Center for Simplified Strategic Planning

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  • Lessons Learned: How Good Strategy Can Be Hurt by Poor Execution-Caterpillar Identifies an Attractive Market; but Outcome Hurts Bottom-Line

    Denise Harrison
    Strategic Planning Expert

    By Denise Harrison, Executive Vice President & COO

    “As part of Caterpillar’s strategy the company has identified the mining industry and improved support of its customers as one of Caterpillar’s key imperatives.” (Press release, 11/10/11)

    What trends did Caterpillar see that made the mining industry attractive?  The trends that were identified included:

    • Current and future growth of developing nations and their increased reliance on energy to raise standards of living
    • China produces more than half of the world’s coal – a key source of energy for the developing world (Hence, why Caterpillar identified China as key to its mining imperative’s success.)
    • A recent upsurge in mining accidents in China resulting in increased scrutiny by regulators and enhanced safety standards
    • Increased safety standards escalate the demand for automation which has been shown to reduce the number of accidents causing injury or death
    • Labor rates are increasing in China and automation of mining functions would boost mining efficiency and increase profits for mining companies

    In order to achieve its strategic imperative in the mining sector Caterpillar saw China as one of the keystones in its growth strategy. In order to capitalize on the opportunity quickly, Caterpillar decided that an acquisition would be the best way to gain traction in the market.  Caterpillar decided to buy ERA Mining Machinery, Ltd., a hydraulic roof support manufacturer.  Caterpillar purchased ERA for approximately $885 million.   The Caterpillar team expected to leverage ERA relationships and reputation to strengthen its position in the growing Chinese mining market.  Caterpillar also planned to leverage its global presence to sell ERA products world-wide.

    The Result:

    In spite of the fact that Caterpillar has operated in China for over 30 years, and has over 20 facilities in China, the company’s due diligence did not uncover significant accounting irregularities including inaccurate inventory data and revenue recognition issues.  This led to a write-off of $580 million in 2013.

    Lesson learned:

    Evaluating market attractiveness by analyzing future market trends is paramount for a good strategy.  However, a good strategy must go hand in glove with superior execution for a successful strategy. Often companies become so enamored with an acquisition and its possibilities that they overlook the weaknesses.  To learn more about what to look for when evaluating an acquisition, please  listen to our webinar: Acquisition: 8 Steps to Success.   Please click here.

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

    © Copyright 2013 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.

  • AI Hype vs. Human Reality: Ford’s Pragmatic Lesson for Mid-Market Strategists

    In the world of strategic planning, it’s easy to get swept up in the latest technological wave. AI, in particular, often promises a silver bullet for efficiency and cost savings. But a recent story from Ford offers a powerful, pragmatic lesson for mid-market business leaders: sometimes, the best solution isn’t the newest one.

    Ford, a company synonymous with manufacturing innovation, recently found its advanced AI quality control systems falling short. Despite the promise of automation, these systems weren’t delivering the expected results, leading to ongoing costs like warranty coverage and recalls. Their solution? They rehired 350 experienced human engineers – the “gray beards” – to not only oversee operations but also to train younger staff and, critically, to train the AI tools themselves. This move is already saving them hundreds of millions of dollars.

    So, what does this mean for your mid-market business?

    The ‘So What?’ for Mid-Market Leaders

    For businesses with limited resources, a misstep in technology adoption can be incredibly costly. Ford’s experience highlights several crucial strategic considerations:

    • AI is a Tool, Not a Replacement: The Ford story underscores that AI, while powerful, is most effective when it augments human capabilities, rather than attempting to replace them entirely. For complex tasks requiring nuance, judgment, or adaptation, human expertise remains paramount.
    • Value Your “Gray Beards”: Experienced employees possess invaluable institutional knowledge and tacit skills that are difficult, if not impossible, to codify into an AI system. Strategic planning must include how to retain, leverage, and transfer this knowledge. Don’t let valuable human capital walk out the door in pursuit of unproven automation.
    • Strategic AI Adoption Requires Pragmatism: Before investing heavily in AI, mid-market companies must conduct rigorous pilots. Define clear, measurable objectives. What specific problem are you solving? Is AI truly the most efficient and effective solution, or can human ingenuity, perhaps supported by simpler tech, do it better or more cost-effectively?
    • Resource Constraints Demand Caution: Unlike a giant like Ford, mid-market businesses typically cannot absorb “hundreds of millions of dollars” in AI-related failures. This makes careful planning, phased implementation, and a strong focus on ROI even more critical. Prioritize solutions that have a clear, demonstrable impact on your operational reality without excessive risk.
    • The Human Element in Training: Ford’s rehires aren’t just doing the work; they’re training the next generation and the AI. This highlights the critical role of human trainers in making any new technology truly effective. Your strategic plan for technology integration must include a robust human-led training component.

    Actionable Takeaways for Your Strategy

    Don’t let the siren song of AI lead you astray. Here’s how to apply Ford’s lesson to your strategic planning:

    1. Realistic Assessment: Before any major tech investment, clearly define the problem and realistically assess if AI is the best, most cost-effective solution.
    2. Pilot Programs: Always start with small, controlled pilot programs. Measure results rigorously against predefined KPIs before scaling.
    3. Hybrid Models: Explore how AI can enhance your human workforce, rather than aiming for full automation, especially in critical quality control or customer-facing roles.
    4. Invest in Experience: Actively engage and empower your experienced employees. Their wisdom is a strategic asset for training both new hires and new technologies.
    5. Total Cost of Ownership: Factor in not just the purchase price of AI, but also implementation, integration, training, potential failure costs, and the ongoing need for human oversight and intervention.

    Ford’s journey reminds us that in strategic planning, balancing innovation with practical reality, and valuing human expertise, often leads to the most sustainable and profitable outcomes. Don’t just chase the future; build it intelligently, with a clear understanding of what truly drives value for your business.

  • Is an Executive Coach Worth the Time and Cost?

    Strategic Planning Expert

    By M. Dana Baldwin, Senior Consultant

    As a C-level Executive, life in the office can be a lonely experience.  Each executive has few peers, and each of their peers has different responsibilities, different skills, different work atmospheres and different personalities.  While each C-level executive shares some of the same inputs and motivations, each one has his or her own challenges and opportunities.  Each one has different staff personnel with different responsibilities and tasks.  When it comes down to it, especially for Chief Executive Officers, life at the top can be lonely.  Especially in highly competitive situations within the company, there are few resources where the CEO can turn to have a private, personal relationship with someone who is experienced in the problems of senior management, the challenges of managing and leading a company and in whom the CEO has trust.

    There are a number of key characteristics an executive coach must have in order to be effective as a coach.  How does a coach develop the relationship with an executive to the point where there can be an effective relationship between the two?  In my opinion, there are a number of elements which add up to the building of confidence to a necessary level in order to make it worthwhile for the executive to pursue.  The coach should likely have considerable business experience in upper management.  The knowledge and skills of the coach should complement those of the executive.  Their personalities should be highly compatible.  This whole package should result in a high level of compatibility between the two.

    But is it enough?  It is necessary, but may not be sufficient to make the relationship between the two individuals work effectively.  When all is said and done, the most significant part of this relationship is the level of trust that the two have with each other.  Without this high level of trust between the two, the results will not be as effective as they could be.

    How does one develop the needed level of trust between two experienced executives such that they will communicate effectively, provide and receive effective counsel and establish a working relationship which will help the CEO (or other C-level executive) perform better in his or her job?  While each relationship is unique to the two individuals involved, there are some basics which likely will determine whether the relationship will work.

    Each of the two should have a sufficient understanding of the skills necessary to be an effective executive.  These should include the skills necessary to accomplish the elements of the job, the so-called hard skills: ability to understand and analyze data, define and prioritize goals and objectives, the ability to make informed decisions in a timely manner, and the perception to visualize situations from a wide, organizational perspective.

    Also, they should include the soft skills of collaboration, relationship building, and skill in working with and for others, the ability and willingness to hold others to their commitments and responsibilities, and the ability to effectively lead others.

    Leadership is about other people.  One does not have the freedom to consider only one’s own behavior, but must constantly consider the impact of their actions – and inactions- on those they are leading.  By having someone who has had similar levels of responsibilities and experiences, a coach, with whom they have built high levels of confidence and trust, the job of the executive can be made a little easier and more effective.  Where one can build such a relationship, the time, effort and cost should be worth the investment.

    Another article by Dana Baldwin discusses the importance of succession planning; to read please click on succession planning.

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

    © Copyright 2012 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.

  • Dare to be Different – How Choosing a Road Less Traveled Allowed Cummins Engine to Outstrip Their Competition

    by Denise Harrison, Executive Vice President & COO

    Follow the leader – or dare to be different – which works better?  The Center for Simplified Strategic Planning challenges client teams to dare to be different – based on our experience of working with many companies, this approach works best.  We have found that teams that try to follow the industry leaders or simply try to emulate GE or other successful corporations often fall short of their long term goals.  Why? Your company’s strategy should be based on your strengths and weaknesses and your differentiation in the market, rather than follow a “copycat” strategy.

    Cummins Engine and Caterpillar, Different Companies, Different Strategies

    Faced with tough North American environmental regulations for heavy truck engines, companies who made engines had to make some tough decisions: Caterpillar decided to exit the market, while Cummins decided to remain.  How can two companies look at the same external environment and come up with completely different strategies?

    • Caterpillar’s strengths lie in heavy equipment development and production for construction, agriculture and other markets; their expertise did not lie specifically in engine development
    • Cummins’ strengths lie in engine development and production

    The key takeaway: Good strategy is based on recognizing a market opportunity and having the skills to take advantage of it.  Caterpillar felt that their skill-set did not match the requirements for designing engines to meet the lower emissions standards and that their resources would be better focused on designing equipment for specific applications for growth.  Cummins, however, strictly focused on engines, believed that their skillset made them uniquely qualified to capitalize on the increasingly regulated environment.  Both companies can be correct – good strategies are based on selecting markets that value your unique competencies.  Cummins’ competencies around heavy truck engines allowed it to significantly increase market share when Caterpillar left the heavy truck engine market.

    Growth in Emerging Markets

    Just when engine manufacturers thought it couldn’t get any more difficult, the global game changed with the imposition of more stringent emissions requirements.  Tough – yes, but made even more difficult because each region around the world has raised its standards, and each one has a different set of requirements.  So, should they produce one engine to meet most of the requirements, sub-optimizing in trying to meet multiple requirements?  Or should they develop a customized approach for each region?  Cummins chose the latter even though, on the surface, it seemed less efficient.   This strategy has allowed Cummins to penetrate foreign markets faster than its competition.

    Now let’s take a closer look at how Cummins Engine dared to be different, and how they are being rewarded for their efforts.

    How Cummins Chose this Strategy?

    Emerging markets are often criticized for being able to compete on lower costs, due to a less stringent regulatory environment.  As these markets develop, they not only see the financial benefits of industrialization, but also see the cost, primarily increased pollution.  But as pollution becomes unbearable, countries are adopting increasingly strict environmental regulations.  Will these regulations follow the regulatory standards that are set in North America? Of course not, that would be too easy!  Emerging trends include:

    • Increased industrialization
    • Increased pollution
    • Increased regulations (but different for each region)

    Heavy truck manufacturers located in these regions had to decide:

    • Should we develop the technology to meet the regulations?
    • Should we buy the technology and focus on production as demand continues to increase?

    For many heavy truck manufacturers, the second option was more attractive because the skill-set required for more environmentally-friendly engines was not something that the manufacturers excelled at.  Why not outsource the engine design?

    Cummins saw these trends and assessed ways to meet the demand–one way they could have met the demand was by providing the North American technology.  However, Cummins had the foresight to understand that with the varying regulations, different solutions would be best for each region.  So rather then proceed with “one size fits all,” they chose to pursue a “fit-for-market” approach.  The regional truck manufacturers embraced the Cummins approach because this meant that they would not have to change their truck design in order to fit the Cummins engine requirements. Instead, Cummins would design an engine to meet their region’s environmental requirements.  Their competitors were chagrined at this approach, as they had taken the “one size fits all” approach and this strategy slowed their engines’ acceptance in emerging markets.

    Keys to Strategy Development

    1. Understand your strengths and competencies; leverage these to your advantage
    2. Know your markets; different markets have different requirements
    3. Evaluate long-term trends (e.g., pollution acceptable moving to unacceptable)
    4. Position your company to succeed by focusing on markets that value your unique skill-set

    Cummins’ Results – Dare to Be Different

    Cummins, Inc. results have been outstanding in the current economic environment.  Profits were up 78% in 2011 over 2010. By truly understanding the different market requirements, Cummins was able to capitalize on their customization advantage and use these regulatory changes as a way to gain market share.  When your company is faced by a market change similar to the regulatory threat faced by Cummins, try to evaluate the threat as an opportunity, rather than just a threat. To learn more about designing your company’s unique strategy please read: Sometimes a Road Less Traveled Is Best.

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

    © Copyright 2012 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.

  • How Agile is Your Company?

    by M. Dana Baldwin, Senior Consultant

    Strategic Planning Expert

    Great Companies develop Strategic Plans which incorporate agility in execution.  What is generally meant by being agile?

    Most companies intend to carry out their goal of being agile by becoming more responsive, more sensitive to meeting their customers’ needs and preferences and doing all of this more rapidly.

    How does a company become more agile?  Much of the process of becoming agile is more easily said than done. In order to be more agile, the culture within the company has to change.  Control must be ceded down further into the organization. This means that senior managers must do a number of things which will lessen their direct control over what is happening day to day, communicate much better and at deeper levels within the company, and change the way in which their subordinates operate.

    Many companies dictate exactly what an individual may do, and may not do, in the performance of their daily jobs. In order to become more agile, and to become more effective at being agile, the whole approach must shift. The subordinates must have a clear understanding of what is wanted in terms of performance and actions in order to carry out the mission of the company. This means that their instructions must evolve from “you will do this task, this way” to “this is the result we want from you, and you have the freedom and the responsibility to act within these parameters to accomplish your job.”

    To do this effectively, the senior managers must develop effective communications with each individual, must develop sufficient trust in the capabilities and training of each individual – that each one knows and understands what the overall goals and strategies are for the company, and how each of their actions may have an impact on the ultimate results, including the overall satisfaction of the individual customer.

    Agile companies tend to listen well to their customers. When there is good input from customers that may affect the course and direction of the company, each person is encouraged to pass along this information to the higher-ups in order to take advantage of the broader insight offered by the customers. To do this, everyone needs to know the strategic direction of the company, and how their actions may influence the results.

    In the long run, the company must develop and maintain a high level of trust, both from manager to subordinate, and from subordinate to manager. To effect this, there must be good communication each way in the relationships, so that the unusual situation may be isolated and dealt with at the proper level, but also, and more importantly, so that the daily processes become almost routine, with their quick response, proper results and high levels of customer satisfaction the expected and achieved norm.

    To do this effectively, a company needs to have a clear, concise and actionable strategic plan. It needs to communicate this plan throughout the company, so that every person perceives how his or her actions may impact the results for the company. It means that managers must develop and use effective communications within the company. And it means that customers will perceive the improved response times and results so their satisfaction with the company is higher. This should result in improved relationships with customers, and within the company.  If your company needs effective, efficient guidance in developing your internal and external strategies, contact the Center for Simplified Strategic Planning Inc. at www.cssp.com

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

  • Finding Resistance

    By Robert W. Bradford, President/CEO

    Robert Bradford
    Strategic Planning Expert Robert Bradford

    In strategy, you will inevitably find resistance to your plans.  This resistance is sometimes forceful, and other times something you can overcome with resources and effort.  An interesting question is how to deal with resistance.  Should you always push hard to overcome resistance to your strategic objectives (probably not) – or should you allow resistance to stop you every time the going gets hard (also probably not)?

    There are several key questions to ask yourself about the resistance you encounter to your strategic objectives.  First, what is the nature of the resistance?  Are you finding the objective difficult because of competition, the learning required, or the resources required?  Second, is the resistance something that is even possible to overcome?  Third – and very importantly – how important is the objective to your strategic success?

    Very often, the thing that separates great companies from OK companies is the willingness to do difficult things.  A great company will often (but not always) undertake to overcome obstacles that stand between it and true strategic differentiation.  OK companies allow themselves to be stopped by adversity.

    This does not mean that you must always persevere to be great.  Another hallmark of great companies is the ability to give up where it is appropriate.  Not too soon – but also not delayed where the end result will be a large consumption of resources with little or no forward strategic motion.

    What kind of organization is yours?  Do you show perseverance or are you stoppable?  And when you persevere, how do you assure that you are not spinning your wheels, attempting to overcome difficult resistance that will lead to little gain? 

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

  • Success Sows the Seeds of Failure – Toyota’s Complacency Causes Reputation to Crash

    By Denise Harrison, Vice President

    Strategic Planning Expert
    Strategic Planning Expert

    Can success breed failure? This seems like an oxymoron doesn’t it? But world class companies continue to fall into this trap – Toyota is the latest example.  Toyota gained market share in the automotive market by focusing on quality – this was their strategic competency.  This single-minded concentration on quality built trust with consumers worldwide, wooing consumers away from other less conscientious manufacturers. But the recent recall of millions of Toyota vehicles over several model years shows how Toyota’s loss of focus on quality has severely damaged the trust that had been built up over decades.  The cost of the recall will be millions of dollars in the short-term, but the loss of future sales and its reputation is incalculable. 

    Toyota – Culture of Quality 

    How did Toyota institutionalize its quality culture?  One aspect of the “Toyota Way” is that newly hired engineers were mentored for 10 years to ensure that they are fully imbued with the values around which the culture is built. Another aspect of the quality culture was the concentration on analyzing consumer complaints and acting on the analysis quickly.  However, when Toyota set its goal to become the world’s largest automotive manufacturer, it lost sight of the key values that gave it its reputation in the first place.  In order to meet its growth targets Toyota had to hire many new engineers globally; however it did not have the senior engineers available to mentor the new team in the manner that it had in the past.  In addition, it no longer spent as much time analyzing consumer complaints – and in some cases it came up with low cost “fixes” (e.g. replacing floor mats in response to complaints of sticky accelerator pedals).  One final aspect of the decline was that Toyota did not share safety information worldwide, so problems that cropped up in Europe were not shared with the US.  Hence its “failure to connect the dots”, as stated by Akio Toyoda when commenting on the recent recall. 

    What Should We Learn? 

    Toyota’s early growth resulted from its relentless pursuit of quality – this was its strategic competency; however, it lost its way when growth took priority.  When you lose sight of your strategic competency, the very differentiator that gives you your competitive advantage, you will damage your reputation in the market. This reputation often takes decades to build.  So as you look to grow, make sure that the growth does not cause you to grow faster than you can grow your strategic competency. This means that you must have plans to ensure your intellectual capital (strategic competency) grows at the same pace as your sales growth.  This competency expansion is a critical consideration as you develop your strategy.

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

  • Evaluating Acquisition Targets – Part 2

    By Robert Bradford, President/CEO

    Robert Bradford
    Strategic Planning Expert Robert Bradford

    In my earlier posting about evaluating acquisition targets, I discussed four common approaches to evaluation a company:  market value, asset value, operating value and strategic value.  Today we will look at the exact approaches to market value and asset value, with objective formulae.

    First, market value.  The objective numbers for this come, obviously, from a market – usually, the stock market.  There are two approaches here:  direct value and proxy value.  The formula for direct value is only applicable for public companies:

    Value = Stock price X Number of shares outstanding

    If there are very similar public companies on the stock market, you can use proxy value:

    Value = Target company earnings X EPS of similar public company

    Be aware that this second approach involves some shaky assumptions about the similarity of the two companies, and in some industries, assets, sales or some other number may be more useful in calculating a proxy value.  Due diligence when using this as a value basis should be about understanding the similarities and differences between the companies, as well as the normal look into the fundamental soundness of the business.

    The second approach is asset value.  Again, there are two common approaches, each with limitations.  The easiest (and least accurate) is accounting asset value:

    Value = Book value of net assets on balance sheet

    The limitation of this valuation is that, as with any balance sheet item, assets may be over or undervalued.  The true value of a piece of real estate is rarely represented well on a balance sheet, for example.

    A more difficult approach to asset value is market asset value:

    Value = (Sum of market value of assets) – (Sum of market value of liabilities)

    This requires an added step over the plain accounting value – you have to research and quantify the market value of the important assets of the company (usually, real estate and similar holdings).  There are times when this valuation is a very important part of what other buyers are willing to pay for an acquisition target, so you should be aware of it.

    In postings to come, I will discuss the formulae for operating value and strategic value.

  • How Does Strategic Planning Deal with Seismic Changes in an Industry?

    Strategic Planning Expert
    Strategic Planning Expert

    By Denise Harrison, Vice President

    It is often argued that strategic planning processes miss industry shifts due to a myopic focus on existing customers and market segments, as well as existing products and product lines – but is this correct? NO! While market analysis and customer segmentation are important to any strategic plan, it is paramount for the process to look outside the existing business for opportunities and changes that will have significant impact on your business. In addition, it is essential for your team to develop a scenario for your industry looking out beyond the planning horizon; looking for trends that will emerge 5-10 years in the future. This allows the team to identify industry shifts – disruptive drivers (e.g. technology, demographics, regulations, lifestyle changes) which might transform your industry. How does this work? Let’s look how Wyeth Pharmaceuticals addressed a structural shift in the pharmaceuticals market. Next we will look at how Clorox used trends to identify new growth opportunities.

    Wyeth: Traditional Pharma vs. Bio Tech

    During the mid-1990s Wyeth developed a vision of the pharmaceutical industry. In their scenario they saw that traditional pharmaceutical development would be less fertile for growth opportunities than the emerging biotech approach. Understanding that this new technology would foster significant future growth, Wyeth faced the decision to build from scratch or buy. The Wyeth team decided that acquisition would be faster than building from scratch and they acquired two companies: Genetics Institute and American Cyanamid (now Wyeth Biotech) which had the intellectual capital that Wyeth did not have resident inside its own company. Wyeth did not hesitate; they jumped in with both feet with a significant investment to fund these acquisitions.

    The Results

    Wyeth correctly anticipated the benefit of the biotech approach to developing drugs and now WyethBiotech is 45% of their business. A decade later, Wyeth is still reaping the benefits of its investment decision – the biotech industry is blooming and profits at Wyeth (2008) are up 12%. Many other pharmaceutical companies dabbled in biotech but dabbling did not position their companies for success. Now, these companies are playing catch-up: Eli Lilly purchased ImClone in 2008 and Roche is purchasing the rest of Genetech. Recently, Pfizer made the decision to purchase Wyeth so that it, too, can get into the biotech and enhance its pipeline.

    Clorox Capitalizes on Mega-trends to Fuel Growth Strategy

    Clorox identified two key trends when it defined its growth strategy: consumer focus on health and wellness, and environmentally friendly products. The recognition of these trends resulted in the acquisition of Burt’s Bees® natural personal care products, the launch of Green Works® natural cleaners, and repositioning the Brita® brand as an alternative to bottled water, thus positioning Clorox as a more environmentally friendly company. It took an acquisition and new product line launch along with product repositioning in order for Clorox to capitalize on these trends. Like Wyeth, Clorox made significant moves rather than taking a “wait and see” attitude.

    Challenging the Status Quo

    Is your strategic planning process allowing you to challenge the status quo? Do you look for opportunities outside of the box? Do you look out beyond your planning horizon to evaluate industry shifts or new competitors? If you are able to see trends before your competitors, you will leapfrog the competition by positioning yourself to meet the needs of emerging markets. Remember, what made you successful today may not be the key to success tomorrow – it is important to anticipate future industry shifts. It is essential to look five to ten years in the future and develop an Industry Scenario and Winner’s Profile as part of your strategic planning process. These two steps will enable your team to identify shifts that will significantly impact your business and allow your team to develop a strategy to meet these changing industry conditions.

    “ Wyeth’s Multibillion-dollar Biotech Bet”, by Elizabeth Svoboda, Fast Company, January 14, 2009
    “Clorox Updates Investment Community on Centennial Strategy to Drive Long-term Growth”, Press Release, June 11, 2009.

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

  • 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 .

  • 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.

  • Strategic Planning – Avoid Being Late to the Party

    Robert Bradford
    Strategic Planning Expert Robert Bradford

    One of the tricky strategic issues for many managers I’ve talked with is “Clearly, there will be a recovery sometime.  When should we return to the party?”

    1. The answer to this question will vary by industry, but it’s important to keep a few key concepts in mind:

      Going back to the party before the party is ready to start can be disastrously expensive.

    2. Many things that are cheap now will become MUCH more expensive as the economy heats up.
    3. The same can be said of people…the best people will tend to be the first to have multiple opportunities.
    4. By the time the recovery starts, it’s safe to say the acquisition fire sale will be over.
    5. Finally, unlike in previous recessions, we have not seen a big inventory build-up in this recession – this means that we should come out of the chute going pretty quickly.  Just as the recession got very bad very quickly, it’s quite likely to get good very quickly as well.

    For many of us, the recession is likely to be over in a tactical, rather than strategic time-scale.  How we plan for the recovery will, however, have a great strategic impact on your company.  What are you doing to get ready?