Thinking about the current recession, I couldn’t help but think back to recessions I’ve gone through in the past – and how clients succeeded (or didn’t) during those difficult times.
Several important concepts come to mind, especially about the importance of maintaining strategic discipline, but the first I’d like to point out is that your challenges will probably be driven by your strategy.Put another way – you will probably have challenges, but different strategies will lead to different problems during a recession.
If you are pursuing a specialty strategy, you are probably already seeing increased price pressure and declining volume.If you are pursuing a commodity strategy, you may be experiencing the same thing.The difference lies in how you are experiencing these pressures.With a good specialty strategy, you can give up margin and still have room for profit.With a good commodity strategy, you can give up volume and still keep your operation humming.If you have made the mistake of pursuing a “hybrid” strategy – a bit of specialty, and a bit of commodity – you are in for a world of hurt, because you probably don’t have enough margin cushion and you probably don’t have volume cushion, either.
Assuming you have been following the advice in Simplified Strategic Planning, you have a clear specialty or commodity strategy, though – and this means your adaptation to a recessionary environment should be simpler and more effective.If you are using the specialty strategy, you need to find a way to adapt your operation to a temporary decline in volume.If you are using the commodity strategy, you can maintain volume if you can manage past a temporary decline in your already thin margins.Obviously, this highlights yet another reason we tend to prefer specialty strategy – scaling a specialty company for lower volumes is much simpler than adapting a commodity company to even thinner margins.
The following article reports on the results from our Acquisition Survey. We wanted to learn more about acquisitions from our Course and Direction readers so that we could see what role acquisitions play in developing and executing your strategy. The results show why you were pursuing an acquisition, what you considered when evaluating an acquisition and how you evaluated your success. We end the article with your comments concerning what worked and what were the lessons learned. If you would like to add your experience, click through and add your comments to our blog.
With the slowing of business, lower sales, fewer orders, lower profits, the question arises: What can we cut or postpone so we can make it through these tough times?
Too often, the opposite question is not asked: What should we not cut, so we can make it through these tough times?We suggest that strategic planning definitely be one of those activities that you not cut.
The reasons for continuing to plan are multiple.First thing to do is to be looking ahead to see where the problems lie.You need to use your experience and perspective to peer into the future, so you will be prepared for any of the possible scenarios which may play out.
You should be building on the possible scenarios so you will be prepared if things get even worse.What actions should your company be taking to lower costs, to conserve cash, to increase profitability as much as possible given the conditions?And, you should be looking ahead enough to start planning for the recovery.What does the company need to do to be ready when the economy starts to improve?How can we be ready for the turnaround when it comes?What do we need to do now so we can take advantage in the marketplace as things improve?
All of these considerations should be a part of your ongoing strategic planning.You should be looking at both the downside and the upside scenarios to be ready for what lies ahead.Without a formal strategic plan, you well could be caught unready for whatever lies ahead, and that could have serious consequences for the company in the future.A well-thought-through strategic plan is vital to future successes, and saving a few dollars now by not doing strategic planning may cost you many times that investment in the future, whether the economy and business slow further or turn around and start back up.
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 finally arrives.
Stealing from customers. Some would tell you it’s the secret to profit in today’s economy. If you are only worried about the next quarter, it is. You can always make more money in the short term by delivering a little less than your customers expect. For example, if I am making automobiles, I can use less steel, making the body lighter and, unfortunately, less durable than previous models. Customers won’t know the difference until years later, when that model starts to fall apart faster than its predecessors. Did I get the same price from the customer as I did for the earlier, more durable design? You bet! So why wouldn’t I continue to behave this way, cutting little bits of value out of my product or service in order to fatten up the bottom line at the customer’s expense?
Obviously, this strategic approach starts your company down the road of commoditization. If you are pursuing a commodity strategy, you should already be driving towards the “no-frills” experience your customers are willing to pay for. But for a company with a specialty strategy, this amounts to trading some of your specialty status (usually irrevocably) for short-term profit.
What do you think? Is this a viable strategy? If I’m an executive in a big auto company, who can’t even trust that I will have a job three or four years from now, why would I care? Are you adequately addressing this issue in your strategic planning process?
In general, we recommend that you hold Strategic Planning update meetings on an annual basis. There are a number of factors to consider when scheduling these sessions, which could alter the interval between cycles by a matter of months. Some of these factors include the status of their Action Plans, business conditions, unanticipated changes in your industry, when your annual budgeting process happens.Key is to avoid the pitfall of too many delays.
By Robert W. Bradford, CEO of the Center for Simplified Strategic Planning, Inc.
Once you have identified your reasons for making an acquisition and the specific enhancements you are seeking to your strategic competencies, your first stage of acquisition screening involves creating a list of potential acquisition targets. At this point, we don’t need to know much about the targets except that their acquisition is a possibility, and their strategic resources may include the desired assets or competencies we are seeking in our acquisition.You will want to capture six data points about each possible target: 1) Name, 2) Sales, 3) Ownership, 4) Competency Enhancement, 5) Asset Value and 6) Probability of Success.
Even for the most raw and rapidly conceived start-up company, the entrepreneur and initial management team have some strategy in place – some reason to believe that they should begin conducting business. For more established businesses, strategy has been in place from the beginning regardless of whether it was the result of careful consideration and study of the marketplace or whether it has been improvised over time in a series of convulsions reacting to customers, competitors and internal capabilities.The important point moving forward is that a company at any stage in its evolution will benefit from serious, deliberate evaluation of its company’s basic strategic building blocks (markets, customers, competitors, competencies, opportunities, threats and all the rest!). Once the business analysis has been performed and the company strategy is formalized, then structure should be chosen to support the strategy in the most effective way possible. The implication here is that a management team formalizing their strategic plan for the first time may realize that they need to make significant changes to their structure. In many cases, these changes do not require immediate, disruptive and, perhaps, risky re-structuring moves. Clear structural changes indicated by an adjustment in business strategy should be undertaken to maximize the long-term structural benefits without compromising existing revenue streams, customer and employee relationships and market position in the near term.
As CEO you should strive to maintain a balance in your meeting participation. On the one hand, it is important for you to be willing to “sit on your hands” and let the opinions and positions of other team members flow freely and uninhibited. Diverse opinions and the resulting “respectful arguments” are both healthy for your team and beneficial to the process. If you stifle this interaction by interjecting too much or too frequent input, particularly if it dominates the discussion, you run the risk of the plan becoming “your” plan and team members feeling that their participation was just superficial. On the other hand, a CEO’s insights are extremely valuable. You should not take a position of non-participation in the name of facilitating the input of others. It is also your responsibility to keep in mind any mandates that surround the process and be able to diplomatically steer the team back on course if the boundaries of these mandates are exceeded. Many CEO’s will opt for outside facilitation to help achieve this type of optimal balance.
By Stephen A. Rutan, Senior Consultant with the Center for Simplified Strategic Planning, Inc.
All around you, the air is filled with the sounds of despair as the economy limps forward. In the meantime, your strategy is sound, your business prospects still look good and you have decided that you refuse to participate in the current downturn. Here are three things that you should make part of your strategy in the months ahead: 1) Shop ‘til you drop!, 2) Sell! Sell! Sell! And 3) Toot your horn!
Ping THIS!
