Strategic Preparation: Three Critical Steps
By: Verne Harnish “Growth Guy”
Oct 15, 2010 1:00:00 PM ET
Though I’m generally in favor of making decisions vs. being grid-locked by indecision, decisions made without vital facts can be highly dangerous to the company.
This the season for strategic planning as companies look to next year and beyond. Yet many small to mid-size companies jump into the process without proper preparation, hampering the effectiveness of a typical one- or two-day off site retreat.
Worse, many of the decisions reached during these retreats are made without sufficient qualitative and quantitative information. Though I’m generally in favor of making decisions vs. being gridlocked by indecision, decisions made without vital facts can be highly dangerous to the company. They could set the company back several months, if not years.
So, to significantly enhance the strategic thinking – verses planning – aspect of a quarterly or annual planning session, here are three critical preparation steps.
Your rank and file employees have a unique perspective on the business that is different from that of the senior leaders. Because they are generally closer to the customer in their day-to-day activities, their insights must be harnessed in the planning process. And involving them in the process helps create critical buy-in when it comes time to execute on your plans.
I suggest you ask your employees three simple questions:
- What do you think our company should start doing?
- What do you think we should stop doing?
- What do you think we should keep doing?
What’s critical is making their feedback transparent and publishing it verbatim (unless there are attacks on individuals) on an internal webpage for everyone to view. And it’s equally important that you close the loop after the planning process to let the employees know which ideas you incorporated and more importantly, why you might have pushed back on others. This builds trust and enthusiasm for contributing more in the future.
2. TALK WITH CUSTOMERS
Customers, in general, do not like written surveys. As a result, I encourage your senior team to identify your top 10 or 20 customers and give them a phone call. On this call, refrain from asking immediately how they like your products or services. You want them to talk about their favorite subject – themselves– first!
What’s happening in your industry/neighborhood? This is your chance to identify trends that might influence the design of your own products or services.
I suggest four questions:
- How are you doing? You want to understand the opportunities and challenges facing your customers. What are their priorities for the coming year? And more important, what are they projecting their sales will be in the coming year. Will they be up, down, or the same? Knowing the perceptions of your top 10 customers will help you project your revenues better than reading the thoughts of the top 10 economists!
- What’s happening in your industry/neighborhood? This is your chance to identify trends that might influence the design of your own products or services. And it will give you a glimpse of what other potential customers in the same industry are doing.
- What do you hear about our competitors? If you don’t think your best customers are being called on by your competitors, your head is in the sand. I prefer to learn what my competition is doing through the eyes of my customers, instead of relying only on my own perceptions.
- How do you like our products/services? Of course, you need to ask this question, but not until the end.
THOROUGH FINANCIAL ANALYSIS
Ask your accountant or CFO to dive into the numbers and produce a series of charts and graphs for the off site. Start by ranking all your various products and services by total gross margin contribution. Also rank them by revenue, gross margin percentage, and profitability. You’re looking for the products and services that account for 85 % of your total activity and financial success.
Do the same for all your customers. Then create similar charts and graphs for each division, office, location, and sales person. Cut the numbers in as many rational ways as you can to see where you have the 80/20 rule operating in your company. In my experience, it’s closer to 90/10. Ten percent of your products, services, customers, sales people, locations, etc. outperform the other 90%.
Next, analyze the specific costs associated with your top products and services. You’ll also want to reach out to your industry trade association to gather any comparison data showing the cost structures of the best companies in your industry. Use this data to benchmark your own performance.
PUT THE DATA TO WORK FOR YOU
Add to the information gathered above a Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis of your business, and you’re prepared for your offsite. As suggested in past columns, it’s best if you’re gathering this kind of employee and customer (and competitor) feedback on a weekly basis, so you’re not cramming all this activity into a short period of time.
Equally important is updating the financial charts and graphs you find most useful on a weekly basis as well. You’re looking for specific patterns and trends within your company and industry, which are easier to discern over a longer period of time. However, gathering this information at the last minute is better than not having it at all and will dramatically improve the effectiveness of your next strategic planning off site.