By Denise Harrison, Vice President

Strategic Planning Expert

Recently I was talking to a company president – he was frustrated that a large project was off track.  What happened?  Well, during the recession, his team bid on a significant contract for a large company; the contract included requirements that were a stretch for his company.  Traditionally the team focused on small to mid-sized businesses, but during the recession they decided to bid on this contract in order to bring in additional revenue.  The result?  Resources were being pulled off other projects to meet these requirements, and unfortunately the large customer was not happy because the project was not progressing smoothly.  Even worse, the smaller traditional customers were unhappy because resources normally available to them were working on the large project.  Has the recession caused your company to take on business that is pulling you away from profitable business? 

Re-focus Your Efforts 

Yes, during a recession it is easy to look at any business as good business.  But often companies take on business that does not leverage their competencies and/or causes it to misallocate resources. This new business may cause resources to be spread too thinly, working on projects that may bring in revenue, but are not profitable, or, more critically, divert resources from core, profitable customers.  In order to emerge from the recession in a strong position, it is important that you take the following three steps: 

1.      Re-assess what your company does well: “Know thyself”

a.       Understand where your competencies are:  what are those skills, processes and knowledge that are most valuable to your customers?

b.      Know what your company does do well, and what it does not do well, so you will concentrate on serving the customers who value what you do not only during the recession, but for the long term.

2.      Identify market segments or customer groups that you currently serve – and focus on the ones who value what you do well: “Cherish thy core”

a.       Do these segments/customers select your company because they value the things that you are good at doing? These are the customers that will be profitable.

b.      Or are there some segments/customers that simply came to you during the recession when you were trying to get business – any business to shore up the top-line. Re-focus on the profitable segments.

3.      Once you have identified the segments that value your competencies then look within the segment and identify who the winning customers will be during this recovery: “Know thy customers”

a.       Customers who were doing well before the recession may not be the same ones who are doing well after the recession. 

           i.      Some customers within these segments are not positioned to grow during the recovery.  Many         have taken cuts that will not allow them to take advantage of the recovery. Others are still hurting financially.

           ii.      Industries may have changed and requirements for gaining market share may have altered – different companies make take the lead.  Look at how the landscape in the financial industry has changed – some market participants are gone – others merged with more successful companies. Identify who the winners will be during this recovery. 

Often recessions cause you to de-focus your efforts.  As you develop your strategy for the recovery make sure your team re-focuses its efforts so that it is concentrating on leveraging the competencies that you have and that your customers value.   These will be the segments and customers that will allow your company to grow profitably during this recovery. This renewed focus will allow your team to outperform your less disciplined competitors who are still chasing business, as if all business is good business.

Denise Harrison is Vice President of the Center for Simplified Strategic Planning, Inc.  She can be reached at harrison@cssp.com

By M. Dana Baldwin, Senior Consultant

By Denise Harrison

by Denise A. Harrison, Vice President

Strategic Planning Expert

Smaller companies often feel dwarfed by the giants in their industry, especially during tough times.  Often industry giants are better at weathering economic downturns with their wide array of resources. But Arena Resources’ strategy not only allowed the company to survive this economic downturn, but turn in exceptional performance – better than the industry leaders.  Arena Resources, a small oil exploration and production company, has less than 2% of the revenue of the industry leaders (Shell, Exxon Mobil).  In addition, very few industries have had to endure greater fluctuations than the oil industry with oil price highs of $147 per barrel in July 2008 and lows of $30 per barrel in December, 2008.  How did Arena Resources make it onto the Fortune list of fastest growing companies (#8) in spite of this industry turbulence?

The Road Less Traveled

Arena Resources chose not to compete directly with the industry giants, instead it focused on oil production assets in the southwestern United States that were no longer attractive to the industry Goliaths.  The cost of drilling and producing oil in this region exceeded what was acceptable in the larger companies’ financial models; these companies prefer to concentrate their resources on exploration of large oil fields with large potential.  When Arena purchased land in this region (approximately 11,000 acres), the land produced 200 barrels of oil per day. Arena knew through its research and evolving technology, which through investment the land could be more productive.  Through Arena Resources’ focused efforts this land is now producing 6000 barrels per day.  The company does pay a high cost to produce a barrel of oil – almost $35 per barrel, so when oil prices decline significantly, profitability plummets; but when oil prices are over $60 per barrel the company makes a nice profit. Arena is betting that the price of oil will remain over $60 per barrel for the significant future.  The high cost of production and the relatively small output is not attractive to its behemoth competitors, so this strategy to take the road less traveled allowed Arena Resources to grow profitably without going head- to- head with the major industry players. 

What about Your Company’s Strategy?

Many companies decide to compete in markets that are attractive, even though larger competitors with greater resources are already firmly entrenched or aggressively pursing these markets.  Going head- to- head with industry giants often drains the resources of a smaller player with little forward progress in their market position.  Are you going after the attractive markets that set you in direct conflict with industry giants?  Are there niches that you could pursue that are not interesting to the larger companies? As you develop strategy your team should consider:

1.      Market segment attractiveness (including growth and profitability)

2.      Your competitive position in a market segment – what is the competition’s market share?  Are competitors already firmly entrenched?

a.       What other companies compete in this segment? In this case companies like Exxon and Shell focus their resources on exploration, looking for the big prizes.  Arena focuses on production, but the production increases that are attractive to Arena Resources are too small to concentrate on from a larger company’s perspective.

b.      What are the competencies required to compete this market? Do we have them?  Are there strategic competencies that give us significant differentiation? In Arena Resources’ case, its competency is secondary recovery from known oil and gas resources – little exploration risk but a requirement for execution excellence.  Their competency comes from their knowledge of the geology in the basin in which they work, combined with their technical skills in secondary recovery.

In order to compete and win, you must consider both market attractiveness and the competitive landscape of all of your market segments before you select the ones on which you will focus.  You will often find a segment that is smaller has less competition and will provide your company with significant growth and profitability.  In strategic planning, selecting the road less traveled may be a key ingredient to your company’s success.

Denise Harrison is Vice President of the Center for Simplified Strategic Planning, Inc.  She can be reached at harrison@cssp.com.

By Charles L. Bradford, Founder and Chairman

Recession or Depression

Are we in a recession or a depression?  Whatever we call it is only a matter of semantics and really doesn’t matter.  The fact is that the economy is off by about 15% and still heading down.  What really matters is that businesses are suffering from a substantial loss of revenue, causing significant cash flow problems.   

First Survival

Couple substantial revenue loss with cash flow problems and a tighter credit market, and you have a crisis.  The three overarching goals for business have always been growth-ability, profitability and survivability.  Today, for many the paramount goal is surviving.  The knee-jerk response to this is a) an all-out scramble for more revenue and b) massive cost cutting.  Now, there is nothing wrong with seeking more sales and eliminating truly unnecessary spending.  However, there is a great deal wrong with doing it excessively or poorly.

Proactive marketing and sales is always good.  But a knee-jerk obsession with sales often leads to wasting valuable time chasing sales that are not going to happen.  Even worse, it often involves marginal pricing which damages profit margins.  And damaged profit margins are very difficult to reverse after the crisis is over.

Excessive cutting of “discretionary” spending also can do further damage.  There are things you spend time and money on that are not absolutely essential for short-term survival, but are essential for long-term success.  Cutting these is “penny wise and pound foolish”.  

Uncertainty

The problem facing you is made worse by great uncertainty about the economy.  How bad will it get?  When will there be a recovery?  How far and how fast will the recovery be?  What will our business climate be like after the recovery? 

What we do know is that :  

1. Things will get worse before they get better.
2. The bottom will probably not be reached before the end of 2009.
3. Things (e.g. competition and market behavior) will be very different after the recovery than before the downturn.
4. Anything else, including the particulars regarding what we know, is uncertain.

Strategic Planning Now?

We hear the following story many times from clients and prospective clients: “We want to do strategic planning, but not now, because a) we are all too busy scratching for new business, b) strategic planning is discretionary spending (i.e. not essential to short term survival) and c) we can’t plan when there is so much uncertainty.

What is wrong with this?  As previously pointed out, obsessive selling and the elimination of things that are non-essential for the short term but essential for the long term are damaging responses to the downturn.  Furthermore, great uncertainty is a reason to do strategic planning – rather than a reason to not do it.  Your entire situation has changed drastically.  Your strategy (intended course and direction) is probably in great need of review and revision.  It is time for a fresh look.

Strategic Planning Options to Consider

You have some quick and inexpensive options.  Fast Track Strategic Planning is a thorough strategic planning process that takes less time and money.  The In-House Strategic Staying Power Workshop is a one-day program specifically designed to give you a fast, low cost way to update existing strategic plans.  Or you can try to do it yourself using the Simplified Strategic Planning Manual.  (DIY is obviously less expensive, but it is more time consuming.)

Charles Bradford is the fonder and Chairman of Center for Simplified Strategic Planning and can be reached at cbradford@cssp.com.

By Steve Rutan

The recovery will come.  Regardless of whatever pain and turmoil you may have been through during the last year, you have managed to survive.  It’s time to begin thinking about what you need to do in order to be ready for better times ahead.  While you cannot be sure of the timing, you can prudently prepare yourself for the upswing.  Here are three important actions that you should be taking right now:

1.      Sustain your Marketing Message

2.      Align your Supply Chain

3.      Assess your Human Capital

Consider this recovery planning effort to be the opposite of the contingency planning you do when you are bracing for a downturn.  The potential for increased sales, profits and market share will be realized by those companies that are ready when the party starts.

Sustain Your Marketing Message

It is wise to maintain your marketing efforts during a downturn.  Depending on how hard hit you have been in the last several months, you may have made drastic reductions in your marketing efforts and expenditures.  Regardless of the present condition of your marketing program, it is time now to polish your message and begin to get your customers excited about your products and services again.  Use the resources at your disposal and the weeks or months that remain before the recovery gains serious momentum to renew your customers’ inclination to buy from you. 

Align Your Supply Chain

As they say in business: Timing is everything.  Constantly monitor your prospects for improving sales and strive to completely understand the impact that your supply lead times will have on your ability to satisfy demand as it picks up speed.  You want business to improve; your suppliers are also eager to see you increase your orders.  Spend extra time in contact with your vendors and make sure you are prepared to match your lead times with the pace of increased sales.  The idea here is to make sure you do not drop a single order due to a shortage on the supply side of your business equation.  When the recovery picks up steam, expect that the entire supply chain will need to re-stock inventories to be responsive to rising demand.  Your readiness in this area not only puts you in a position to recover your lost sales, it allows you to gain market share if your competition is not taking similar steps

Assess Your Human Capital

You may still be reeling from the anguish of having released valued long-term employees.  As business picks up, you will be more likely to be in hiring mode again.  With the same energy and analytical skills that you dedicate to examining your physical supply lines and support services, it is time to assess your human capital needs and tune up your recruiting and hiring processes.  There is plenty of talent available in the market right now.  Be ready to support all aspects of your business as the economy and your customers’ activity levels provide you with the confidence to re-load.

If short-term cash flow is still a compelling tactical concern, plan your near-term expenditures around variable costs and minimize your financial risk.  Spend money on activities that are connected directly to near-term sales and profits. 

·        Add marketing money where it is most likely to recapture sales immediately. 

·        Begin to replenish your supplies inventory in those areas that are likely to be translated into sales, cash flow and profits as soon as possible. 

·        Add people to operations processes that will directly contribute to your bottom line. 

By following these three guidelines, you will see the short-term tactical benefits to your business health that will enable you to once again pursue your long-term strategic aspirations.

Steve Rutan is a Senior Consultant with Center for Simplified Strategic Planning, Inc. He can be reached at rutan@cssp.com.

by: M Dana Baldwin, Senior Consultant, CSSP, Inc.

Strategic Planning Expert

In these uncertain times, it is very important to do things right, right?  Absolutely!  But doing things right is only good if you are doing the right things! What are some of the right things to do?

Make your company invaluable to your key customers.  Your company should be focusing on serving your core customers to the best of your ability, so they will continue to buy from you, even if those purchases are at a much lower level during these trying times.  But, are you really doing the right things to build your relationships with those key customers and clients that will keep them as customers when the economy finally does rebound and sales volumes really do increase.

One thing you should consider doing is working to become deeply integrated into your key customers’ operations.  For example, if you supply components to a manufacturing company, are you working with their purchasing group to optimize value for your customer?  If your customer does a lot of research and development for their product offerings, are you involved as a resource in the engineering and development areas of the company?

The purpose of these types of efforts is to become more important and more valuable to each customer.  By becoming better integrated into the fabric of those customers, when a customer has a need you can meet, your company will be the first one they think to ask for assistance with their problems.

Get rid of those things that are no longer necessary to the mission of your company.   Every company builds up things which are not necessary to the effectiveness of the core business during low volume times.  Those things that are outside the core business arena, or are no longer used and likely won’t be needed in the future, should be trimmed if doing so will help lower costs, provide more liquid assets (cash) in place of the unused items, or free up space which could be better utilized, either now or when business picks up in the future.

Look to the future.  Work hard at trying to predict where your markets will be headed once the economy starts to recover.  Look for niches where your expertise and your customers’ needs match, and brainstorm solutions to their problems. 

One approach is to develop new applications for existing products or services.  One company which sold lasers for measurement systems determined that there was a limited but potentially lucrative niche in applying laser measuring systems to parts of wind generator units.  While their original business segments are languishing, this new application is doing quite well.  The potential volume is modest, but for a smaller company, it is a lifeline.

Another stratagem is to work hard to anticipate how your company can better be a part of your customers’ futures.  Work to help them survive the slow times, and innovate so that you will be more valuable in the future.  Building these relationships, especially if you can do it while others are husbanding their resources, will very likely enhance your competitive position not only now, but when the economy improves. It should result in your expanded relationships becoming that much better, and closer, for both.

M. Dana Baldwin is a Senior Consultant with Center for Simplified Strategic Planning, Inc. and can be reached at baldwin@cssp.com.

by Denise A. Harrison, Vice President

This week we asked our readers to fill out a survey concerning current business conditions and their approach to these conditions.  A brief summary of the results: 

• 40% of survey participants expect revenue to decrease by 20% or more
• 20% expect revenue to increase by 20%
• 74% of survey participants cut administrative expenses
• 60% have had staff reductions
• 60% are streamlining their processes.
Click here to see the detailed results.

 

Strategic Planning Expert

by Denise A. Harrison, Vice President

By Robert W. Bradford, CEO

Strategic Planning Expert Robert Bradford

One of the intractable problems of economics is that first-time buyers bring a lot of uncertainty about the value they will receive to a transaction.   An excellent example of this is to compare the sale price of new electronic items on eBay with those at an online retailer like Amazon.com – inevitably, the individual sellers on eBay will be selling the same products at some discount to the prices on Amazon.  This happens because most online buyers have some experience buying from Amazon – and no experience buying from a specific eBay seller (of which there are thousands).

Your company faces this same “value uncertainty discount” when selling to a new customer for the first time.  Your customer, never having experienced doing business with you, does not know much, if anything, about what that experience will be like.  Will you be accommodating or difficult?  Will you be generous or nickel-and-dime the customer?  If there are issues, how easily and quickly will you handle them?  In many markets, these are not trivial questions.  Indeed, for customers in some markets, the answers to these questions are more important than some of the basic features of your products or services.

Imagine you are a customer who is looking to switch suppliers – or establish a new supplier – for a given product or service.  If you have no way of establishing confidence about the utility of the relationship with a given vendor, you are very likely to discount it entirely.  This can lead to very commodity-oriented buying behaviors, which isn’t really in anyone’s long-term best interest.  The smart customer, then, starts looking for signals that you might offer more than the basic product or service.

Here are a few clues that people commonly look at when trying to establish value:

1.      Referrals from other customers – perhaps the most credible clue

2.      Guarantees

3.      Price (higher price signals more quality/service)

4.      Advertising

5.      Quality and responsiveness of sales support

6.      Appearance of “packaging” – including sales literature, and possibly even your plant and office

There are more – but this list should give you some ideas about how you may signal higher value to prospective customers.  Clearly, it is the function of your marketing to address how you will signal this value – and it one of the primary tasks of strategic planning is to assure that other elements of your business, such as finance and operations, reinforce that value in execution.

How do you signal value to your customers in your marketplace?  More importantly, is this signal any different or more credible than your competitors?  Strategic planning is an excellent time to consider how to set yourself apart from the competition in this way – and having your human resources, IT, customer service, operations and product line support this vision is a wonderful way to increase the strategic muscle and staying power of your business.