Strategic Planning: Can Goals be Bad?
Banks failing, real estate loans made to people who do not and did not have the means to repay them, institutions using derivatives without fully understanding the risk – what happened? Were executives trying to meet their goals? Did these goals enable them to qualify for significant bonuses? Did this achievement of short-term goals lead to long-term instability?
Many of the financial institutions currently in distress did not pay heed to the warnings of a real estate bubble. Instead many institutions developed plans to keep the top line growing in spite of the increasingly risky nature of the borrowers and the overvaluation of the underlying collateral. Could this have been prevented?
Well, hindsight is 20-20, but the lessons here are important and should be a part of your strategic planning process:
1. Evaluate external forces – (is there a bubble?) Are your goals consistent with the external environment?
2. Are top line growth goals in line with long-term stability and perhaps survival?
3. Are you not investing in key projects in order to make the top line?
4. What will the consequences be if you do not invest? Will it impact your long-term growth?
a. Will your phone system go down if you do not invest?
b. Will you have a safety issue if you do not continue with training?
c. Will you have inadequate staff for the upturn if you do not replace key positions now?
5. Are you taking on customers who are a time sink in order to make your top line?
As your team weathers these turbulent times be sure you set realistic goals that not only allow you to survive the downturn, but also position your team for the upturn when it
Monday, January 05, 2009
Friday, August 01, 2008
Acquisitions: 8 Steps to Success
By Denise A. Harrison
Once we have determined an acquisition is part of the solution to achieve our strategy; we must evaluate the potential candidates. This evaluation step is paramount to the financial success of the acquisition. One recurring error is that only one company is identified, or a specific company becomes available and is deemed to be the solution. DO NOT LET COMPANY AVAILABILITY DRIVE STRATEGY OR LIMIT THE CHOICES YOU EVALUATE. Once your team identifies potential acquisition candidates, rate each company based on criteria:
1. How well does the company fit with strategy? How well does the company actually fulfill the desired objectives of the acquisition?
2. What else comes with the acquisition? Very few acquisitions are pure plays.
3. Do they have competencies (then rate to see if they are strategic), or do they have strategic assets (knowledge resident in one or a few individuals)? How is the competency shared and documented?
4. Will the targeted company’s culture fit our culture?
5. What will happen to the key people? Will they walk? Do we want them to walk?
6. What is the targeted company’s market position in all of its markets? Are they the number 4 player or number 1 or 2?
7. What are the industry dynamics? Are there any significant threats on the horizon? New competitors? New technology?
8. How will this acquisition change the competitive landscape? Will the acquisition enhance the company’s competitive position? Where will it detract?
Let’s explore each one of these criterion.
Fit with strategy
Very rarely is a targeted company a “perfect” fit. All candidates must be evaluated based on how closely they fulfill the strategic objective for the acquisition. Does the company meet the customer relationships set out as part of your objective? Does it have the required products and/or services? Does it have the distribution channels that we need? It is important that the team sets up key criteria before acquisitions are evaluated. If this is not done up front, you will have no way to evaluate how one company stacks up against another company.
Other Baggage
“Other baggage” is where many acquisitions fail. The targeted company has what you want and fits nicely into the strategy you are looking to accomplish; but it comes with many other areas in which you have no interest. It may have products and/or services not part of your strategy; it may also not be in your strategic market. Now what? Whew, it looks like a minor problem; however, your team could lose focus due to these extraneous products/services and/or markets. All of a sudden, your strategic plan includes areas that are not part of your core business; and resources are diverted to these areas instead of focusing on the original strategy. Conflicts arise concerning priorities within the company and these conflicts distract the company from its original mission.
Recently a medical devices company wanted to fill a gap in its product line. They purchased an available company and began integrating the acquired company into its planning process. This acquired company was in a number of market segments new to the original company.
These segments had different requirements for the product; thus, causing a great deal of conflict in product development and future feature/ functionality requirements of the product. The product had one set of requirements meeting the acquiring company’s needs and another set meeting the extraneous segments’ needs. A product emerged which was a compromise, and neither of the markets was happy with the result. The new products were not successful, and new product development time lengthened because the product being developed served two different masters. Trying to serve these conflicting priorities sent the acquired business into a tailspin. When you make an acquisition, consider accompanying baggage when evaluating an acquisition target. You must have a plan for dealing with the baggage (spinning off, keeping) before you make the acquisition; otherwise, conflicts will occur and cause the acquisition to be unsuccessful.
Strategic Competencies
Evaluating the competencies of the acquisition target is important to understanding the true value of the acquisition. The intellectual capital may, in fact, be the reason for the acquisition. For example, your product is offered in either of two technologies: you have a strategic competency with one technology, but no in-house knowledge of the other. With a goal to expand, you find that there are specific cases where the other technology has advantages over the one you offer. In this case, you can decide to develop the expertise in house; or acquire a company where the knowledge exists. The latter is often the faster path, allowing you to capitalize on the technology and the current customer base of the acquisition target. In order to fully assess the resident competencies, you must evaluate the following:
1. Is this really a competency or an asset? Is the knowledge only held by a single person? If it is held by a single person, it is a strategic asset and this asset has legs and may walk.
2. How is the competency knowledge passed on to other employees? Is it documented? Is there formal training in place? Is there hands-on training? You want to be sure there is an educational process in place to ensure skill, knowledge and process sharing.
3. Is there a process for continual improvement? This may set the company apart now, but how easy is it to copy? Are there plans for the next generation? Is it possible for the competition to leap frog?
4. Is the production or service function outsourced? If so, does this create a future competitor? Is the knowledge really resident in house? Gaining a competency is often an important part of the acquisition strategy; however, you must ensure this knowledge is positioned in a way giving you a sustainable competitive advantage.
Cultural Fit
Spend time understanding the culture of the new organization. Is the management approach top down and autocratic, or bottom up and participative? Is there a strong work ethic, or are people out at 3:00 p.m. on Friday leaving customer calls unanswered? What are the stories being told within the company? Important? You bet! Add information by looking at the HR manual — what are the policies — will they mesh?
A government contractor was looking to make an acquisition to enhance their market share in a particular government agency. They knew from customer comments the company was run by a very autocratic leader having his fingers in everything. The acquisition team was sure the acquisition would flourish once the leader was out. Was this a realistic assumption? What type of leader would the next tier of management be? These were the folks who stayed with this leader for more than 20-plus years in spite of the leader’s autocratic style. Do you think good autonomous leaders would stay in this environment? No, of course not!
An agricultural services company was looking to expand customer services being offered. It decided to expand by purchasing a company selling and applying fertilizer and other soil nutrients. While working on one of the ranches, an acquiring-company principal was offered some fertilizer at a low price by employees of the acquired company. They did this by siphoning off some fertilizer going to a customer and returning the liquid to its original volume by adding water. When the employees were fired, they walked off with the account lists. Honesty should be one of the key values for which you look. So often we assume honesty is present; but if this team had asked around, I expect they would have uncovered dishonest practices by these employees. Spend time interviewing customers and people who actually work with the individuals to see if there is a pattern inconsistent with your company’s values.
Key People
The targeted acquisition opens up key channels of distribution for you in Asia. You know these channels developed through personal relationships. After the acquisition, the people responsible for making and maintaining these relationships leave and the door to Asia is closed to your products and services. It is important to know who the key players are and the intent of each of those key players. There are many ways to keep key employees around including tying the payouts to performance over future years. However, you must also ensure that there is honest knowledge transferred about backing up every key position. Before making the acquisition, you will want to know how back-up responsibilities are handled and whether or not there is a succession plan. If there is a succession plan, are the people who are designated successors being trained to handle the job? Also, ask what happens when key people go on vacation. A clear warning sign is some key people not having gone on vacation or taken more than a few days off at a time. This lack of vacation means two things: They are truly unwilling to train back-up employees and really have no back-up plan. This is not unusual in small companies, but be aware that human assets can walk. Be sure to have a plan to deal with human assets, or discount said company on this aspect of the valuation.
Market Position
Okay, everyone has heard the requirement of being #1 or #2 in a market in order to maintain significant profits. Well, the same is true as you evaluate your target company. Look and see how they stack up in their markets. If at first glance they do not do well; ask if it is because of a different segmentation or if they actually dominate specific niches. If they are not profitable in certain segments, ask questions.
Return to the agriculture services company mentioned earlier. Yes, they purchased a fertilizer company. Unfortunately, it was only ranked number 4 or higher (5 or 6) in its market segments. Talk about pushing a string uphill! Did the acquiring team have a strategy for moving up the market position? No, and for several years the company struggled. Finally, the team assessed their strategic competencies and how these competencies could be leveraged to gain shares in their market. They also redefined the markets to target winning growers. Good news — the strategy worked — but it took five years to come to fruition. Next time, they will look harder at the target company’s market position.
Industry Dynamics
If this targeted acquisition allows you to enter a new market, you need to understand the market dynamics. Who are the competitors? Is there a new technology coming? In order to assess this, you must talk to people who watch this industry, i.e., investment analysts, regulators, and customers. Customers can often identify upcoming changes others in the industry do not see; e.g. new entrants may be presenting their concepts to the company’s core customer base. Other external forces may impact the industry dynamics. For example, there are changes in energy-efficiency regulatory requirements, you must ensure the acquisition target has plans in place and/or under development to meet these new requirements. Look to see if prototypes are available.
Anticipate the reaction of customers and potential customers’ to the acquisition. When Pepsi bought Burger King, did they anticipate Pepsi would no longer be a candidate for McDonald’s and other fast food chains competing with Burger King? Did this acquisition make sense?
As you consider purchasing another company, it is important to consider these eight criteria as you develop specific targets for your acquisition search. With your criteria in place before you begin your search, you will be more objective as you evaluate the candidate acquisitions. Good luck!
For more information on strategic planning please visit us at: www.cssp.com
Denise Harrison is Vice President of Center for Simplified Strategic Planning, Inc. She can be reached by email at: harrison@cssp.com
© Copyright 2008 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI -- Reprint permission granted with full attribution.
By Denise A. Harrison
Once we have determined an acquisition is part of the solution to achieve our strategy; we must evaluate the potential candidates. This evaluation step is paramount to the financial success of the acquisition. One recurring error is that only one company is identified, or a specific company becomes available and is deemed to be the solution. DO NOT LET COMPANY AVAILABILITY DRIVE STRATEGY OR LIMIT THE CHOICES YOU EVALUATE. Once your team identifies potential acquisition candidates, rate each company based on criteria:
1. How well does the company fit with strategy? How well does the company actually fulfill the desired objectives of the acquisition?
2. What else comes with the acquisition? Very few acquisitions are pure plays.
3. Do they have competencies (then rate to see if they are strategic), or do they have strategic assets (knowledge resident in one or a few individuals)? How is the competency shared and documented?
4. Will the targeted company’s culture fit our culture?
5. What will happen to the key people? Will they walk? Do we want them to walk?
6. What is the targeted company’s market position in all of its markets? Are they the number 4 player or number 1 or 2?
7. What are the industry dynamics? Are there any significant threats on the horizon? New competitors? New technology?
8. How will this acquisition change the competitive landscape? Will the acquisition enhance the company’s competitive position? Where will it detract?
Let’s explore each one of these criterion.
Fit with strategy
Very rarely is a targeted company a “perfect” fit. All candidates must be evaluated based on how closely they fulfill the strategic objective for the acquisition. Does the company meet the customer relationships set out as part of your objective? Does it have the required products and/or services? Does it have the distribution channels that we need? It is important that the team sets up key criteria before acquisitions are evaluated. If this is not done up front, you will have no way to evaluate how one company stacks up against another company.
Other Baggage
“Other baggage” is where many acquisitions fail. The targeted company has what you want and fits nicely into the strategy you are looking to accomplish; but it comes with many other areas in which you have no interest. It may have products and/or services not part of your strategy; it may also not be in your strategic market. Now what? Whew, it looks like a minor problem; however, your team could lose focus due to these extraneous products/services and/or markets. All of a sudden, your strategic plan includes areas that are not part of your core business; and resources are diverted to these areas instead of focusing on the original strategy. Conflicts arise concerning priorities within the company and these conflicts distract the company from its original mission.
Recently a medical devices company wanted to fill a gap in its product line. They purchased an available company and began integrating the acquired company into its planning process. This acquired company was in a number of market segments new to the original company.
These segments had different requirements for the product; thus, causing a great deal of conflict in product development and future feature/ functionality requirements of the product. The product had one set of requirements meeting the acquiring company’s needs and another set meeting the extraneous segments’ needs. A product emerged which was a compromise, and neither of the markets was happy with the result. The new products were not successful, and new product development time lengthened because the product being developed served two different masters. Trying to serve these conflicting priorities sent the acquired business into a tailspin. When you make an acquisition, consider accompanying baggage when evaluating an acquisition target. You must have a plan for dealing with the baggage (spinning off, keeping) before you make the acquisition; otherwise, conflicts will occur and cause the acquisition to be unsuccessful.
Strategic Competencies
Evaluating the competencies of the acquisition target is important to understanding the true value of the acquisition. The intellectual capital may, in fact, be the reason for the acquisition. For example, your product is offered in either of two technologies: you have a strategic competency with one technology, but no in-house knowledge of the other. With a goal to expand, you find that there are specific cases where the other technology has advantages over the one you offer. In this case, you can decide to develop the expertise in house; or acquire a company where the knowledge exists. The latter is often the faster path, allowing you to capitalize on the technology and the current customer base of the acquisition target. In order to fully assess the resident competencies, you must evaluate the following:
1. Is this really a competency or an asset? Is the knowledge only held by a single person? If it is held by a single person, it is a strategic asset and this asset has legs and may walk.
2. How is the competency knowledge passed on to other employees? Is it documented? Is there formal training in place? Is there hands-on training? You want to be sure there is an educational process in place to ensure skill, knowledge and process sharing.
3. Is there a process for continual improvement? This may set the company apart now, but how easy is it to copy? Are there plans for the next generation? Is it possible for the competition to leap frog?
4. Is the production or service function outsourced? If so, does this create a future competitor? Is the knowledge really resident in house? Gaining a competency is often an important part of the acquisition strategy; however, you must ensure this knowledge is positioned in a way giving you a sustainable competitive advantage.
Cultural Fit
Spend time understanding the culture of the new organization. Is the management approach top down and autocratic, or bottom up and participative? Is there a strong work ethic, or are people out at 3:00 p.m. on Friday leaving customer calls unanswered? What are the stories being told within the company? Important? You bet! Add information by looking at the HR manual — what are the policies — will they mesh?
A government contractor was looking to make an acquisition to enhance their market share in a particular government agency. They knew from customer comments the company was run by a very autocratic leader having his fingers in everything. The acquisition team was sure the acquisition would flourish once the leader was out. Was this a realistic assumption? What type of leader would the next tier of management be? These were the folks who stayed with this leader for more than 20-plus years in spite of the leader’s autocratic style. Do you think good autonomous leaders would stay in this environment? No, of course not!
An agricultural services company was looking to expand customer services being offered. It decided to expand by purchasing a company selling and applying fertilizer and other soil nutrients. While working on one of the ranches, an acquiring-company principal was offered some fertilizer at a low price by employees of the acquired company. They did this by siphoning off some fertilizer going to a customer and returning the liquid to its original volume by adding water. When the employees were fired, they walked off with the account lists. Honesty should be one of the key values for which you look. So often we assume honesty is present; but if this team had asked around, I expect they would have uncovered dishonest practices by these employees. Spend time interviewing customers and people who actually work with the individuals to see if there is a pattern inconsistent with your company’s values.
Key People
The targeted acquisition opens up key channels of distribution for you in Asia. You know these channels developed through personal relationships. After the acquisition, the people responsible for making and maintaining these relationships leave and the door to Asia is closed to your products and services. It is important to know who the key players are and the intent of each of those key players. There are many ways to keep key employees around including tying the payouts to performance over future years. However, you must also ensure that there is honest knowledge transferred about backing up every key position. Before making the acquisition, you will want to know how back-up responsibilities are handled and whether or not there is a succession plan. If there is a succession plan, are the people who are designated successors being trained to handle the job? Also, ask what happens when key people go on vacation. A clear warning sign is some key people not having gone on vacation or taken more than a few days off at a time. This lack of vacation means two things: They are truly unwilling to train back-up employees and really have no back-up plan. This is not unusual in small companies, but be aware that human assets can walk. Be sure to have a plan to deal with human assets, or discount said company on this aspect of the valuation.
Market Position
Okay, everyone has heard the requirement of being #1 or #2 in a market in order to maintain significant profits. Well, the same is true as you evaluate your target company. Look and see how they stack up in their markets. If at first glance they do not do well; ask if it is because of a different segmentation or if they actually dominate specific niches. If they are not profitable in certain segments, ask questions.
Return to the agriculture services company mentioned earlier. Yes, they purchased a fertilizer company. Unfortunately, it was only ranked number 4 or higher (5 or 6) in its market segments. Talk about pushing a string uphill! Did the acquiring team have a strategy for moving up the market position? No, and for several years the company struggled. Finally, the team assessed their strategic competencies and how these competencies could be leveraged to gain shares in their market. They also redefined the markets to target winning growers. Good news — the strategy worked — but it took five years to come to fruition. Next time, they will look harder at the target company’s market position.
Industry Dynamics
If this targeted acquisition allows you to enter a new market, you need to understand the market dynamics. Who are the competitors? Is there a new technology coming? In order to assess this, you must talk to people who watch this industry, i.e., investment analysts, regulators, and customers. Customers can often identify upcoming changes others in the industry do not see; e.g. new entrants may be presenting their concepts to the company’s core customer base. Other external forces may impact the industry dynamics. For example, there are changes in energy-efficiency regulatory requirements, you must ensure the acquisition target has plans in place and/or under development to meet these new requirements. Look to see if prototypes are available.
Anticipate the reaction of customers and potential customers’ to the acquisition. When Pepsi bought Burger King, did they anticipate Pepsi would no longer be a candidate for McDonald’s and other fast food chains competing with Burger King? Did this acquisition make sense?
As you consider purchasing another company, it is important to consider these eight criteria as you develop specific targets for your acquisition search. With your criteria in place before you begin your search, you will be more objective as you evaluate the candidate acquisitions. Good luck!
For more information on strategic planning please visit us at: www.cssp.com
Denise Harrison is Vice President of Center for Simplified Strategic Planning, Inc. She can be reached by email at: harrison@cssp.com
© Copyright 2008 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI -- Reprint permission granted with full attribution.
Thursday, March 13, 2008
TEN REASONS FOR STRATEGIC PLANNING
1. As CEO are you tired of acting as a referee caused by turf battles between businesses or functional areas? Developing a strategic plan allows team members to develop a shared base of knowledge which allows the team to come to consensus on key company priorities and allocates resources based on these priorities. After a strategic planning process often CEOs can put away their striped jerseys and quiet their whistles.
2. Do you find your team does not get key projects accomplished throughout the year? Do you constantly give your team new assignments? Strategic planning forces a team to select 8-10 key objectives to accomplish during the next 12-18 months. Once selected new opportunities or projects must be brought to the team for evaluation. If the project needs to move forward, then one of the other objectives must come off the list. If the list needs to stay the same this project can be evaluated during the next cycle of strategic planning. Adding projects without evaluating what is already on the plate causes the team to suffer under the weight of too many initiatives.
3. Your team is not executing your vision. A strategic planning process allows all team members to analyze market trends and competitor movement along with your company's strengths and weaknesses. In this way the team develops a shared vision of the future and develops plans in order to achieve that vision. The strategic planning process develops buy-in from the total team.
4. Your management team needs professional development in order for the company to move to the next level. Strategic planning allows team members to see the big picture and enables them to lead given company priorities rather than specific functional requirements. It is a great way to develop your team member management capability.
5. Your company is stagnant and you need to find new avenues for growth. Strategic planning addresses opportunities for growth by looking at new markets, new products and services for existing markets and new ways to leverage existing strategic competencies. As a team you develop a large number of possible opportunities and cull the list down to the few that have high return and, ideally, lower risk, in order to get back on the desired growth path.
6. Your team is repeatedly stymied by unexpected events. During the strategic planning process you evaluate risk in two areas: first, Threats--outside forces that may significantly impact your business, but you have little or no control over; and second, How can we shoot ourselves in the foot? This exercise has the team look at ways it might be sabotaging (unknowingly) itself. The two exercises allow the team to understand key risk areas and develop plans to mitigate the risk.
7. Your team is striving for perfection and not focusing on the key areas of the business. During the strategic planning process you constantly rank strengths and weaknesses so that you focus on making the strengths that have made you successful better and only focus on improving or eliminating the weaknesses that are critical to your future success.
8. Competitors are outwitting you in the marketplace. Key to strategic planning is understanding your competitors: where they are today and what they are planning to do in the future. This information allows the team to make informed decisions as to where your company has a competitive advantage in the marketplace.
9. Your team does not see a significant shift in technology or a supplier goes out of business. Strategic planning provides the discipline for your team to look at all external forces--markets, competition, technology, suppliers, economic and regulatory--which allows issues to be brought up and analyzed in each area lowering the possibility of a surprise.
10. You miss a significant industry shift and you are now competing against different competitors for different customers. The purpose of the 10 year Industry Scenario and Winner's Profile is to force the team to develop possible industry shifts so that your company does not get caught flat footed.
Do you have other reasons why a CEO should consider strategic planning? If so put your thoughts and ideas on this blog.
To thank you for your comments please click on free Strategic Planning Tune-Up Book and get a complimentary copy of Strategic Planning Tune-Up -- Ten Great Strategy Tips (a $14.97 value) PLUS a no-cost subscription to Course and Direction, Center for Simplified Strategic Planning's bimonthly newsletter containing more great tips and articles.
For more information on strategic planning please visit us at: www.cssp.com
Denise Harrison is Vice President of Center for Simplified Strategic Planning, Inc. She can be reached at harrison@cssp.com
© Copyright 2008 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI -- Reprint permission granted with full attribution.
1. As CEO are you tired of acting as a referee caused by turf battles between businesses or functional areas? Developing a strategic plan allows team members to develop a shared base of knowledge which allows the team to come to consensus on key company priorities and allocates resources based on these priorities. After a strategic planning process often CEOs can put away their striped jerseys and quiet their whistles.
2. Do you find your team does not get key projects accomplished throughout the year? Do you constantly give your team new assignments? Strategic planning forces a team to select 8-10 key objectives to accomplish during the next 12-18 months. Once selected new opportunities or projects must be brought to the team for evaluation. If the project needs to move forward, then one of the other objectives must come off the list. If the list needs to stay the same this project can be evaluated during the next cycle of strategic planning. Adding projects without evaluating what is already on the plate causes the team to suffer under the weight of too many initiatives.
3. Your team is not executing your vision. A strategic planning process allows all team members to analyze market trends and competitor movement along with your company's strengths and weaknesses. In this way the team develops a shared vision of the future and develops plans in order to achieve that vision. The strategic planning process develops buy-in from the total team.
4. Your management team needs professional development in order for the company to move to the next level. Strategic planning allows team members to see the big picture and enables them to lead given company priorities rather than specific functional requirements. It is a great way to develop your team member management capability.
5. Your company is stagnant and you need to find new avenues for growth. Strategic planning addresses opportunities for growth by looking at new markets, new products and services for existing markets and new ways to leverage existing strategic competencies. As a team you develop a large number of possible opportunities and cull the list down to the few that have high return and, ideally, lower risk, in order to get back on the desired growth path.
6. Your team is repeatedly stymied by unexpected events. During the strategic planning process you evaluate risk in two areas: first, Threats--outside forces that may significantly impact your business, but you have little or no control over; and second, How can we shoot ourselves in the foot? This exercise has the team look at ways it might be sabotaging (unknowingly) itself. The two exercises allow the team to understand key risk areas and develop plans to mitigate the risk.
7. Your team is striving for perfection and not focusing on the key areas of the business. During the strategic planning process you constantly rank strengths and weaknesses so that you focus on making the strengths that have made you successful better and only focus on improving or eliminating the weaknesses that are critical to your future success.
8. Competitors are outwitting you in the marketplace. Key to strategic planning is understanding your competitors: where they are today and what they are planning to do in the future. This information allows the team to make informed decisions as to where your company has a competitive advantage in the marketplace.
9. Your team does not see a significant shift in technology or a supplier goes out of business. Strategic planning provides the discipline for your team to look at all external forces--markets, competition, technology, suppliers, economic and regulatory--which allows issues to be brought up and analyzed in each area lowering the possibility of a surprise.
10. You miss a significant industry shift and you are now competing against different competitors for different customers. The purpose of the 10 year Industry Scenario and Winner's Profile is to force the team to develop possible industry shifts so that your company does not get caught flat footed.
Do you have other reasons why a CEO should consider strategic planning? If so put your thoughts and ideas on this blog.
To thank you for your comments please click on free Strategic Planning Tune-Up Book and get a complimentary copy of Strategic Planning Tune-Up -- Ten Great Strategy Tips (a $14.97 value) PLUS a no-cost subscription to Course and Direction, Center for Simplified Strategic Planning's bimonthly newsletter containing more great tips and articles.
For more information on strategic planning please visit us at: www.cssp.com
Denise Harrison is Vice President of Center for Simplified Strategic Planning, Inc. She can be reached at harrison@cssp.com
© Copyright 2008 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI -- Reprint permission granted with full attribution.
Wednesday, January 09, 2008
How to Find New Customers for Existing Products
By Denise Harrison, Vice President
WD-40 Faces a Growth ChallengeWD-40, a well-recognized brand faced the growth dilemma -- the chairman put out a goal to grow the business by $100 million from new products (or product innovations) introduced during the next three years (Gary Ridge, Wall Street Journal, May 23, 2006). This would be difficult for a product like WD-40, which has been in existence for over 50 years. What could be new? In order to meet the challenge the WD-40 Team Tomorrow looked for new and/or underserved customers. They knew that WD-40 was present in many households, but primarily a mainstay of the garage -- where it is used to solve a variety of problems. According to the web site WD-40 fulfills five basic functions:1. CLEANS: WD-40 gets under dirt, grime and grease to clean. It also dissolves adhesives, allowing easy removal of labels, tape and excess bonding material.
2. DISPLACES MOISTURE: WD-40 displaces moisture, it quickly dries out electrical systems to eliminate moisture-induced short circuits.
3. PENETRATES: WD-40 loosens rust-to-metal bonds and frees stuck, frozen or rusted metal parts.
4. LUBRICATES: WD-40's lubricating ingredients are widely dispersed and tenaciously held to all moving parts.
5. PROTECTS: WD-40 protects metal surfaces with corrosion-resistant ingredients to shield against moisture and other corrosive elements.
But what about inside the house -- were there no applications inside the house? Are there no cleaning issues in the house? Is nothing stuck inside the house? Are there no squeaks in the house?The Team Tomorrow set out to find the answer. Yes, they found that inside the house there were many potential uses -- oven doors that were stuck, ceiling fans squeaking and crayon marks on the walls. But why was the product not used inside? Research showed there were several issues:
1. The WD-40 was in the garage -- the can was not convenient to store in the house.
2. WD-40 didn't smell very good.
3. The WD-40 can sprayed too much for the indoor application -- it got all over everything when a spot application was required.
The team was happy to hear that the product was needed inside the house and set about making the product indoor-friendly. They developed the pen application idea -- actually before Tide perfected it with its Tide to Go™ product. But the idea was the same -- a pen-like product that could deliver WD-40 in a small dose at a specific point. According to the web-site: "The WD-40 No-Mess Pen delivers the same trusted, multi-purpose product users know and love, with the precision of a pen-shaped applicator. It is pocket-sized, fitting everywhere from glove boxes and desk drawers to backpacks and purses. The WD-40 No-Mess Pen can lubricate hinges, doors, and drawers, remove sticky labels, remove gum and crayon...it can do everything a regular can does without messy overspray and with minimal odor!" Since it was not an aerosol it did not have the smell associated with WD-40. It did not drip if you were using it to take crayon off the wall. It worked upside down if you were trying to take the squeak out of a ceiling fan.The No-Mess Pen™ is now a global product for WD-40 with many years of growth expected. The new pen delivery mechanism enabled increased product acceptance -- what can you do to re-invigorate one of your 50 year-old products or services? Look for potential applications in a different environment and see what needs to change to make your product work for that specific environment.
© Copyright 2008 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI
-- Reprint permission granted with full attribution.
Denise Harrison is Vice President of Center for Simplified Strategic Planning, Inc. She can be reached by email at harrison@cssp.com
Tuesday, November 20, 2007
When Is It Strategic to Say No to New Business? When can higher volume lead to lower long-term profitability?
By Denise Harrison
As a company looks for additional growth, its strategic planning team needs to remember that not all growth is good growth. When searching for growth, a team can be lured by the siren song of a big customer or a high growth segment. However, the team might find the new opportunity is being sung in a different key from the music that is producing the company's current success. How can you prevent the dissonance?High volume and revenue activities have to harmonize with your strategic competencies and company values to be worthy of consideration. Some examples of high growth opportunities:
1. High growth government spending on the Iraqi Conflict
2. Wal-Mart as a customer
The Iraqi Conflict
Some government contractors pursued opportunities in Iraq when they saw significant funding siphoned off from their existing government contracts to fund the war effort. An evaluation of threats and possible mitigation tactics is imperative before jumping into such a high-risk, but potentially lucrative area. The threats assessment includes protecting against and dealing with kidnapped or deceased employees and the stomach to handle these events if they, in fact, occur. It also requires evaluating the culture and environment, where accomplishing objectives may include methods of doing business not acceptable in the US. Preventing corruption and unsavory business practices must be evaluated upfront and evaluated on a continuous basis as new and evolving situations unfold. In addition, the contracts may be lucrative now, but what happens when the funds dry up? In pursuing this opportunity, did you lose focus on your existing business? Will you be able to utilize the capabilities developed in Iraq to generate business elsewhere? Or will this be a one-shot deal that gave the company a short-term revenue hit which then forced significant retrenchment after the funding stopped?
Saying No to Wal-Mart
Many executives have followed the beaten path to Wal-Mart headquarters in hopes of generating more volume only to find themselves in a downward spiral of lower prices, lower profitability driving lower quality and losing the brand image that enabled their market leadership position. In the article The Man Who Said No To Wal-Mart, (Fast Company, January/February 2006) Jim Wier, CEO of Snapper™, told Wal-Mart that his company would no longer sell Snapper™ lawnmowers to Wal-Mart. Wier knew that Wal-Mart's pressure on Snapper™ to lower prices would eventually lower the quality of the product. Additionally, Wier knew that Wal-Mart would not be able to sell the differentiated features or be able to service the mowers in the manner that Snapper™ desired. He feared that the brand's image would be tarnished and their profitability would suffer. "We're not obsessed with volume," says Wier, "We're obsessed with having differentiated, high end/high quality products." Wier knew that his customers were people who enjoyed cutting their lawns and were not looking for a cheaper product, but these lawn connoisseurs were looking for a better product and willing to pay for it.Bottom LineGrowth for growth's sake may cause long-term damage to a company's overall health. Make sure the opportunities and customers you pursue are consistent.
Denise Harrison is Vice President of Center for Simplified Strategic Planning, Inc. She can be reached by email at: harrison@cssp.com
For more information on strategic planning: www.cssp.com
© Copyright 2007 by Center for Simplified Strategic Planning, Inc. Ann Arbor, MI -- Reprint permission granted with full attribution.
By Denise Harrison
As a company looks for additional growth, its strategic planning team needs to remember that not all growth is good growth. When searching for growth, a team can be lured by the siren song of a big customer or a high growth segment. However, the team might find the new opportunity is being sung in a different key from the music that is producing the company's current success. How can you prevent the dissonance?High volume and revenue activities have to harmonize with your strategic competencies and company values to be worthy of consideration. Some examples of high growth opportunities:
1. High growth government spending on the Iraqi Conflict
2. Wal-Mart as a customer
The Iraqi Conflict
Some government contractors pursued opportunities in Iraq when they saw significant funding siphoned off from their existing government contracts to fund the war effort. An evaluation of threats and possible mitigation tactics is imperative before jumping into such a high-risk, but potentially lucrative area. The threats assessment includes protecting against and dealing with kidnapped or deceased employees and the stomach to handle these events if they, in fact, occur. It also requires evaluating the culture and environment, where accomplishing objectives may include methods of doing business not acceptable in the US. Preventing corruption and unsavory business practices must be evaluated upfront and evaluated on a continuous basis as new and evolving situations unfold. In addition, the contracts may be lucrative now, but what happens when the funds dry up? In pursuing this opportunity, did you lose focus on your existing business? Will you be able to utilize the capabilities developed in Iraq to generate business elsewhere? Or will this be a one-shot deal that gave the company a short-term revenue hit which then forced significant retrenchment after the funding stopped?
Saying No to Wal-Mart
Many executives have followed the beaten path to Wal-Mart headquarters in hopes of generating more volume only to find themselves in a downward spiral of lower prices, lower profitability driving lower quality and losing the brand image that enabled their market leadership position. In the article The Man Who Said No To Wal-Mart, (Fast Company, January/February 2006) Jim Wier, CEO of Snapper™, told Wal-Mart that his company would no longer sell Snapper™ lawnmowers to Wal-Mart. Wier knew that Wal-Mart's pressure on Snapper™ to lower prices would eventually lower the quality of the product. Additionally, Wier knew that Wal-Mart would not be able to sell the differentiated features or be able to service the mowers in the manner that Snapper™ desired. He feared that the brand's image would be tarnished and their profitability would suffer. "We're not obsessed with volume," says Wier, "We're obsessed with having differentiated, high end/high quality products." Wier knew that his customers were people who enjoyed cutting their lawns and were not looking for a cheaper product, but these lawn connoisseurs were looking for a better product and willing to pay for it.Bottom LineGrowth for growth's sake may cause long-term damage to a company's overall health. Make sure the opportunities and customers you pursue are consistent.
Denise Harrison is Vice President of Center for Simplified Strategic Planning, Inc. She can be reached by email at: harrison@cssp.com
For more information on strategic planning: www.cssp.com
© Copyright 2007 by Center for Simplified Strategic Planning, Inc. Ann Arbor, MI -- Reprint permission granted with full attribution.
Saturday, February 17, 2007
March to a Different Drummer by Denise A. Harrison
"Get big fast or go home!" was the mantra of venture capitalists. Webvan spent $830 million to expand into 26 cities at once only to file for bankruptcy after its overly ambitious strategy failed. E*Toys had a market capitalization greater than that of ToysRUs its first day of trading. Greed, irrational exuberance, call it what you may, but common sense was not part of the tune. Good business strategy is based on market knowledge and strategic focus - focus on what you do best and in areas where your competitors are weak.
In recent years many companies saw the Internet expansion as a key trend to enhance growth. Pundits argued that the new economy was immune to business cycles. Webvan embodied growth mantra - to what end?
"Webvan Group, Inc. said it shut down its online grocery-delivery service and will file for Chapter 11, marking one of the most spectacular and expensive failures of the Internet era. Webvan poured $830 million into high technology warehouse facilities and a 26-city expansion plan that most observers have since said was too ambitious."
The Wall Street Journal, July 10, 2001
This is only one example of how companies assumed the Internet was the "land of opportunity," pouring millions of dollars into plans that were ill conceived and based on invalid business models.
During this dot.com boom, Intelligent Information Systems (IIS), Durham, NC, a software-consulting firm, evaluated variety of potential growth strategies. IIS was clearly differentiated by its high quality standards and its commitment to total customer satisfaction. To many companies, "quality" and "total customer satisfaction", are just buzzwords, but to the team at IIS these phrases are driving principles. While many technology firms in the Research Triangle Park were taking advantage of the lucrative public offerings, the senior management team at IIS knew that a public offering would cause the company to lose its focus on customer satisfaction and zero defects. After a public offering, associates would be imagining what they could do with their newfound wealth, watching the stock price daily, hourly, assessing minute-to-minute their net worth. This myopic self-interest would cause the company to lose its competitive advantage.
They had a difficult decision to make during a critical time frame, but 20/20 hindsight shows that the II management team chose the optimal direction and course for their firm by focusing on the key areas that set the company apart from the competition.
eBay is another company that turned down easy cash as it focused on its long-term success. It focused on its customers, the sellers of products on eBay's online auction site. As traffic grew on the site, advertisers asked eBay to participate in lucrative advertising contracts. Short term, these contracts would have significantly enhanced eBay's revenue and profitability. However, when the sellers on eBay's site complained about competition from the advertisers, eBay reduced the advertising on the site. eBay focused on the customers who had made it successful to date. If these customers had not remained loyal and had jumped ship to try other auction sites, competitors would have been more successful at competing against eBay.
As eBay expanded, large companies looked to it as a distribution channel, sometimes to unload excess inventory, sometimes simply to have another sales channel. To protect its original customer group, eBay does not offer volume deals or special deals to these large companies. Everyone must play by the same rules. While some of eBay's original participants feel threatened by the new, larger companies selling through the site, many think that the added participation will drive more traffic to the site, enlarging the overall customer base for all participants' products.
Historical Examples
Many East Coast readers fondly remember Piedmont Airlines. When airline deregulation looked Piedmont in the face, Piedmont knew that in this new competitive environment they would face challenges from larger, better-financed airlines. How could they compete?
Larger airlines chose to compete in the busiest airports. This head-to-head competition led to inevitable price wars. Piedmont, on the other hand, continued to build its network in the Southeast servicing many airports that other airlines would not even consider. Their strategy paid off as the company was voted "Best Airline," clearly differentiating itself as the high quality service provider in the industry. Next, US Airways purchased them, and you know the rest of the story!
Market trends are some of the key factors to look at when developing a strategic plan. But in addition to studying the market's attractiveness, a company must also look inside to assess its own strengths and weaknesses. Compete on strengths and avoid areas of weakness. All of the airlines developed their respective strategies by evaluating the markets, looking at demographics and transportation trends. But Piedmont also chose to avoid competing with better-financed airlines in popular hubs. Instead, it decided to service the area where it was already well established, an area that was less attractive to its larger competitors.
Southwest - yes, another airline story-noted the hub-and-spoke configurations of the major airlines and decided to compete with a no frills, point-to-point service. They targeted the "no frills" traveler in every route they flew-no seat assignments, no first class, no food (well, okay, peanuts) just cheap, efficient service. They developed their model to keep costs low, using only one type of aircraft to maintain, one type of plane on which to train their pilots and flight attendants. Did this service appeal to all travelers? No, of course not, but Southwest excelled at providing low-cost service for the cost-sensitive flyer. Have they been successful? Yes, they are consistently profitable, often the most profitable airline in the industry.
Alamo Rental Car identified the budget-sensitive traveler in the rental car industry. Hertz, Avis, and National were focused on the business traveler who was willing to pay for the convenience of onsite rental. Alamo saw people paying for rental cars out of their own pockets while on vacation and determined that many non-business renters were willing to trade the convenience of on-site rental for lower cost off-site rental. Here again, another success story unfolds because a company looked at the market and created new ways to serve customers whose needs were not met by current suppliers.
Don't follow the leader!
Enron began as a natural gas company. It saw the deregulation of energy markets as the path to future growth. As it pursued this growth, it transformed itself from its roots, natural gas, becoming an energy trading company to meet the market challenges of the deregulated environment. From trading in energy futures it jumped into paper, water (although not for long), weather futures, and finally into broadband. Enron could do no wrong in the eyes of many analysts and its corporate executives. Let's look at the history.
Enron's foray into trading began with hedging future energy costs to combat a turbulent energy market. The company needed to lower its exposure to fluctuating energy prices by entering the market to hedge the forward price of energy. This tactic not only lowered risk, but also generated a significant amount of cash with little capital investment-a very attractive results for the capital-intensive energy company. Enron jumped into the trading business with both feet, eventually resembling a financial institution more than an energy producer. The company's rapid growth was the envy of the industry, the envy of Wall Street growing from $4.6 billion to over $100 billion, the seventh largest company on the Fortune 500 list (2001). For six year's running it was voted the "Most Innovative" among Fortune's "Most Admired" companies list.
Now, let's think about this. Moving from energy producer to a trader of energy is a jump, but sometimes a jump to an adjacent competency is required when an industry is in transition, as the energy industry is in the new deregulated environment. But to assume that this new-found trading competency transcends industry/commodity knowledge is a long shot at best. Enron was initially very profitable as it benefited from its "first mover" advantage, the first to try and understand the new playing field created by energy deregulation. Its success brought competition into the field; now to maintain its profit and growth, Enron not only traded in commodities previously unknown to its personnel, but also started playing financial games to mask the truth about its slowing growth and profitability. While corporate officers either did or did not understand what was going on, their greed and egos caused the demise of Enron. Sadly, Dynegy, Mirant, and Calpine tried to follow in Enron's footsteps and found that they too had to grow through high risk and questionable financial transactions to keep up with Enron. This was a parade that one needed to be watching, not participating in.
Not all energy companies played in the Enron band. Duke Energy was often castigated for its conservative strategy at analyst meetings during the late 90s. Analysts like the wild ride that Enron was providing (at that time the ride was up). Duke Energy stuck to its guns and remained an energy company that used trading to reduce risk rather than to become a trading company of energy futures. It did not get caught up in the hype and the smoke-and-mirrors transactions of Enron fame. Now, after Enron's collapse, Duke Energy's balance sheet remains strong and its prospects for realistic profit and growth are good. Companies that aspired to follow Enron into ever riskier transactions find themselves in trouble:
How to find the right marching beat for your company?
Situation Analysis
First evaluate external forces: What impacts your business from the outside?
Examine your core business by describing your market segments. Market segments are groups of customers with similar needs and preferences. Write down what your customers in each segment now and what they will require in the future. Next evaluate your competition; what are their strengths and weaknesses? Where is each company's soft underbelly? Next you need to assess trends in technology, supplier issues, economic trends, and any recent or pending changes in the regulatory environment.
Regulatory change was the catalyst that spurred all of the airlines, not only Piedmont, to revise their strategies.
Next look internally; what are your company's strengths and weaknesses? What is the key intellectual capital that sets you apart from the competition? Again, IIS found that it was the relentless dedication to zero defects and customer satisfaction that set them apart from the competition.
Assumptions for the Future
Next look to the future; how will trends change? What will customers require? What new opportunities should you pursue to achieve your growth and profit goals? What prospects are right for you to consider, given the strengths and intellectual capital that you identified.
Careful analysis leads to focus. Focus allows you to purposefully select the best road to travel.
Strategy Development
A clearly defined strategy that optimizes the future potential of the business is the goal.
This clearly defined strategy includes answers to following:
What are you going to do in your core businesses?
What new opportunities will you pursue?
What must you accomplish internally to achieve steps 1 and 2?
Developing a strategy is defining not only what the company will do, but also what it will not do. Making definitive choices is one of the most important aspects of strategic planning. Choosing the best road for your company may or may not be the road less traveled, but it will be the right road for your company. Your company's ability to capitalize on its unique mix of assets and capabilities will give it sustainable competitive advantage in its markets.
Denise Harrison is a Vice President with Center for Simplified Strategic Planning, Inc. She can be reached via e-mail at harrison@cssp.com.
"Get big fast or go home!" was the mantra of venture capitalists. Webvan spent $830 million to expand into 26 cities at once only to file for bankruptcy after its overly ambitious strategy failed. E*Toys had a market capitalization greater than that of ToysRUs its first day of trading. Greed, irrational exuberance, call it what you may, but common sense was not part of the tune. Good business strategy is based on market knowledge and strategic focus - focus on what you do best and in areas where your competitors are weak.
In recent years many companies saw the Internet expansion as a key trend to enhance growth. Pundits argued that the new economy was immune to business cycles. Webvan embodied growth mantra - to what end?
"Webvan Group, Inc. said it shut down its online grocery-delivery service and will file for Chapter 11, marking one of the most spectacular and expensive failures of the Internet era. Webvan poured $830 million into high technology warehouse facilities and a 26-city expansion plan that most observers have since said was too ambitious."
The Wall Street Journal, July 10, 2001
This is only one example of how companies assumed the Internet was the "land of opportunity," pouring millions of dollars into plans that were ill conceived and based on invalid business models.
During this dot.com boom, Intelligent Information Systems (IIS), Durham, NC, a software-consulting firm, evaluated variety of potential growth strategies. IIS was clearly differentiated by its high quality standards and its commitment to total customer satisfaction. To many companies, "quality" and "total customer satisfaction", are just buzzwords, but to the team at IIS these phrases are driving principles. While many technology firms in the Research Triangle Park were taking advantage of the lucrative public offerings, the senior management team at IIS knew that a public offering would cause the company to lose its focus on customer satisfaction and zero defects. After a public offering, associates would be imagining what they could do with their newfound wealth, watching the stock price daily, hourly, assessing minute-to-minute their net worth. This myopic self-interest would cause the company to lose its competitive advantage.
They had a difficult decision to make during a critical time frame, but 20/20 hindsight shows that the II management team chose the optimal direction and course for their firm by focusing on the key areas that set the company apart from the competition.
eBay is another company that turned down easy cash as it focused on its long-term success. It focused on its customers, the sellers of products on eBay's online auction site. As traffic grew on the site, advertisers asked eBay to participate in lucrative advertising contracts. Short term, these contracts would have significantly enhanced eBay's revenue and profitability. However, when the sellers on eBay's site complained about competition from the advertisers, eBay reduced the advertising on the site. eBay focused on the customers who had made it successful to date. If these customers had not remained loyal and had jumped ship to try other auction sites, competitors would have been more successful at competing against eBay.
As eBay expanded, large companies looked to it as a distribution channel, sometimes to unload excess inventory, sometimes simply to have another sales channel. To protect its original customer group, eBay does not offer volume deals or special deals to these large companies. Everyone must play by the same rules. While some of eBay's original participants feel threatened by the new, larger companies selling through the site, many think that the added participation will drive more traffic to the site, enlarging the overall customer base for all participants' products.
Historical Examples
Many East Coast readers fondly remember Piedmont Airlines. When airline deregulation looked Piedmont in the face, Piedmont knew that in this new competitive environment they would face challenges from larger, better-financed airlines. How could they compete?
Larger airlines chose to compete in the busiest airports. This head-to-head competition led to inevitable price wars. Piedmont, on the other hand, continued to build its network in the Southeast servicing many airports that other airlines would not even consider. Their strategy paid off as the company was voted "Best Airline," clearly differentiating itself as the high quality service provider in the industry. Next, US Airways purchased them, and you know the rest of the story!
Market trends are some of the key factors to look at when developing a strategic plan. But in addition to studying the market's attractiveness, a company must also look inside to assess its own strengths and weaknesses. Compete on strengths and avoid areas of weakness. All of the airlines developed their respective strategies by evaluating the markets, looking at demographics and transportation trends. But Piedmont also chose to avoid competing with better-financed airlines in popular hubs. Instead, it decided to service the area where it was already well established, an area that was less attractive to its larger competitors.
Southwest - yes, another airline story-noted the hub-and-spoke configurations of the major airlines and decided to compete with a no frills, point-to-point service. They targeted the "no frills" traveler in every route they flew-no seat assignments, no first class, no food (well, okay, peanuts) just cheap, efficient service. They developed their model to keep costs low, using only one type of aircraft to maintain, one type of plane on which to train their pilots and flight attendants. Did this service appeal to all travelers? No, of course not, but Southwest excelled at providing low-cost service for the cost-sensitive flyer. Have they been successful? Yes, they are consistently profitable, often the most profitable airline in the industry.
Alamo Rental Car identified the budget-sensitive traveler in the rental car industry. Hertz, Avis, and National were focused on the business traveler who was willing to pay for the convenience of onsite rental. Alamo saw people paying for rental cars out of their own pockets while on vacation and determined that many non-business renters were willing to trade the convenience of on-site rental for lower cost off-site rental. Here again, another success story unfolds because a company looked at the market and created new ways to serve customers whose needs were not met by current suppliers.
Don't follow the leader!
Enron began as a natural gas company. It saw the deregulation of energy markets as the path to future growth. As it pursued this growth, it transformed itself from its roots, natural gas, becoming an energy trading company to meet the market challenges of the deregulated environment. From trading in energy futures it jumped into paper, water (although not for long), weather futures, and finally into broadband. Enron could do no wrong in the eyes of many analysts and its corporate executives. Let's look at the history.
Enron's foray into trading began with hedging future energy costs to combat a turbulent energy market. The company needed to lower its exposure to fluctuating energy prices by entering the market to hedge the forward price of energy. This tactic not only lowered risk, but also generated a significant amount of cash with little capital investment-a very attractive results for the capital-intensive energy company. Enron jumped into the trading business with both feet, eventually resembling a financial institution more than an energy producer. The company's rapid growth was the envy of the industry, the envy of Wall Street growing from $4.6 billion to over $100 billion, the seventh largest company on the Fortune 500 list (2001). For six year's running it was voted the "Most Innovative" among Fortune's "Most Admired" companies list.
Now, let's think about this. Moving from energy producer to a trader of energy is a jump, but sometimes a jump to an adjacent competency is required when an industry is in transition, as the energy industry is in the new deregulated environment. But to assume that this new-found trading competency transcends industry/commodity knowledge is a long shot at best. Enron was initially very profitable as it benefited from its "first mover" advantage, the first to try and understand the new playing field created by energy deregulation. Its success brought competition into the field; now to maintain its profit and growth, Enron not only traded in commodities previously unknown to its personnel, but also started playing financial games to mask the truth about its slowing growth and profitability. While corporate officers either did or did not understand what was going on, their greed and egos caused the demise of Enron. Sadly, Dynegy, Mirant, and Calpine tried to follow in Enron's footsteps and found that they too had to grow through high risk and questionable financial transactions to keep up with Enron. This was a parade that one needed to be watching, not participating in.
Not all energy companies played in the Enron band. Duke Energy was often castigated for its conservative strategy at analyst meetings during the late 90s. Analysts like the wild ride that Enron was providing (at that time the ride was up). Duke Energy stuck to its guns and remained an energy company that used trading to reduce risk rather than to become a trading company of energy futures. It did not get caught up in the hype and the smoke-and-mirrors transactions of Enron fame. Now, after Enron's collapse, Duke Energy's balance sheet remains strong and its prospects for realistic profit and growth are good. Companies that aspired to follow Enron into ever riskier transactions find themselves in trouble:
How to find the right marching beat for your company?
Situation Analysis
First evaluate external forces: What impacts your business from the outside?
Examine your core business by describing your market segments. Market segments are groups of customers with similar needs and preferences. Write down what your customers in each segment now and what they will require in the future. Next evaluate your competition; what are their strengths and weaknesses? Where is each company's soft underbelly? Next you need to assess trends in technology, supplier issues, economic trends, and any recent or pending changes in the regulatory environment.
Regulatory change was the catalyst that spurred all of the airlines, not only Piedmont, to revise their strategies.
Next look internally; what are your company's strengths and weaknesses? What is the key intellectual capital that sets you apart from the competition? Again, IIS found that it was the relentless dedication to zero defects and customer satisfaction that set them apart from the competition.
Assumptions for the Future
Next look to the future; how will trends change? What will customers require? What new opportunities should you pursue to achieve your growth and profit goals? What prospects are right for you to consider, given the strengths and intellectual capital that you identified.
Careful analysis leads to focus. Focus allows you to purposefully select the best road to travel.
Strategy Development
A clearly defined strategy that optimizes the future potential of the business is the goal.
This clearly defined strategy includes answers to following:
What are you going to do in your core businesses?
What new opportunities will you pursue?
What must you accomplish internally to achieve steps 1 and 2?
Developing a strategy is defining not only what the company will do, but also what it will not do. Making definitive choices is one of the most important aspects of strategic planning. Choosing the best road for your company may or may not be the road less traveled, but it will be the right road for your company. Your company's ability to capitalize on its unique mix of assets and capabilities will give it sustainable competitive advantage in its markets.
Denise Harrison is a Vice President with Center for Simplified Strategic Planning, Inc. She can be reached via e-mail at harrison@cssp.com.
Thursday, August 31, 2006
Strategic Planning and Innovation—How to Generate Innovation in Your Strategic Planning Process
By Denise A. Harrison
Center for Simplified Strategic Planning
When developing a strategic plan many companies struggle to develop new and creative ideas. Why? It is difficult to think “outside the box,” especially in challenging times when it seems you are running as hard and fast as possible just to keep up. But finding successful innovation often is the key to getting off the treadmill. Here are some places to look:
1. Assess your customers’ unmet needs and preferences— is there anything new?
2. Assess your strategic competencies—can you use the knowledge base that you have developed in one industry to please a different market segment or industry?
3. Look at emerging trends— does a trend make sense, melded with your company’s traditional strengths?
4. Look at technology other industries are adopting—is there a smart way to capitalize on developments that you can tailor for your applications?
Make innovation a key part of your strategic plan. For more ideas about strategic planning and innovation or strategic planning in general please visit the following web site: http://www.cssp.com.
By Denise A. Harrison
Center for Simplified Strategic Planning
When developing a strategic plan many companies struggle to develop new and creative ideas. Why? It is difficult to think “outside the box,” especially in challenging times when it seems you are running as hard and fast as possible just to keep up. But finding successful innovation often is the key to getting off the treadmill. Here are some places to look:
1. Assess your customers’ unmet needs and preferences— is there anything new?
2. Assess your strategic competencies—can you use the knowledge base that you have developed in one industry to please a different market segment or industry?
3. Look at emerging trends— does a trend make sense, melded with your company’s traditional strengths?
4. Look at technology other industries are adopting—is there a smart way to capitalize on developments that you can tailor for your applications?
Make innovation a key part of your strategic plan. For more ideas about strategic planning and innovation or strategic planning in general please visit the following web site: http://www.cssp.com.
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