An example of specific goals would be:

  • To increase our market share to 15% by the end of the second year.
  • To achieve 20% annual growth rates by the end of third year.

Goals must be quantifiable or measurable

Goals must be stated in quantifiable or measurable terms. Goals track the company’s progress on a regular basis through quantifiable measures. Measurable goals facilitate management planning, implementation, and control. Goals must be measurable, or they’re only good intentions.

The following examples are not a measurable goal:

  • My goal is to do better next year.
  • Increasing revenues
  • Improve liquidity, solvency, credit and collection policies
  • Improve efficiency and productivity
  • Achieve and maintain superior customer service
  • Improve labor relations, human resource development and training
  • Improve internal communications
  • Redirect or restructure available resources
  • Improve distributor and/or supplier relationships
  • Improve marketing, advertising and public relations
  • Capitalize on physical facilities (location, capacity, etc.)
  • Improve organizational structure

Goals must be realistic

Goals must be realistic, or they are a set up for failure. Set goals you know you can reach. For many people emotionally, goal setting equals failure. If you do not have an average track record, be sure and set goals that are realistic. Do not set unrealistically high goals, because they may end up discouraging people. (Bobb Beihl)

Goals must be consistent

Goals must maintain consistency and focus. Conflicting objectives cause frustration and lack of focus. An example of an inconsistent goal is “long-term market share increase and high current profits.”

Goals should be in pencil

Goals should be in pencil, or they become concrete boxes and are used like whips. Don’t see goals as whips. You don’t have to reach every goal to make a significant difference.
Another reason goals should be in pencil, is because nobody knows what’s going to happen tomorrow. The economy may fall, or surge. Goals are based on today, and they may need to change tomorrow.

Goal setting should result in short-term, and longer-term performance targets. Short-range goals focus organizational attention on the need for immediate performance improvements and outcomes. Long-range goals focus organizational attention on what to do now to put the company in position to perform well over the longer term. (Thompson Strickland, p.7) Regardless of the type of goal, it is important for the company to view goals as motivational targets, and exciting, measurable milestones for the future.

It is suggested that a company has a maximum of 2 goals per objective area. Your organization must decide the time frame that fits your team best. The following are some examples:

Short-Term Goals
(Specific, realistic, measurable)
Ask the question: “In the next 0-1 year, what are our specific, measurable targets of accomplishment?”
Short-term goals serve as stair steps or milestones. Short-term goals indicate the speed at which the company is progress as well as the level of performance being aimed for over the year. Remember, they are targets, not whips.
Short-term goals focus on such areas as: specific goals for the next year regarding sales, profits, market share; marketing strategy; anything innovative that you plan. These should be very specific. The short-range goals become the foundation for your vision.

Long-Term Goals

Free Business Report Card

Evaluate your organization and determine strategic areas of need and excellence.

From the Report Card you will learn:

  • How you compare to high-growth organizations.
  • Start doing activities you need to focus on to help your organization grow.
  • Stop doing the activities are not necessarily helping you grow.
  • Continue the activities you excel at and need to continue to support.
  • Specific actions you need to include in your strategic planning efforts.
Try it now


(General, yet measurable)
Ask the question: “In the next 1 – 3 years what are our possible targets of accomplishment?”
These will be a bit more uncertain than short-range goals, but still measurable.
The purpose of looking ahead is to give a general sense of heading in the same direction. This will help the company begin making the same assumptions about the future, and give a context for making daily decisions. As you think about possible long-range goals, think about the company’s potential and the needs you see, to gain a clear vision for the future.
There is a 50-70% chance of long-term goals happening as written initially. People change, economies chance and communities change. Keep in mind that all goals are flexible. The key is that no great idea is every lost, only postponed until its proper time.

Financial

  • To succeed financially, “how should we appear to our shareholders?”
  • Customer/Market
  • To achieve our vision, how should we appear to our customers?
  • Internal Business Process
  • To satisfy our shareholders and customers, what business processes must we excel at?”
  • Learning and Growth
  • To achieve our vision, “how will we sustain our ability to change and improve?”

Closing Thought
A very high percentage (possibly as high as 80%) of your success will depend on your ability to help your team set clear, realistic, measurable goals and accomplish them. The Strategic Plan gives you a context where in this realistic goal setting can happen. Once your plan is complete, a quick update every month or two can help keep your company’s future in crystal-clear focus.

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Competitive Advantage

Monday, December 8th, 2008

C.A. of Corporate Philanthropy | Market Orientation | Defining Your Business

Questions to Ask:

Passion

  • What are you and your people deeply passionate about?
  • What motivates us to do our business?

Purpose

  • What is our current business?
  • What business are we really in?
  • What is the purpose of our business? Why does our business exist?
    Note: If the owner is answering this question, he/she needs to move it past himself.
    This answer needs to not just include profit.

Resource

  • What unique skills (not a person), resources, capabilities, and assets set our company apart in the marketplace?
  • Can these skills and resources be used to create value in the marketplace?
    If yes, how are these skills and resources used now to create value? If no, what can we do?
  • What is our company best at relative to our competitors? What can we be best at in the market?

Profit Engine

  • What is our primary revenue driver? How do we make money?
    (i.e. profit per customers, profit per customer visits, profit per employee, profit per order)

Competitive Advantage

  • What are your strengths?
  • What are you best at relative to your competitors?
  • What are my company’s competitive advantages?
  • Are these competitive advantages necessary to be successful in your industry?
  • If you don’t have competitive advantages relevant to your marketplace, what can you do to develop these?

Sustainable Competitive Advantage

  • How difficult will it be for competitors to match, offset, or leapfrog the expected advantages? Is it difficult to imitate?
  • How quickly does this resource depreciate? (???)
  • Do or will my customers see a consistent, superior difference between my product/service and those of my competitors?
  • Does it build a company reputation and recognizable industry position?
  • Can a unique resource be trumped by a different resource?
  • Can the activities involved in creating the competitive advantage be constantly improved?

Porter, M.E. & Kramer, M.R. (2002). The competitive advantage of corporate philanthropy. Harvard Business Review. 12, Vol. 80, Dec.2002. Retrieved March 28, 2003 from the World Wide Web: http://weblinks1.epnet.com/citation.asp?tb=1&_ug=dbs+6+1n+en%2Dus+sid+EFBF076F%D6CEA%2D47…

The Competitive Advantage of Corporate Philanthropy, (2002) article appearing in the Harvard Business Review advocates that companies should use philanthropy as a means to create a social impact, which in turn improves its competitiveness, rather than to use philanthropy as a form of advertising to promote visibility or company image. When philanthropy is thought of in a strategic way, charitable contributions can be used to improve the quality of the business environment in the locations in which the companies operate. Improving that business environment affects a company’s potential competitiveness.

The argument presented is that competitiveness depends “on the productivity with which companies can use labor, capital and natural resources to product high-quality goods and services” (p.2) and that productivity depends on educated, safe, healthy and reasonably motivated workers. Investments in the environment in which the workers live and work promotes an environment that is conducive to high productivity. By analyzing the elements of what the authors refer to as the competitive context (the quality of the business environment), corporations can identify where to apply social and economic value that will most enhance its competitiveness. The elements of competitive context that should be analyzed are education and training, local quality of life (which attracts employees to a location), and the quality of supporting industries and services in the vicinity.

The example of strategic philanthropy presented by authors Porter and Kramer is Cisco’s commitment to funding the Cisco Networking Academy which operates classes in more than 9000 secondary schools, community colleges and community-based organizations. The company has invested $150 million in bringing network technology and training to the classroom to almost half a million people. Other companies such as Sun Microsystems and Hewlett Packard have partnered with Cisco by adding information technology and Web design classes to the Academy’s curriculum. Cisco stands to gain substantially from this improvement in the competitive context. It has received international recognition for the program and the employees are proud of it. The company has also increased the pool of potential candidates for employment in its business environments, and those of its partners. This example is proof that philanthropy can reap strategic benefits by improving competitiveness.

Superior Firm Performance – Better Customer Relations Competitive Advantage – written by Howard Olsen

The competition for the consumer’s pocketbook is intensifying, and the consumer is becoming more discriminating in his/her purchasing activity. As such there is need of a dynamic business philosophy-one that permeates the entire enterprise and focuses it on the marketplace and the customer. This quote from Sam Walton (founder of Wal-Mart) succinctly states the thought-
There is only one boss-the customer-and he or she can fire everybody in the
company by spending his or her money somewhere else.

The Marketing Concept, cornerstone of business for half a decade, is the philosophy that espouses- a business should be focused on satisfying the customer’s needs and wants better than their competitors by providing superior value.

How does an organization truly accomplish this feat? By implementing market-oriented behaviors. Market orientation is defined to be:
The organizationwide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organizationwide responsiveness to it.

Thus, being market oriented is a three-dimensional behavior of generating, disseminating, and responding to intelligence about the customer and the attendant marketplace. This marketplace information is couched in a broader external context (e.g., competition, regulation), which affects the current as well as the future needs and preferences of the customer. The implementation of the Marketing Concept philosophy is a process that can be measured, guided, and specifically established. This process, however, is not a “one size” fits all. Market Orientation activities need to be suitably tailored for each firm and its attendant situation and environment.

The concept of market orientation is based upon the premise that such activities enhance business performance. In addition, the market-oriented activities of a firm help create a sustainable competitive advantage through superior value for its customers. This advantage is necessary for the creation of continuous superior performance for a business. Numerous studies in the United States have quantitatively demonstrated the positive relationship between a market oriented firm philosophy and organizational performance.

Two studies have shown that Market Orientation has a cause and effect relationship with Firm Performance.

Paraguayan Study

Benefits of a Firm Being Market Oriented

  1. Brings focus to organizational efforts.
  2. Helps define corporate vision.
  3. Influences decision making.
  4. “True” concern for the customer, not just “lip service.”
  5. Forces increased efforts in planning, such as, what markets to pursue, what marketing tools to use.
  6. Better positioning decisions for products and services.
  7. Overall the firm becomes more competitive.
  8. Enhances success for marketing programs that are implemented.

Additional Benefits for Survey Participants

  1. A benchmark will help respective businesses assess themselves against a general business segment average. This process will be extremely helpful in developing efficient and effective firm strategy.
  2. How these behaviors individually relate and affect firm performance will be invaluable information for managers. In other words, there might be a benefit for a firm to stress different aspects of market orientation activities over the other ones.
  3. Empirical testing of a firm performance composite measure will enhance managers’ understanding of how to evaluate various strategies that they may implement.
  4. The employee related benefits of a market orientation would be better understood. Generally a market orientation provides focus for the employees, as they better understand their role within the company. In other words, the reason for their employment is more than making a profit for the owners. A firm that can augment the employees’ esprit de corps and organizational commitment should be more successful.
  5. Businesses in North America lose on the average 20% of their customers every year. A market-oriented business can more skillfully manage customer interactions to reduce this loss, increase customer retention, and increase the magnitude of each purchase.

Step one in the strategic planning process involves defining the company’s current business, mission, and vision. The company’s business is defined by making an assessment of the organization by asking some key questions regarding the company’s reason for existing.

A company’s present mission is defined as what a company is currently seeking to do for its customers. A mission statement defines the company’s purpose and answers the question “What is our business and what are we trying to accomplish on behalf of our customers?” The company’s future strategic vision is defined by formulating a picture of what the company’s future business makeup will be and where the organization is headed. It answers the question “What will our business look like in 5 to 10 years from now?”

“What Customer Needs is Our Company Uniquely Qualified to Meet?”
(Current core competencies)
If you don’t have a competitive advantage, you won’t compete. Jack Welsh

You do not merely want to be considered just the best or the best. You want to be considered the only ones who do what you do. Jerry Garcia

Defining Our Current Business

In defining our business we need to ask:

  • “What customer needs do we feel deeply burdened by?”- You may feel burdened by many things. This question helps you distinguish between those needs you should address and those you shouldn’t.
  • “What customer needs is our company uniquely qualified to meet?”- This question helps you distinguish between those needs you should address based on your core competencies.

Core Competency

A core competency is something a company does well relative to other internal activities. A core competence is central to a company’s competitiveness and profitability. A core competence can relate to demonstrated expertise in performing an activity, to a company’s scope and depth of technological know-how, or to a combination of specific skills that result in a competitively valuable capability. Typically, core competencies reside in a company’s people. They tend to be grounded in skills, knowle3dge, and capabilities. A core competency gives a company competitive capability and thus qualifies as a genuine company strength and resource (Thompson, p.108).

Making an Assessment of our Company

An organization exists to accomplish something. At first, it has a clear purpose or mission, but over time its mission may become unclear as the organization grows, adds new products and markets, or faces new conditions in the environment. When management senses that the organization is drifting, it must renew its search for purpose. (Kotler p.48-49). We need to think through what we are doing, why we are doing it, and what we must do.

Coming up with a definition of what business an organization is presently in is not as simple as it might seem. For example: (Thompson Strickland, p.30)

” Is America Online in the computer services business, the information business, the business of connection people to the Internet, the on-line content business, or the entertainment business?”
” Is AT&T in the long-distance business or the telephone business or the telecommunications business?”

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Strategic Implementation

Monday, December 8th, 2008

Implementation is the process that turns strategies and plans into actions in order to accomplish strategic objectives and goals. Implementing your strategic plan is as important, or even more important, than your strategy.

The critical actions move a strategic plan from a document that sits on the shelf to actions that drive business growth. Sadly, the majority of companies who have strategic plans fail to implement them. According to a Fortune cover story in 1999, nine out of ten organizations fail to implement their strategic plan for many reasons:

  • 60% of organizations don’t link strategy to budgeting
  • 75% of organizations don’t link employee incentives to strategy
  • 86% of business owners and managers spend less than one hour per month discussing strategy
  • 95% of a typical workforce doesn’t understand their organization’s strategy.

A strategic plan provides a business with the roadmap it needs to pursue a specific strategic direction and set of performance goals, deliver customer value, and be successful. However, this is just a plan; it doesn’t guarantee that the desired performance is reached any more than having a roadmap guarantees the traveler arrives at the desired destination.

Getting Your Strategy Ready for Implementation

For those businesses that have a plan in place, wasting time and energy on the planning process and then not implementing the plan is very discouraging.  Although the topic of implementation may not be the most exciting thing to talk about, it’s a fundamental business practice that’s critical for any strategy to take hold.

The strategic plan addresses the what and why of activities, but implementation addresses the who, where, when, and how. The fact is that both are critical to success. In fact, companies can gain competitive advantage through implementation if done effectively.  In the following sections, you discover how to get support for your complete implementation plan and how to avoid some common mistakes.

Avoiding the Implementation pitfalls

Because you want your plan to succeed, heed the advice here and stay away from the pitfalls of implementing your strategic plan.
Here are the most common reasons strategic plans fail:

  • Lack of ownership: The most common reason a plan fails is lack of ownership.  If people don’t have a stake and responsibility in the plan, it’ll be business as usual for all but a frustrated few.
  • Lack of communication: The plan doesn’t get communicated to employees, and they don’t understand how they contribute.
  • Getting mired in the day-to-day: Owners and managers, consumed by daily operating problems, lose sight of long-term goals.  _ Out of the ordinary: The plan is treated as something separate and removed from the management process.
  • An overwhelming plan: The goals and actions generated in the strategic planning session are too numerous because the team failed to make tough choices to eliminate non-critical actions. Employees don’t know where to begin.
  • A meaningless plan: The vision, mission, and value statements are viewed as fluff and not supported by actions or don’t have employee buy-in.
  • Annual strategy: Strategy is only discussed at yearly weekend retreats.  _ Not considering implementation: Implementation isn’t discussed in the strategic planning process. The planning document is seen as an end in itself.
  • No progress report: There’s no method to track progress, and the plan only measures what’s easy, not what’s important. No one feels any forward momentum.
  • No accountability: Accountability and high visibility help drive change.  This means that each measure, objective, data source, and initiative must have an owner.
  • Lack of empowerment: Although accountability may provide strong motivation for improving performance, employees must also have the authority, responsibility, and tools necessary to impact relevant measures.  Otherwise, they may resist involvement and ownership.  It’s easier to avoid pitfalls when they’re clearly identified. Now that you know what they are, you’re more likely to jump right over them!

Covering all your bases

As a business owner, executive, or department manager, your job entails making sure you’re set up for a successful implementation. Before you start this process, evaluate your strategic plan and how you may implement it by answering a few questions to keep yourself in check.

Take a moment to honestly answer the following questions:

  • How committed are you to implementing the plan to move your company forward?
  • How do you plan to communicate the plan throughout the company?
  • Are there sufficient people who have a buy-in to drive the plan forward?
  • How are you going to motivate your people?
  • Have you identified internal processes that are key to driving the plan forward?
  • Are you going to commit money, resources, and time to support the plan?
  • What are the roadblocks to implementing and supporting the plan?
  • How will you take available resources and achieve maximum results with them?

You don’t need to have the perfect answers to all these questions right now, but just make sure that you’ve given all the questions equal consideration.  You don’t want to look back six months from now, and wish you had identified some big issues that are now threatening your success. If you’ve identified some red flags, assess if they’re huge obstacles or small ones. If they’re big, get them out of the way before you implement, even if it means pushing your timeline out for awhile.

Making sure you have the support

Often overlooked are the five key components necessary to support implementation: people, resources, structure, systems, and culture. All components must be in place in order to move from creating the plan to activating the plan.

People

The first stage of implementing your plan is to make sure to have the right people on board. The right people include those folks with required competencies and skills that are needed to support the plan. In the months following the planning process, expand employee skills through training, recruitment, or new hires to include new competencies required by the strategic plan.

Resources

You need to have sufficient funds and enough time to support implementation.  Often, true costs are underestimated or not identified. True costs can include a realistic time commitment from staff to achieve a goal, a clear identification of expenses associated with a tactic, or unexpected cost overruns by a vendor. Additionally, employees must have enough time to implement what may be additional activities that they aren’t currently performing.

Structure

Set your structure of management and appropriate lines of authority, and have clear, open lines of communication with your employees. A plan owner and regular strategy meetings are the two easiest ways to put a structure in place. Meetings to review the progress should be scheduled monthly or quarterly, depending on the level of activity and time frame of the plan.

Systems

Both management and technology systems help track the progress of the plan and make it faster to adapt to changes. As part of the system, build milestones into the plan that must be achieved within a specific time frame. A scorecard is one tool used by many organizations that incorporates progress tracking and milestones. See the section “Keeping Score of Your Progress” later in this chapter for info on how to create a scorecard for your company.

Culture

Create an environment that connects employees to the organization’s mission and that makes them feel comfortable. To reinforce the importance of focusing on strategy and vision, reward success. Develop some creative positive and negative consequences for achieving or not achieving the strategy.  The rewards may be big or small, as long as they lift the strategy above the day-to-day so people make it a priority.

Determine your plan of attack

Implementing your plan includes several different pieces. Implementing a plan can sometimes feel like it needs another plan of its own. But you don’t need to go to that extent because I’ve done it for you! Use the steps below as your base implementation plan. Modify it to make it your own timeline and fit your organization’s culture and structure. What follows is a set of comprehensive implementation steps:

  • Finalize your strategic plan after obtaining input from all invested parties.
  • Align your budget to annual goals based on your financial assessment.
  • Produce the various versions of your plan for each group.
  • Establish your scorecard system for tracking and monitoring your plan.
  • Establish your performance management and reward system.
  • Roll out your plan to the whole organization
  • Build all department annual plans around the corporate plan
  • Set up monthly strategy meetings with established reporting to monitor your progress.
  • Set up annual strategic review dates, including new assessments and a large group meeting for an annual plan review.

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SMART Goal Setting Examples

Thursday, December 4th, 2008

A Simple Guide to How S.M.A.R.T. goal setting works

SMART Goals

In order to reach your strategic objectives, you need to set goals – short term, more immediate milestones that stretch your company to reach its full potential. In business, goal setting is an essential but often times misused element.

But what makes a great goal? Whether you’re using MSP’s or sitting down with a pencil and paper to plan your day, you need to make your goals smart. Smart goal setting ensures that everyone in your organization knows what they’re supposed to be doing and when.

So what’s the difference between a smart goal and an unsmart goal?

Un-Smart Goal: We want to make more sprockets.

Smart Goal: The sprocket department will raise sprocket production by 20% by the end of this year.

The first goal leaves a lot of unanswered questions. No one knows who is in charge. There’s no way to tell when the goal has really been achieved. For effective goals to function as yardsticks for tracking a company’s performance and progress, they must state how much of what kind of performance and by when it is to be accomplished. They must be relevant, aggressive yet achievable, and be stated in measurable or quantifiable terms.

Think S.M.A.R.T. when you create your goal setting worksheet:

Specific:

Goals need to be specific. Try to answer the questions of How much and What kind with each goal you write.

The sprocket department will raise sprocket production by 20% by the end of this year.

Measurable:

Goals must be stated in quantifiable terms, or otherwise they’re only good intentions. Measurable goals facilitate management planning, implementation, and control.

The sprocket department will raise sprocket production by 20% by the end of this year.

Attainable:

Goals must provide a stretch that inspires people to aim higher. Goals must be achievable, or they’re a set-up for failure. Set goals you know you, your company, and employees can realistically reach.

The sprocket department will raise sprocket production by 20% by the end of this year.

Responsible person:

Goals must be assigned to a person or a department. But just because a person is assigned to a goal doesn’t mean that she’s solely responsible for its achievement. See our article on Performance Management for ideas on how to hold your team accountable for goal achievement.

The sprocket department will raise sprocket production by 20% by the end of this year.

Time specific:

With reference to time, your goals must include a timeline of when your goals should be accomplished.

The sprocket department will raise sprocket production by 20% by the end of this year.

In Business, goal setting that is S.M.A.R.T. can make a huge difference in maintaining growth and momentum. Whether you run a modest department or a massive corporation, make sure that you always make an effort to add these properties to the goals you set!

Check out our S.M.A.R.T. Goal Writing Tools

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Broad Applications of Value-Creating Strategy

Thursday, December 4th, 2008

Employee | Procurement | Marketing | Technology | Financial | Culture | Operations

Tom Terez’s article, “The Cockroach in Human Resources: Combating Employee Turnover”, uses a cockroach as a metaphor for how to combat and contain employees. He recommends that employers design formal retention strategies to include interviewing, screening and hiring. Terez also suggests that companies realize the critical impacts of the first 90 days of employment. Employees must “feel” that the company is a great place to work. He suggests that employers avoid dictating policies and procedures from the top down. Companies with the lowest turnover rates put their resources into creating an environment where the employees motivate and empower themselves. Lastly, in addition to the traditional benefits, the author encourages companies to institute quick problem resolution and provide for meaningful input in regard to job redesign for job satisfaction and longevity.

Brian Ward’s article, “How to Achieve Focus, Alignment, Accountability, and Results”, addresses the importance of not instituting too many strategic initiatives in order to keep employees satisfied. Because companies are consistently introducing new products, programs, and services, employees are forced to deal with the demands and pressures put upon them. He suggests brainstorming only a few initiatives at a time and focusing on end results. Similar to Terez’s suggestion, having broad objectives actually encourages employees to create their own focused strategic and tactical decisions. He recognizes that once the company’s focus is clear and compelling that detractors will make themselves known and others will either come on board, join the detractors or leave. He writes, “once the focus, alignment and accountability challenges are met, new energy and excitement grips the organization.” The positive results are usually due to providing a broad vision rather than having managers force issues upon their subordinates.

Jim Harris’ book, Retention @ Net Speed, recommends that companies create Great Employee Profiles (GEP’s) to prevent the most valuable employees from leaving. He refers to McKinsey & Company’s findings that only 12% of executives believe they retain most of their key people, and only 16% have bothered to identify their top talent. Consequently, competition can recruit quality employees away. With all of the assessment techniques available, he suggests personal interviews with candid questions for all existing great employees. Questions like, “What would make you leave?” “What two or three things are we doing well to retain you?” “What ticks you off about working here?”, and “what haven’t we covered so far that will be needed to help us keep you here?” These compelling questions help isolate potential problems. The author has also developed a four step action plan process for implementing these initiatives. They include (1) brainstorming a list of great employees, (2) conducting interviews, (3) analyzing the responses, and (4) acting now with a plan to retain talent.

Bliss & Associates, a performance improvement company, prepared an article on employee retention strategies and ideas. They have concluded that many employers have the preconceived notion that turnover is due to better money and opportunities elsewhere. However, asking the same employees several months later why they pursued other interests revealed different results. Most of them reported not receiving recognition, having disagreements with the culture or direction of their company, poor treatment by their bosses, lack of excitement, and poor relationships with co-workers. Many ideas are suggested for improving retention, but the most compelling contribution, in my opinion, is taking a real and genuine interest in people’s career aspirations and personal lives. The author recommends that employers need to set boundaries for demands, but to routinely ask what they can do to make a better workplace.

One final article, “Strategies for Retaining Employees into the 21st Century”, provided a notably different perspective. However, this particular article was published in May of 1998. Obviously, economic times were different and companies were aggressively pursing new candidates. Nevertheless, many issues are valid and universal in nature. The author points out that many employers have resources dedicated to recruiting, but few for retention. “It’s not who you hire that counts, it’s who you keep!” He identifies three factors that influence employee retention:

1. Demographics. Turnover among new employees can likely be related to lacking expectations, poor employee orientation, and lack of a cultural “fit”. 2. Work-related factors. The employee’s relationship and contribution to the organization lack definition. Working conditions, leadership, communications, rewards, performance management, and co-workers all influence decisions to stay or go. The author further points out that the organization directly controls work-related factors and differentiation will provide for a competitive advantage. 3. External factors. The economic and market conditions might create a glut in the job market or intense competition for talented employees.

“Strategies for Cutting Costs: Turning Procurement into a Virtuous Cycle”,  appearing in Strategic Finance (2003) reviews the inefficiencies in the indirect procurement process. Indirect procurement is defined as the process of acquiring indirect categories of goods and services that include temporary labor, printing, computing, healthcare and office supplies costs. The author, Paul Ter Weeme claims that “indirect spending may very well be the final frontier for cost efficiency”. Ter Weeme’s assessment is that indirect spending represents up to 50 percent of a company’s expenditures and that 10 to 20 percent of these costs can be eliminated by employing the same processes that are used for direct procurement.

The direct procurement processes typically include thoroughly assessing purchasing options offered by different vendors, securing contracts based on each price component in the contract and enforcing the procurement process to avoid employees making purchases outside of the negotiated agreements. Clearly, if cutting costs is a strategic objective, the indirect procurement process must be examined in detail and direct procurement procedures must be applied. The author recommends using analytical solutions to collect and organize procurement data, using technology to analyze bids and monitor vendor pricing and using an employee-accessible, Web-based system with embedded contract pricing to facilitate indirect spending.

Talking Strategy (2002) appearing in Strategy & Leadership reviews the competitive advantage that the food chain Trader Joe’s holds due to its strategy to differentiate itself from any other grocery store chain. The strategy encompasses carrying highly selective products, offering private-label products, offering small, neighborhood stores that exude warmth, providing attentive employees and offering extraordinary value.

Trader Joe’s is committed to providing selective products that cannot be found in grocery stores. It does not carry commodities such as soft drinks. The company prides itself on the quality of its private label products, which account for 70 percent of the product offerings. Personnel at Trader Joe’s scour the world for products free of preservatives, artificial colors or flavors or genetically altered ingredients. They taste-test all foods considered for private labeling. If the taste testers are unanimous in their high recommendation of the product, Trader Joe’s buys it and relabels it. The result is assured quality that other groceries stores do not attempt.

The value that Trader Joe’s offers to customers includes “taste, quality, private labeling and price” according to the CEO Don Bane, and the strategy is successful. Grocery stores measure profitability by sales-per-person hours. Whereas Whole Foods bragged about 52 sales-per-person hours as referenced in the article, Trader Joe’s averaged 212 during the same timeframe. It is clear that the unique branding strategy of Trader Joe’s differentiates itself from all other grocery store chains, and that differentiation as a corporate strategy can produce dramatic results.

Shulman, R. (2002). The Picture of CRM: Progressive Grocer (Vol. 81, Issue 5, pp. 3,4).

Customer Relationship Management (CRM) seems to be the wave of the future for companies in the service industry. “CRM has been presented as a magic bullet that will use statistics and fancy math to answer questions about your customers. The reality is far from there” (Shulman, 2002). By accumulating as much information as possible about a client (i.e. financial profile, spending habits, family, personal information, job, etc.), CRM should ideally allow a service company to tailor to the individual. Commonly, most companies use CRM to varying degrees among clientele. Usually, greater effort is made to discover more information about top clients. Companies are greatly mistaken to rely completely upon CRM as a way to know their customers. The human element and customer feedback are crucial. CRM “should be designed both for product feedback and to induce the customers to try categories of products they have not bought before” (Shulman, 2002). By integrating customer feedback, the process can continuously be updated to reflect what the client wants; even when the client’s wants change. The natural byproduct will be increased customer satisfaction and increased share of the client’s business.

Edging Into Web Services (2002), appearing in The McKinsey Quarterly espouses the use of Web services to facilitate communications with organizations external to the corporation to gain cost savings and facilitate collaboration to benefit customers. The objective is to automate the flow of communications between a company and its business partners to the same level as automated communications within a corporation, thereby providing more value to customers.

Providing Internet access to business partners for the purposes of placing orders, getting order confirmation and shipping confirmation can reduce product order placement, order confirmation and shipping confirmation intervals. The benefit to a corporation is that it does not have to deal with conflicting business partner information systems. Orders do not have to be manually entered which eliminates the possibility of human error in order entry.

Finally, Web-based communications enhance the collaboration of a company and its business partners by expanding the ability of the company to exchange data in real time to the people on the front line interfacing with customers.

Boosting Performance with Critical Numbers (1999) appearing in Inc. Magazine builds a case for watching a company’s critical numbers which are defined by the author, John Case, as “the numbers that determine your company’s success”. The numbers identified by the author are identified as the crisis number, the basic number, the weakness number and the opportunity number. Every company uniquely identifies each of these numbers.

The crisis number identifies the critical amount of cash in the bank to pay expenses. The basic number is a bottom-line number such as, revenue per labor hour, which has to be consistent over time. The weakness number is identified as the breakeven point. The opportunity number is the profit achievable through taking advantage of opportunities such as increasing efficiency or introducing a new product or service.

The important point of this article is that given a critical objective, such as revenue per labor hour or reducing costs by two percent, every department can contribute to the goal. According to the author, “that goal alone can spawn critical numbers for nearly everyone”. The intended end result is that all departments can achieve the critical number objectives if there is a common set of objectives.

“Portfolio Analysis: A Must-Have Strategic Planning Tool” Collections & Credit Risk (May 2002, p.31-36)

Managing a portfolio of loans is a difficult job to have. The portfolio manager must develop a high level understanding of the amount of risk associated with each loan account in the portfolio. This manager has a responsibility to develop a specific profile of the ideal client and market that fits into the portfolio. The company’s credit risk tolerance is generally set by the board of directors which is meant to reflect the views of the shareholders. From the journal of Collections and Credit Risk, an article entitled, “Portfolio Analysis: A Must-Have Strategic Planning Tool” fits the portfolio manager’s role into the overall strategic plan of the corporation. The bottom-line of the article is that because the portfolio manager has identified the ideal profile for the portfolio, the corporation’s mission and resources should be concentrated on capturing clients in the market that fit the profile.

Baron, T.L.& Shenkir, W.G. (2003). Managing risk: an enterprise-wide approach. FEI Research Foundation. Retrieved March 31, 2003 from the World Wide Web: http://www.bettermanagement.com/library/library.aspx?libraryid=4570& pagenumber=2

Managing Risk: An Enterprise-wide Approach, (2003) appearing in the BetterManagement.com library reviews five approaches to measuring a corporation’s financial risks.

The value at risk (VAR) methodology measures the impact of unlikely events in normal markets. Stress testing measures the impact of financial risk based on the projected outcomes of plausible events in abnormal markets. Gain and loss curves depict the likelihood of a risk affecting earnings, and by how much. Earnings at risk (EAR) measurement tools developed by the DuPont corporation measure the effect of risk on reported earnings. The benefit of this measurement to the corporation is it can manage risk to a specified earnings level based on the company’s tolerance for risk and calculate how the risk affects the likelihood of achieving projected earnings targets in the absence of that risk. The shareholder value added (SVA) measurement system used by Chase Manhattan bank assesses the cost of taking financial risks. As expressed by Chase’s vice chairman Marc Shapiro, (p.2) “We’re in the business of taking risk, but we’re in the business of getting paid for the risks that we take.”

Use of the financial measurements described above empowers corporations to better understand the real effect of a risk. The authors contend that these measurements produced financial consequences that were significantly higher or lower than the managers perceived them to be without the benefit of these measurements. When management understands the precise levels of financial risk they face, they can manage them more successfully.

“How EDS Got its Groove Back” (2001), appearing in FastCompany reviews how important corporate culture and the embracing of that culture by the employees is to the profitability of a company. The article chronicles how EDS, the information technology services company founded by Ross Perot was floundering before 1999. New business bookings were lagging. Clients were unhappy with the performance of critical information systems. A new CEO, Dick Brown, recruited out of Britain’s Cable & Wireless company changed EDS from within and put the company back on track with its billing and profitability objectives.

The reasons for EDS’s downfall, as discovered by Dick Brown were that 1) there was a great deal of internal competitiveness, 2) the 48 divisions with their own profit and loss responsibilities did not communicate with each other, 3) the divisions competed with each other and 4) there was no single corporate strategy to compete in the marketplace.

Brown initiated strategies to reunite the company and restore its competitiveness. He reinvented the brand by authorizing a commercial to air at the Super Bowl that portrayed EDS as a company that rided herd on complexity and “makes technology goes where clients want it to go”. The commercial was hugely successful. Furthermore, Brown recreated the company in that he demanded instant feedback on company projects and “unfiltered” communication. He demanded the development of a system whereby, with Web access, customers could rate EDS project performance at any time. This information was available to everyone within EDS. This system alerted EDS to any customer dissatisfaction. A merit system for employees based on delivering solutions to either internal personnel or customers was instituted. The result was the development of a new corporate culture that collaborated within the organization to support its customers.

Brown’s strategy has been successful. As of 2001, EDS increased revenue by 7.5 percent, announced a 17 percent increase in quarterly profits and booked $80 billion in backlogged signed contracts. The turnaround of the company is attributable Brown’s corporate strategy which evolved its employees to embrace a new corporate culture with new objectives.

Michael Porter’s article, “How to Marry Strategy & Operational Effectiveness”, provides the distinction between a company’s strategic mission in contrast to its operational effectiveness. The author discusses how managers should avoid having a macro view of their industry, but rather focus on the core competencies and critical success factors within their company. This approach will prepare them for a sustained “fit” as their competitive advantage. This fit will identify weaknesses that need attention and cause concern for their competitors. Since the marketplace is always changing, outsourcing can provide for greater efficiencies. Three positioning types are identified: (1) Variety-based, which produce a subset of an industry’s products and services. (2) Needs-based that serve the needs of a particular group, and (3) access-based, which segments customers who are accessible in different ways. Positioning these choices will help determine which activities should be performed, how to configure individual activities, and also how they relate to one another.

Christina McEachern’s article, “Operational risk: An Ongoing Operation”, analyzes how companies need to have a very broad, enterprise-wide, focus on operational risk. Those companies that are further along in their development have generally taken the perspective that investing the effort and resources will result in a competitive or financial advantage.

The author explains how technology on the operational-risk front falls into three main areas: (1) self-assessment, (2) collection of operational-loss data, and (3) capital calculation. One can use the system to gather data, but must rely on the system to be valid and reliable, therefore, risk can not be entirely avoided. Managers can look at loss events, but may not know whether it is really relevant to their business unit or geography without some information on that organization’s business practices. The author suggests that companies invest in technologies that track customer data to minimize risk and improve OE.

Susan Cramm’s article, “The How & Why of a Strategy Workout”, discusses how several strategic decisions made by executive management must be designed to fit the organization’s cultural, political, and organizational context of their company. Employees have to maintain flexibility and good humor for OE improvements to be successful. If a company has informal strategy and goal-setting processes, then they can uncover company goals by asking senior managers what they want to accomplish, when, and how to measure successes. The author addresses how the tools must be in place to operationalize strategies. For successful implementation, the performance characteristics of management must already exist.

Another article, Focusing on success: The 90-day plan, encourages managers to make their businesses customer-driven. This can be achieved by understanding their current overall corporate strategy. The OE must complement the entire organization to build and refine the strategy. Options and strategic choices will help to identify which attributes will dominate and differentiate. Re-thinking and re-balancing are necessary. Market research and focus groups will help to better understand the needs and values of target customers. Managers need to use competitive benchmarks to gauge how their competitors are addressing issues. With this data, a baseline can be developed and strategic imperatives can be prescribed.

Finally, an article titled, Does every company need a customer strategy?, co-authored by Don Peppers and Martha Rogers, helps the manager understand that any one firm can not be all things to all customers. Not every enterprise considers a customer focus part of its core competency, but that does not decree that such enterprises can not benefit from a customer strategy. The fact remains that every customer generally wants three things from businesses:

(1) a great product, (2) good value for the price (3) good service.

The authors have simply identified the basic essentials that customers want. Completing a needs analysis of their target customers will help drive the operational strategy of the business.

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How to Get the Most of Performance Management Software

Thursday, December 4th, 2008

Performance Management SoftwareSecure your investment by setting in place the three keys to strategic implementation

Once you have a strategic plan in place, a powerful tool to monitor your progress and communicate company direction is performance management software, like MyStrategicPlan’s implementation module. Before you choose a system for managing performance, it is important to make sure that you’ll get the most out of it. In order to make the most of your software, you’ll need to avoid some common strategy pitfalls by putting in place some time-honored business practices.

The hard truth: without proper management, your performance management software could become just another program on your desktop

Many businesses, even those with well-made plans, fail to implement their strategy. Their problem lies in ineffectively managing their employees once their plan is in place. Sure, they’ve conducted surveys, collected data, gone on management retreats to decide on their organization’s direction- even purchased expensive software to manage their process- but somewhere their plan falls apart.

Expensive performance management software does not ensure success: Implementation of your plan depends on solid accountability

Accountability is key to successful implementation of your business strategy— hands down. If you and your team don’t have to report to anyone on your progress, the plan may find itself further and further down your to-do list or at the bottom of your stacks of paper. You don’t need an elaborate accountability system, but you do need something.

Before you purchase software to manage your organization’s performance, make sure you set in place these 3 keys to implementation:

With the right manager, the right rewards and the right coaching, performance management software can be the most powerful tool for making sure your plan becomes a reality.

>> Continue reading with Step One: Appointing a Strategic Plan Manager

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Appointing a Strategic Plan Manager

Thursday, December 4th, 2008

Every great plan needs a champion: who will your organization choose?

Want to make absolutely sure that your plan is set up for success? You need to decide who will be your Strategic Plan Manager (or Engineer). Whatever you decide to call them, you need someone who’s responsibility it is to monitor progress and keep the plan on track. This is the first step in getting the most from your strategic plan and your performance management software.

Charge a key staff member with the responsibility of overseeing implementation of most aspects of the strategic plan. This individual makes sure that processes are running on schedule and monitors other staff that is responsible for meeting specific goals. He is also responsible for providing monthly reports and facilitating your strategy meetings. In my experience, without a manager, all the good ideas in the world won’t go anywhere. Feel like you need to find a taskmaster? You’ve got it!

A strategic plan manager’s job description should read like this:

  • The individual needs to have enough respect in the organization to keep you and everyone else on top of their responsibilities.
  • The manager understands the strategic planning process and the strategic plan itself.
  • The manager has a good understanding of the business or organization. Ideally, this person has the ability to get along with everyone.
  • This person has good attention to detail and is deadline-oriented.

This next part may surprise you… but it shouldn’t

Oh, and by the way, the manager can’t be you — the business owner or executive. You have enough other stuff to worry about.

One of the most important pieces to successful implementation is you. In addition to your strategic plan manager, find someone to hold you accountable — a business coach, an executive group, a colleague, an outside consultant, or anyone else who’s outside of your business who advises you.

>> Continue reading with Step Two: Pay For Performance The Right Way

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Paying for performance – The Right Way

Thursday, December 4th, 2008

How to make sure that your employees have the proper incentives to adopt your strategic plan as their own

As a leader in your organization who has put the time and effort into building your strategic plan, you want to be sure your employees adopt your vision and sense of purpose. As part of our “how to get the most of your performance management software” series, we now look at performance-based compensation as a tool to aide implementation.

A common trend in compensation plans is to pay for performance. No doubt about it; people pay attention when it comes to their own pocket books. Linking performance to short-term goals and action items in your strategic plan is a natural connection. Performance-based compensation is a huge way to structure performance plans. Check out Inc. Magazine’s compensation guide for ideas on compensation.

Here are some best practices to make your incentive plan as successful as possible:

  • Tie incentives to corporate results, team results, and individual performance, where appropriate.
  • Fit the compensation plan in with your core values and culture.
  • Simplify a complicated plan so everyone, regardless of education level, can understand it.
  • Communicate your incentive plan as much as possible.
  • Involve employees in the process by sending out an employee survey before you structure your plan to see what they’re looking for.
  • Shell out incentives in the form of cash, time off, company perks, group outings, and so on. Don’t be tightfisted: Outstanding results can come from a history of outstanding rewards.
  • Get your employees energized about the incentive plan by making the plan exciting and motivational.
  • Share financial and business plans with employees and provide education if they don’t understand financial issues.
  • Don’t expect attitudes and behaviors to change overnight: Implementing an incentive program involves a long-term process, not a one-time event.

P4P should result in behavioral change

Remember the purpose of incentive plans is to change behavior and move your whole organization as a team toward your vision. Make sure that your incentive plans clearly link performance to business goals. That link exists to ensure that you reward only those behaviors that lead to accomplishing your business goals. In addition, you can then track employee actions through your corporate performance management system and make sure no high-perfomance employee goes unrewarded.

Accountability is also needed to make it work

Don’t forget to discuss the consequences for non-performance with your team. Just like rewards, consequences are critical in any action plan. Often, the consequences are removal from the team that’s working on the goals. Peer pressure creates such an intense expectation of performance that it causes action, so hold monthly strategy meetings where everyone has to publicly report on their progress. If you had to give a report in front of your peers, you’d have your act together, right? Just the thought of humiliating yourself in front of the team for non-performance may make you sick to your stomach.

>> Continue reading with Step Three: Coaching for Achievement

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Coaching for Achievement

Thursday, December 4th, 2008

Want your team to break records? They’ll need a great coach

On part three of “how to get the most out of performance management software,” we examine the impact of great coaching. Think about your favorite Olympic athlete. Do you think the athlete’s goal is foremost on her mind every day? You bet it is. That’s why it’s your job and your manager’s job to act as a coach to get Olympic-level performances out of all your people.

Software itself, no matter how useful, isn’t enough to make sure your business strategy takes your company to the heights you imagine when you craft your vision statement. Ultimately, much of your organization’s success depends on how well your plan and your people are managed. Performance Management Software, like any tool, requires someone to wield it, but in the hands of an inspiring coach it can be extremely effective in executing your strategy and leading your team to out-perform your competition.

Leave fire-fighting to the guys in the red truck – Coaches need to focus on the bigger picture

In addition to focusing on the goal, Olympic athletes are incredibly disciplined. Implementing goals that were set months ago is no different. It requires that same level of commitment and discipline. This is where you and your managers need to lead rather than fight fires and do detail work. By acting as a coach, use the strategic plan as your framework to guide your team to high performance. What do coaches do?

  • Encourage: Everyone needs to feel like they’re doing a good job and are appreciated for their hard work. Coaches say encouraging words to their team to keep them motivated and engaged.
  • Support: Without the right skills and resources for the job, no amount of prodding and pushing will get it done. Coaches support their teams by making sure they have the training, knowledge, and ability to complete the task.
  • Yell at the right time: Just like athletic coaches know when to yell, managers need to know when to “push” their team when they need it. A good coach knows when performance is lagging and when to turn on the pressure.
  • Bring out the best: Seeing the strengths and weaknesses of your team allows you to bring out the best in your staff. Coaches know how to make you the best you can be.
  • Monitor performance: Keeping track of how everyone is performing is another trait of a good coach. With your SMART goals, you can assist your employee in creating an action plan if it isn’t already established and keep them on the path toward achieving it. Meet with the employee regularly to discuss the status of goal accomplishment.

Your plan and your performance management software may be top notch, but they require a coach to motivate and monitor your team members. The role requires dedication and effort, but a great coach who encourages their team when they encounter setbacks and roadblocks as well as recognizes and rewards employees for achievements can expect record-breaking performance.

Now that you know how to make the most out of Performance Management Software, take the free trial of MyStrategicPlan today and not only build a powerful plan but execute it flawlessly!

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