The word ‘strategic’ has become pretty meaningless through overuse. What is strategic and what is tactical? Is strategy just about direction and tactics just about the doing or operations? Company boards are said to be responsible for strategy and the management team responsible for operations. But boards seem to spend most of their time reviewing management decisions, operations and shadowing the management team. Therefore it must be easier to review actions than set direction and allocate resources. How can we best develop strategy and also excel at execution?
A start-up has a small bundle of cash and some highly energetic people who are passionate about an idea. Each and every day they make decisions about spending their limited cash and what they do with the 86,400 seconds each of them has each day to get things done. Every dollar and every second can be spent on many things but can only be spent once.
Strategic planning is about deciding how to achieve the best possible results with your available resources. Each choice sets up future possibilities and closes off others. So strategic planning is about making the best choices. For a company to make the best choices it must continually learn from experience. But it is in the doing that strategy and operations intersect. Good choices must be well executed to achieve outstanding results. Ultimately good business planning is about changing behaviour within the company so that the right things are done and they must be done right to achieve the best possible outcome.
Why is Planning Important?
I’ve often heard it said that planning is a waste of time because whatever you plan for your business it never turns out the way you plan it. My response to this is that planning is like training to run a race; it is fitness preparation for future business activities. Much like a thought experiment it exercises our brains and provides a review of our resources to run a variety of races without actually expending the energy and resources to run each race.
In being prepared to run one type of race we will be better placed to run another when the opportunity is presented to us. Our dilemmas are many as we might prepare for a marathon to only find out we have a short sprint to run but planning is important because a well prepared marathon runner can still beat a couch potato over 100 meters. Having prepared our company for plan A even if we are forced to make up plan Z on the run our preparations for plan A are more likely to prepare us for any eventually than doing no preparation at all.
So strategic planning is more about learning to be ready, fit and able to meet any opportunity than it is about preparing for a specific anticipated future opportunity. It is about honing the organisation’s skills, culture and resources to be agile and capable of performing in the emerging economic environment.
Business Planning as a Learning Process
To improve the outcomes achieved by any business it is essential to create a continuous learning culture, one that constantly strives for, not accepting anything less, than a high performance culture. Research into learning identifies that people learn best in a realistic or ‘authentic’ environment where they can learn by doing.
At Acumentum we achieved this by three integrated strategies. Firstly we established a 90 day induction process for every employee with a tailored, more detailed, induction for our Industry Based Learning interns. Secondly we created a formal coaching and mentoring system right across the company so that every member of the team had a mentor and a ‘management’, ‘design’ and ‘technical’ coach. This created a lattice of relationships to encourage everyone to share in everyone else’s success. The third and cornerstone strategy was to run an annual three day business planning and learning workshop (usually off site) to kick the year off, set major goals and provide hands on learning activities to ensure the company had the skills to implement the business plan.
A strong thread through all three of these strategic programmes was to establish and foster the core values and foundations of our culture. Values cannot be found in a book or learned at a conference or inspired by a guru. The values of a company are inherent in the people who make up the company. Understanding those values helps ensure that the people recruited, share those values and work together to help shape the culture as the company grows.
I have seen a team of people who were engaged and passionate about what they were doing and outstanding results flowed from this. I’ve also personally made the mistake of failing to exclude people, who whilst being impressive, did not share the same values and were not culturally in tune with the team. Looking back the damage done was heart-breaking.
The Role for Leadership and Management
Business books talks more about leadership than management. However my experience suggests success seems to demand both. In small business that means the leaders need to know how to lead as well as manage their company. Leadership takes many forms with few silver bullets. You can lead from the front or behind and with gusto or stealth. In all cases leaders need to be authentic, consistent and connected with their team. Whilst Groucho Marx may have said “To be successful you need to be sincere and once you can fake that you’ve got it made” it is only a matter of time before a team will be undermined by a lack of authenticity, inconsistency or spin.
Effective business planning begins with the leadership group clearly setting down what it is that they are really, truly, madly, deeply passionate about. They need to know and be able to communicate what will be achieved by this passion and why others should join them. Your plans need to empower and engage your followers. People become engaged when they see that they can make a difference. People need to believe in what they are doing. It is not surprising that credibility comes from ‘credo’ or ‘I believe’.
Developing a High Performance Culture
The path to be the best in the world at anything is long and arduous. In his insightful book ‘Outliers’ Malcolm Gladwell suggests that it takes 10,000 hours to become an expert in anything of substance. That the real secret of success is that to achieve these 10,000 hours of practice before others, requires early access to the right opportunities.
A business cannot afford to pay for 10,000 hours of learning for all staff so the business needs to set goals where skills and expertise already exist. Learning objectives should be a fundamental part of the business plan to ensure that all activities of the business build skills and create assets that enhance the future earnings of the company.
By accepting mundane and low value projects and opportunities the company is limiting its scope for future work. You are only as good as your last project. The value of and skill required for the next project must be a little better than the last. In this way you steadily move up the value chain.
A high performance culture also requires that we unlearn certain bad habits. The planning and development process should consciously identify unproductive behaviours and determinedly set about removing them. Be aware it is much harder to unlearn something than to learn it in the first place!
The Planning Process
The planning process should be well structured and easily understood. The role of the board, leadership team and operational groups should be clearly understood by everyone in the company. The company strategy should be set by the board, communicated and executed by the leadership group with the support of the whole company.
Acumentum explored a number of approaches and settled on the following widely accepted process:
Start with understanding your environment. Evidence based decisions require hard facts. Look for data more than opinions. What market(s) do you operate in? What type of organisations are typical customers? How many ideal customer organisations exist in your target market(s)? What value is created by your core business activities? On average how long have current customers been customers? What is the average spend, of all current customers, top 3 customers and bottom 3 customers? How many new customers has the company won over each of the past two years? What has been the average monthly invoicing of these new customers? How many customers has the company lost in each of the last years? What was the average monthly invoicing of these lost customers? Who are your competitors? How many competitors actively target the market(s)? What are the major competitive issues? How easy is it to attract staff? What organisations or institutions will provide you with ideal recruits? How mature is this industry sector? How fast has your company grown over the past 3 years (Revenue, Gross Margin, EBIT)?
Session Two: Assess – what does the evidence tell us?
Once you have gathered the facts they must be carefully assessed. Leave predicting the future to soothsayers and mystics. Examine the evidence you have gathered and create likely scenarios for your business. What evidence is there that this sector will continue to grow? What technological or economic forces that might impact this industry? What would we do if our customers no longer required our main product or service?
Acumentum received millions of dollars designing and building websites in the 90′s. Because there were so few examples to copy and university graduates had not been studying how to do this we employed designers who could create things from scratch, people who could write the rule book and we were able to charge a premium for their work. Our 2002 business plan failed to ask the question what we would do when our customers no longer needed this level of service or wanted to hire more specialised design services.
Session Three: The Plan – Goals, Objectives and the Action Plan
The planning part is rather straightforward; goals, objectives (Specific, Measureable, Achievable, Results oriented, Time framed) and a plan of actions that will achieve the goals. Where does the company want (need) to be in 3 years time? The goals must be realistic but not conservative. Three years is a realistic timeframe that requires action now; anything greater is too far over the horizon, anything shorter is problem solving. Goals must be set within the purpose of the organisation. What is the organisation’s purpose or meaning? Why does it exist? And whilst “profit” may seem the obvious purpose of any commercial organisation; profit is to an organisation as oxygen is to life, vital but not sufficient.
The plan must not only clearly identify what actions must be done but what resources are required to carry them out successfully. Looking back on the many plans produced at Acumentum not enough of the plan actually got done. This possibly was because we failed to accurately identify what resources (time, tools and materials) would be required to successfully execute the plan. What do we need done to get there from here? A further mistake we often made was not to carefully consider what alternatives do we have to get there? Rather than just look at one plan, what alternative plans are there; if we invest in x this year what will happen rather than investing in x or y next year or in year 3? What combination of options will give us the best results? And what level of certainty/risk is there in this plan of action? In the end, your plan is a choice of options with tradeoffs.
One of the founding staff members at Acumentum Roly Maxwell often said “what you can’t inspect don’t expect”. An alternative cliché says it slightly differently, “if you can’t measure it you can’t manage it”. The key lesson I’ve learned in business planning is that your action plan must ensure that your objectives are aligned with your goals and that all the planned actions are directed at achieving the objectives. If people engage with the plan and understand the alignment of goals, objectives and actions they will get things done. The team will then know what has to be done, why and when.
Session Four: Doing it!
For a plan to be well executed in any small business it must become an integral part of everyday business. Very few, if any, small businesses have the spare resources to allocate to implement a new plan. To change behaviours in the business and to ensure that those people allocated the responsibility for each task in the action plan understand the value of their tasks in the everyday operation of the business, the action plan must become a real project not something everyone does in their spare time.
Progress must be measured and the everyday management system that provides metrics for the operation of the business must incorporate the measuring of progress towards business plan goals.
Ongoing Verification and Review
Everyday management must verify that what has been agreed to be done is being done and that what was anticipated to be achieved is being achieved. One of the big challenges for every business owner is to be able to stop working in the business and start working on the business. A structured review process for the business plan is one of the best ways to assist in this transition. Quarterly reviews of financial, marketing and human resources strategies helps elevate the thinking processes to questioning the direction and allocation of resources.
Effective business planning creates fit agile companies that can respond and exploit the best opportunities that come their way. The continuous learning approach sets real challenges for us to be better today than yesterday but we know that we are not as good today as we will be tomorrow. As we learn we grow and become more capable but always ensuring that the company is fit and capable of taking on the challenges it faces. Always stretching but never straining!
If you would like to view a 15 slide 28 minute audio presentation lick here.