cartoon courtesy Hugh McLeod www.gapingvoid.com
Part of what I do day to day is made up of business reviews. Whilst every business is different, and the competitive environment is different, there are some common questions to be asked that tend to reveal the effectiveness and impact of strategic and business planning.
Strategic planning has become a cliché, often just meaning the three day off site that stuffs up your week, and takes some preparation in case you are asked some difficult questions, but following is a checklist of things I look for in a plan, which may assist your thinking.
Major trends. What are the external, big picture things that are, or will impact on your business. Trends such as technology, the regulatory environment, trade barriers, et al that have the potential to change the context in which the plan has to live. These are generally much “bigger” than a one year time frame, although the pace of technical change often gives the lie to that generality.
AAR on previous forecasts. “AAR” is an acronym, “After Action Review” which emerged from the US army after the debacle of Vietnam. They sought to quickly, and from a grass roots perspective, understand what went wrong, what worked, and how it could have been improved. In effect is it a continuous improvement cycle. Applying the same thinking to the previous years forecasts and assumptions always reveals opportunities for learning. If it is the first time, do it for the last 2 or three years, and analyse what the businesses did, or should have learnt from these experiences.
How and why the differences. Planning should be a rolling, self improving process, but so often I see planning done in isolation of the opportunities to learn from the past. Understanding the reasons why forecasts are different from one planning period to another requires an explicit understanding of the assumptions made. This step builds on the AAR above.
How would you double the business. Most business planning tends to be incremental, a 3% increase in sales, a 2% decrease in costs, it is all easy to agree to in a planning meeting, after all, who would not agree to increments of improvement? To get away from incrementalism, consider what it would take to double, or triple the business. What would you need to do differently, what new products, markets, customers would you have to acquire. I like to change the perspective to this by adopting a position 3 years down the track, imagining the business has doubled, and imagining what changes had been necessary, and how they had been implemented. With the benefit of imagined hindsight, what did we do right, what mistakes were made, what capabilities and capacities did we have to increase, how did we fund the increase, all sorts of confronting questions that in the answering offer insights to the planning process.
Where is the growth coming from. Everyone predicts growth, it is part of the commercial DNA, but articulating where it is coming from introduces some reality checks. If it is from a competitor, why will they just let the volume go? what will their reactions be, and how will you in turn react to their responses? If it is from new products, why would a customer buy yours instead of the one they had been buying, and if it is a new market you are creating, how is your value proposition sufficiently compelling to get the attention of a potential customer, and how are you going to justify the new expenditure in a market that they are unfamiliar with?
What are your distinctive strengths, and how does the plan leverage them? It is astonishing to me how often when I ask this question that the responses are reflections of the market table stakes the things you have to do well just to survive and be competitive, they are not distinctive. It is like a watchmaker proudly claiming that their watch tells exact time. So what, to be a watch, you have to be able to reliably tell the time, it is not distinctive, it is table stakes. What makes you distinctive, does something really different, passes Seth Godins “purple cow” test. It may be that your watch is waterproof to 200 meters. Not many will take advantage of this strength, but to some, the guarantee of waterproof performance will be distinctive. The problem now becomes how you reach the small number of those who care at the time the are considering a purchase.
What differentiates you from the competition, and importantly, the potential left field competition? This question is often confused with the one above, a strength is not necessarily a distinctive capability that adds value to a customer that would drive them into your arms. To continue the watch analogy, when the Japanese started delivering digital watches, the Swiss that at that time absolutely dominated the watch market failed to recognise the attraction of the differentiation that had just taken place, and were decimated.
What would a private equity owner do with this business?. This can be a confronting question, but a very useful one. If you look at the business from an entirely different perspective, one whose time frame and investment return metrics are both aggressive, and usually entirely different to the prevailing horizons, it can stimulate some thinking that is very useful, and informs the rest of the discussion.
Creating a strategy that has real “grunt” and articulating that plan to all stakeholders that are impacted, and can contribute is a huge challenge, and takes time, commitment and brain power to achieve. Unfortunately, the success rate of strategic planning is very low, testament to the difficulty, and the number of things that can go wrong.
