Center for Simplified Strategic Planning

Category: Strategic Planning

  • Evaluating Acquisition Targets – Part 1

    By Robert W. Bradford, CEO

    Robert Bradford
    Strategic Planning Expert Robert Bradford

    Even with a strategically appropriate acquisition, price is an issue. In the end, one could argue there are only two prices that matter in an acquisition offer: the price offered by the buyer, and the price that the seller is willing to accept. Reality is a bit more complicated than this, but we should always have an idea of several different approaches to pricing an acquisition.

    The two simplest approaches to valuation are market value and asset value. In market valuation, you attempt to calculate what you could sell the target company for, while in asset valuation, it’s what you could sell the underlying assets for that is important. In both cases, valuation can be simplified if there is a clearly understood objective market for the company or its assets. This isn’t always true – but both approaches to valuation can be useful, if for no other reason than to act as a proxy for the value you (or some other buyer) could extract from the acquisition with no further effort at integration.

    Operating value is an attempt to understand the value of the target as an operating business. A simple approach to this would be to attach a value to all anticipated cash flows of the target and discount them. In reality, many acquisition deals are initially priced using this model. This makes sense, because it reflects the true value of the target to the current owners at the moment of the sale. Any price paid that is above the operating value must include some value based on assumptions about the future value of the business – either independently, or to the buyer.

    Operating value could also be modified by assumptions about the integration of the target with the acquiring firm. This value – the integrated operating value – is very useful to the buyer, since, with valid underlying assumptions, it may help identify a target whose sale price is lower than the value the buyer could extract from the acquisition. Generally, you would figure integrated operating value by making assumptions about the increased revenue and decreased costs the combined companies would experience. In practice, many people pay much more attention to the decrease in costs, because it is easier to trust that cost savings can be effected (for example, by reducing head count in overhead operations like accounting and IT) than it is to trust that revenue increases will result from an acquisition.

    Strategic value is much more difficult to calculate. In addition to the integrated operating value, you need to make assumptions about the strategic impact of the acquisition and attach a value to that impact. For example, a software company acquiring a competitor may gain the following strategic benefits: access to new technology, elimination of a market-disturbing behavior (such as aggressive pricing), a broader human-resource base, a wide range of cost reductions due to economies of scale, the ability to combine technologies from both companies to create value for customers, the ability to expand distribution, product development or marketing due to increased size. Few of these values are widely understood – how, for example, would you put a number on “access to a broader human-resource base” – and this is one of the critically difficult areas of evaluating truly strategic acquisitions.

    Robert Bradford is President/CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at .

  • STRATEGIC PLANNING IN THE RECESSION

    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.

     

     

  • IS YOUR COMPANY TAKING ADVANTAGE OF THE SLOW ECONOMY?

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

    Strategic Planning Expert
    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.

    © Copyright 2009 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution
     
     
     
     
     

     

  • Internal Communications for Effective Strategic Implementation

    Strategic Planning Expert
    Strategic Planning Expert

    by M. Dana Baldwin

    One oft-forgotten practice which should be considered even more important during this turbulent time is communications within your company. As you might consider once you reflect on the situation within your company, people are concerned about their futures, the future of the company and generally how things are going.

    There are a number of elements which you should include in your planning for your internal communications:

    First: To whom are you addressing your communication? When you want to get a message across to parts or all of your company personnel, you should determine which group you are addressing, so your communication is couched in terms that are meaningful and relevant to that specific group. Generally, one doesn’t speak to engineers the same way that one addresses accounting or purchasing people. This is not because they are not all capable of absorbing your message, but rather because you want to make it as easy for them to get the points you are trying to deliver in the most effective manner for them to understand and remember.

    Second: After determining how you should address each group to get the best from the interaction, you need to be very specific about the message you are trying to communicate. You need to be clear, unambiguous and direct. Do not hint at what you are trying to say, bring it out loud and clear. Be specific and don’t ramble. Don’t make excuses and don’t apologize for laying out the facts and their impacts on the company. It is important for everyone hearing your message to believe that you are being open and forthright. If they can’t trust you to be honest with them, they won’t accept the validity of your message.

    Third: Be sure to take time to build your message carefully. It is imperative that you say what you need to say, and that you are very clear in what you are planning to do. Think about what the impact of your words will be on your audience. Don’t scare them if there is little reason to do so. But don’t pull your punches either. Be sure you have a clear understanding of not only what you will say, but how you will say it, as both parts of the message will be read by your audience, and if your body language and actual words are not consistent with your intent, they will perceive this, and will not trust your communication.

    Fourth: Make your message one which they will remember. As stated above, clarity and consistency are vital. Be clear, be memorable to the extent appropriate to the message, and the audience will respond as well as can be expected under the circumstances. In order to get your point across, follow the old rule about speeches: Tell them what you are going to tell them. Tell them. Tell them what you have told them. Do all of this in terms that your audience will respond to and will remember.

    Fifth: The final point to make here is that once you make a commitment to your audience, you must live up to it. If circumstances change in such a way to prevent your being able to follow through as you originally committed, you need to bring the group back together, explain what has happened that prevents your meeting your commitment, and explain to the group what the new direction is, and why it is appropriate for you to change direction.

    With consistent, appropriate communications, and good follow-through, your team will appreciate your efforts to communicate effectively, and you should get better buy-in to your aims and goals, and better understanding of the reasons you have for the actions you have selected.

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

  • Retaining Your Customers

    Strategic Planning Expert
    Strategic Planning Expert

    These are difficult times for many companies. For some this may be an understatement, for others not so much of one. Stepping back and looking at your business from the outside, are there things you should consider concentrating on and/or doing better to keep those customers you have? Chances are that there are a number of things you could do to improve your communications with and relationships with your current customers.

    Even if many of your customers are not able to buy as much as they were buying a year or two ago, with their business shrinking to some degree, it is worthwhile to make every reasonable effort to keep these customers as happy as you can with what you offer, be it product or service based (or both).

    There are three simple reasons for this effort to be made. First: You need to make every sale you can to keep your own business viable during this slowdown period. Second: You should aim to retain as much of their business as you possibly can so when the turnaround comes, you have built on your relationship with each customer to the best possible extent. The goal here is to be the source for each customer’s needs when business returns to higher volumes. Third: Current customers are usually less expensive to keep than new customers are to find, develop and cultivate into regular customers.

    How can we do this in an environment where everyone is looking to cut costs, reduce staffing and/or minimize inventory investment in order to survive these difficult times?

    Read More (case study included)

  • Strategic Planning: To Do or Not To Do – That is the Question

     

    Strategic Planning Expert
    Strategic Planning Expert

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

    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.

  • Strategic Planning Blunder – Stealing from Customers

    Robert Bradford
    Strategic Planning Expert Robert Bradford

    by: Robert Bradford, CEO, CSSP, Inc.

    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?

  • Screening Acquisition Targets – Part II

    Strategic Planning Expert
    Strategic Planning Expert

     

    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.

    Read More

  • What is the optimum level of participation for the CEO during the planning meetings?

    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. (more…)

  • Screening Acquisition Targets

    Robert Bradford
    Strategic Planning Expert Robert Bradford

    By Robert W. Bradford, CEO of the Center for Simplified Strategic Planning, Inc.

    Many of our clients have found themselves considering acquisitions in this time of uncertainty. In this coming series of articles, we will discuss the process of acquisition screening and give you some tools to make the process easier. 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. Having established this list, some quick evaluations can be made without a great deal of homework. You 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

    Acquisition Strategy -Read More

  • Is it “just” an operational issue?

    operations and strategic planning
    Can operational issues change your strategy?

    It’s not unusual, in strategic planning, to hear a team member say  an issue is “just an operational issue”.  In many cases, this may be correct – lots of operational issues don’t belong in your strategy discussions.  In other cases, how your operation works can be central to the success – or failure – of your strategy.

    Strategy at Wendy’s

    Consider Wendy’s restaurants.  Of course, Wendy’s makes burgers, shakes, fries – typical fast-food fare.  Strategically, Wendy’s differentiated themselves for years by making the burgers “fresh”, to order, after the customer came into the restaurant.  This is a marked contrast to the fast-food practice of keeping hot food on a heat source until it is needed, and it’s operationally a bit more difficult.

    The real difficulty included two elements that are vital to fast-food success:  speed and cost.  When you aren’t putting a burger patty on a steam table to keep it warm, it will spoil faster and must be thrown out.  This means that the failure to keep some patties warm will lead to waste, in an operation where the cost is critical.  It also means that every burger you sell will have to go through the cooking process between the customer coming in and when they get their burger.

    Making it quickly – AND cheaply

    Wendy’s addressed this issue by using a formula for putting patties on the grill as soon as the customers came in the building.  If three people come in, for example, you might assume two will get a double, one will get a single, and one will not get a burger at all.  This means you’ll want to have five fresh-cooked patties as soon as possible after the customer places their order.  If that were a typical scenario, Wendy’s would want there to be five patties places on the grill for every three people walking in.

    But what if no one orders a burger because they are just there to get French fries?  Wendy’s had a good solution to this – they would throw the unused patties into a chili pot, so that the meat wouldn’t be wasted.  So Wendy’s sold chili as a way to keep costs down while serving freshly made burgers.  Is this an operational choice?  You bet.  Is it strategic?  Also yes – because anything that determines what you sell, to whom you sell it, or how you beat your competition is strategic.  Thus, selling chili, an operational choice, was the core means by which Wendy’s beat their competition with freshly made burgers.

    In this case, the operational choice was absolutely strategic.  It was strategic because the differentiation of the Wendy’s brand rested on freshly made burgers. This would be either slower or prohibitively expensive if Wendy’s didn’t have a simple way to handle the vagaries of customer behaviors.

    Your Strategic Operational Choices

    In your operation, you may have options like this.  Some choices you make in your operation will affect speed, cost, quality or customer preferences.  Companies that try to do all of these things well are unlikely to beat competitors at any of these elements.  This is very common in industries where no one is dominating.  Breakout strategic performance only happens when you choose to do something that differentiates you from your competitors.

    Is making chili an operational choice for Wendy’s?  Certainly.  Is it JUST an operational choice?  Absolutely not.

    The strategic question for most organizations is “How can we operate differently to better serve our specific target customers?”.  If you can come up with your own Wendy’s chili, you can.  The key strategic choice here is picking a way you can be better.  The operational choice is working through how your operation supports that.  I’ve seen this happen in many industries – airlines, financial services, manufacturers, and publishers, to name a few.  So, the question for you is how can YOU set yourself apart, operationally?

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  • What people get wrong in strategic planning – part 3: data sources and estimates

    In my last two posts, I discussed two of the three things that people get wrong in strategic planning:  information and buy-in.  Today, I’ll be discussing the third thing:  sources and estimates.

    Data Sources

    As I mentioned in a previous post, people tend to want to find definitive sources of data for their strategic planning.  These sources rarely exist.  This is because the cost of aggregating the data exceeds the value available from selling the data.  I would take any published statistics on a very small market with a grain of salt, but they can be a good starting point.

    This leaves you with

    • your own data

    • proxy data, or

    • estimates.

    Each ot these may challenge you, but used properly they will give you a way to make unknowable data useful for strategic planning.

    1. Your own data

    Your own data may be sufficient for assessing markets if your share is large enough.  If it isn’t, you may need to “triangulate” your data with other sources to confirm its accuracy.  Even if it’s not enough, it is a good data point to start with.

    2. Proxy data

    Proxy data is simply data that is  indirectly representative of the data you need.  For example, if you wanted to establish the size of the market for mental health services for teenagers in a state, you could use other services as a proxy.

    Elective dental procedures might not seem like a good proxy, but they involve a choice to spend considerable money on a child’s health and well-being by parents – and this spending is not often covered by the most popular insurance plans.  This means that the known data – dental procedures – may help us understand how much money parents are willing to spend on their teenagers health.

    There are definitely flaws with any proxy you choose, and this one is no exception.  Mental health treatment still carries some shame for parents, but is sometimes considered an urgent need.  Even with these limitations, the proxy gives us a general picture of spending on teenage health.

    A more useful proxy may be available in some markets by looking at the market for some input, like steel for machinery or oil for certain chemicals.  Again, this isn’t perfect, but it will get you close to the real answer.

    If you can look at multiple proxies, you start to get the real “triangulation”.  This is because understanding the relationship between those numbers and the number you see will illuminate your own answer.  It is also far less likely you will make a bad decision if you consider the data from multiple sources.

    3. Estimates

    Estimates may involve the first two items – your own data and proxy data, but include some reasoning and judgment about the final answer. Fortunately, you don’t have to be perfectly accurate in your estimates (though it helps).

    In my experience, many are intimidated by the process of making good estimates from a skeleton of reliable data.  One of the key pitfalls here is spending too much time and money trying to get perfect data, when it is largely impossible and usually unnecessary.  The key to a usable estimate is simply to show your work, so that the reasoning can be considered in your strategic planning meetings.

    For example, with the dental/mental health proxy, we can make a decent estimate.  If we know that parents in a state spend an average of $3,000 per child on dental care, we know that the mental health number is unlikely to be twice that number.  It’s also unlikely to be less than half that number.  Your challenge in estimating the number you use will require you to reason about why it is higher or lower.

    Once you have an initial estimate, you can check it against other data sources.  One good check is to estimate the sales of everyone in the market, and compare it to your estimate.  Another is to get information from suppliers about how big they think the market it, and compare that.  It’s unusual that these two additional data points match an estimate exactly.  Regardless, if they are within 20% of your initial estimate, you are can probably use it in your strategic planning.  As I often tell clients, our goal the first year is to hit the broad side of a barn.  Naturally, in later years we should refine our understanding of the market.

    Your experience – and an offer

    What is your experience with the data you use in your strategic planning?  Have you practiced making good estimates in the past, or do you shy away from it?

    If you are using Simplified Strategic Planning, you may want to schedule a homework assistance day with Robert Bradford.  Robert makes the entire day available to your team to schedule 1:1 or team Zoom calls to go over strategic planning homework and tune it up for use in your strategic planning.  There is a limited number of slots available, and there is a special price offered until March 6

    Sign up at https://strategicplanning.clickfunnels.com/order-strategy-homework-help