In a COVID-19 influenced slow or no growth environment, increasing sales and marketing activities may not be the best way to grow profits.
Making big efficiency gains may be far better…
Consider the case of a $50 million logistics and trucking firm that used efficiency to drive growth. The company is a longstanding player at a major U.S. seaport. It provides cross-docking services (unpacking seagoing containers and re-sorting the merchandise into shipments bound for retail distribution centers) and trucking services (130 trucks). It had been successful despite the low margins common in this industry. Recently, a big customer that accounted for 30% of its business decided it would no longer ship from that port, giving the logistics firm only five months’ notice. The logistics firm was stunned, and the founders slashed costs to get back to profitability. They sublet part of their cross-dock, chopped their own pay in half, reduced head count and rolled salaries backward.
It all helped, but it wasn’t enough. The firm needed more revenue fast. However, its sales team had already knocked on the doors of all its high-volume prospective customers, and there was little new business in the offing.
So, the firm knocked on a different door: its operations manager’s. The firm’s core competency was efficiency. It had excellent IT systems and a disciplined team, better than its competitors. It began searching for worsening or unsolved problems in the supply chain where it could put its efficiency to use and its attention was drawn to turmoil inside the ports themselves. Ocean carriers were racing to the price point bottom for getting containers over the water. As a result, they were unbundling their offering and dropping their customary management of the “destination dock to consignee’s door” leg of the supply chain. As consignees became increasingly concerned about getting their freight in time, the logistics firm stepped in, utilizing its IT infrastructure and penchant for efficiency to pick up the slack. The firm successfully broadened its business definition and picked up new revenue.
The logistics firm lost some money that year, but between the cost cutting and the new slice of the supply chain, it was able to break even in the next 12 months. By the end of the next year, revenue and profits were better even than before. It was able to restore market salaries to employees and pay all deferred wages to the top team.
After a long economic expansion, most midsized companies allow some “fat” to collect. These inefficiencies matter less for smaller companies, or during periods when top line growth is easy to come by. But at the end of the economic growth cycle, focusing on increasing efficiencies is crucial.
Evaluating efficiency in operations can uncover valuable opportunities, as described with the logistics firm above. Yet most mid-sized firms under-invest in operations leadership. They have too few, or don’t hire a top operations executive leaders with deep experience. While I’m all for promoting from within, most operations leaders who “grew up” in the company don’t have the experience necessary to take operations to the next level of efficiency. Bringing in outside leadership also ensures a “fresh look” at internal assumptions and practices that may be outdated. Strong, well-qualified leadership is a must.
Focus on high-volume operations, where even small improvements in productivity will yield big benefits. Measure everything and create visibility for each measure. Some of those measures should be of individual performance, team leadership and company performance. Becoming efficient isn’t about “cracking the whip” or risking operational meltdown through under-funding; it’s about smarter processes, automation, planning, and innovation in operations.
Every increase in efficiency will translate into a stronger bottom line, which can be used for acquisitions, for rewarding high-performing employees, or to allow for lower prices. Increased efficiency may also have strategic value and can uncover new opportunities. Companies must get close to customers to fully understand the value chain from the customer’s perspective. From there they can look for gaps, problems, and headaches—all problems they can solve for their customers. Being uniquely positioned to address these needs can yield powerful new avenues for business growth!
What changes can you make?
Any company that weathered the COVID-19 crisis so far should congratulate itself for exemplary performance amidst truly trying times. And with the stock market at new heights and the broader economy on the upswing, the leaders of many high-flying companies could not be blamed for feeling that now is the time to double down on their strategy. Yet ironically this could sow the seeds of trouble.
This lesson was brought home to me in past Alliance meeting. One CEO’s firm, with a nine-figure top line, is growing at nearly triple-digit rates. He and his team are working overtime to hire, train and serve customers. Yet the board is pushing management for a full-blown strategic planning process. Is this a waste of time—or worse, a distraction—given the rapid growth? Two examples suggest not.
The first is Blackberry (previously known as Research in Motion Ltd.), whose once-ubiquitous Blackberry was an early leader in smart phones. Today, Blackberry is struggling to remain relevant and profitable as a one-product company amidst mega-firms. The time for Blackberry to lay down a new strategy was before 2007, the year before its stock peaked (at 140) and long before the stock fell below 60 in early 2011 (it now trades in the low teens). 2007 was also the year that Apple introduced its iPhone, which upended the smartphone market that Blackberry had ruled.
The second example is JC Penney, which had long clung to the ever-narrowing market space between discounters and high-end department stores. In what looked like a last-ditch effort to ignite growth, the company switched strategies with a new CEO in November 2011. The following year, however, its revenue plunged 25% and years of slim profits turned into a net loss of nearly $1 billion. Penney now needs a turnaround to survive.
Companies that make a big shift in strategy need to start early, long before a crisis envelopes them. That will increase the odds that they plan carefully. Success on short-term execution is no guarantee of longer-term stability and growth.
So, what is the problem that runs through such companies? It’s that they aren’t rigorous about strategic and operational planning, often don’t realize the difference between the two, and even if when they do, they don’t connect them well. In the most successful companies I’ve seen, CEOs separate strategic from operational planning and set a cadence for each. They call out predetermined early warning signs focused on underlying assumptions that can trigger a reevaluation of the strategy.
While all company leaders think about their strategy, the level of formality varies greatly. Many firms blend strategic and operational planning into one process (often referred to as business planning). Some emphasize operational planning but aren’t rigorous about long-term strategic planning. Others spend hundreds of thousands of dollars on big consulting firms to assess and capture the macro-economic trends and competitive shifts, but don’t translate it well to actionable tactics. Still other leadership teams work hard every day but don’t plan much at all. What is the right balance between strategic and operational planning?
Conducting and connecting strategic and operational planning effectively first requires clearly delineating the two. This may seem obvious. However, many managers use the term “strategic planning” and “operational planning” interchangeably. Let us be specific about how we’re using the terms.
Strategic planning is a deep examination of a company’s business model — its position in the marketplace three to five years out (or longer for big or capital-intensive firms). It sets aside the strengths, weaknesses, opportunities, and threats (SWOT) of today, and strives to envision the SWOT of the future—and how the company must adapt to that future. For example, strategic planning led IBM, which used to be a products company, to largely become a consulting firm today.
A diligent effort on a strategic plan can take hundreds of hours of top management’s time—time away from running the business. A solid strategic planning process looks at competitive positioning, shifts in customer demand and preferences, substitutes, adjacent industries, industry maturation and more. Consulting firms like Bain and McKinsey love to lead strategic planning exercises. But the investment is significant, and often too much for middle market firms. This is altogether different from operational planning.
Operational planning focuses on the year ahead. It identifies priority projects for each person on the leadership team, with deadlines & scope identified in writing. It includes monthly objectives/KPIs for each leader, and the strategies that each function will use to perform at a high level. Good operational planning requires that all the functions confer, so that the overall plan is synchronized, and support functions (finance, IT, HR) have the capacity and willingness to support all the planned activities of the other functions. Our One Page Planning and Performance System is
The Balancing Act
Most firms do formal operational planning annually, although some fast-growing companies in dynamic industries find a half-year rhythm is best. This should be guided by the firm’s existing strategy.
Many firms do a full strategic planning process every three to five years. If it has been longer, it is without doubt time to kick off a formal strategic planning process. If not, revisit the assumptions (and their proof points) that support the company’s strategy. List them all, along with a cursory check of key competitors and their moves. For each, do enough homework every year to validate that those assumptions are still solid—still substantiated in today’s environment. That might mean as little as 30-40 hours of research followed by a one-day “strategy check-up” offsite with the leadership team.
If at the end of the day, all the key assumptions are still valid, most of leadership’s planning focus can return to execution. However, if the environment has changed enough to challenge those assumptions, then begin a deeper strategic planning process. At the end of that process, identify a written list of key assumptions and other triggers so management knows what to watch for on the horizon. One type of trigger is a big competitor’s investment in your sector.
Alliance member firm Jamba Juice had focused on fruit-based smoothies for years while maintaining a small offering of carrot, orange, and wheat grass fresh squeezed juices. When Starbucks announced the acquisition of juice maker Evolution Fresh in November 2011, it triggered a strategic re-evaluation at Jamba. Jamba’s CEO James White took notice that very same day, saying, “We will continue to accelerate our product innovation and, while we welcome new entrants to the marketplace, we will adjust our strategy as needed.”
Adjust they did, long before Starbucks’ real intentions were demonstrated. Jamba Juice jumped to action and has been testing stores in the San Francisco area with fresh juice blends including beets, kale, apples, ginger, and pineapple juices. It also has a new store design that puts juice at the forefront, a test that will expand to more stores this year.
A thriving business today does not mean your strategy will be effective over the long term. Instead, diligently re-check the assumptions that underlie your current strategy on an annual basis. Further, the management team should scan the horizon for predetermined, specific triggers that signal the need to kick off a full planning process.
Cramming strategic planning into a short time frame at the last minute may be a common approach, but it forces us to rely on opinions about market conditions, not solid facts. Start the planning process early to avoid a puddle deep strategic plan.
Company leaders who are drowning in day-to-day emergencies often don’t take the time to strategize, to rigorously evaluate and then initiate strategic changes. Often, in times of stress, such changes are made recklessly, or not at all. The former wastes precious resources and time, while the latter invites stagnation and decline. But it does not have to be this way.
November is often the month when it dawns on business leaders that the New Year is right around the corner and they have put far too little time into strategic planning. This past year, we received a call from such a CEO, to facilitate a weekend strategic offsite—with about a week’s notice. We did it as well as we could, devoting one day to strategy and the other day to an operating plan. I had to facilitate aggressively to keep on track and make every minute productive.(Fortunately, the leadership team was amazingly cooperative and engaged.)
But the outcomes were necessarily limited. On the strategy day — since many important initiatives required homework — we couldn’t make final decisions. The team wanted to brainstorm and combine their collective wisdom to discover innovative approaches, but we had no time for that. This firm will have a solid operational plan by January 1, but it will be primarily based on last year’s strategic thinking.
If we do have information, it is likely stale. Poorly articulated strategic proposals are much more likely to draw instant criticism than innovative thinking. The participants realize — and are rightly concerned — that a bad decision could be made without further consideration. The loudest voice (often the CEO’s) generally wins — not necessarily the best strategy. When teams make true consensus decisions, they usually gain approval without a written roadmap or goals and thus contain no accountability for execution.
Strategic planning must have its own place on the calendar, separate from operational planning. Leaders should collect, research, discuss, clarify in print then select the big initiatives before the annual operational planning process begins. Quality strategic decisions must be made, then and only then, followed by quality operational planning to implement them.
Place the planning activities on the calendar, to be executed at roughly the same time each year. If you work on a calendar year, start your strategic planning between May and July. Begin with a short session to brainstorm and identify those initiatives worthy of more study. Assign each a champion who will do the research and develop a business case. Download a suggested strategic planning cadence and schedule here.
With all the hubbub of day to day activity, you’ll need to appoint a planning process coordinator to keep the meetings rolling, check in weekly on how each case study is progressing (download a business case writing template here), and take responsibility for everyone producing their best research and thinking. In mid-sized companies which don’t have a chief strategy officer, this person can be the CFO, the CMO, or the CEO. An executive assistant can certainly help with meetings, but most EAs don’t have the power to push for results.
Some companies feel they don’t need a new strategy and if they’re growing as fast as they want to, they may not. But choosing to stick to last year’s strategy is in itself a major decision, which must also be carefully examined. Take at least a day to debate it. Other companies may feel they don’t have the money or resources to implement a new strategy. Yet this in itself may be a sign that the old strategy is failing, and that change is required. We all have the same amount of time. Getting strategy right every year must precede the execution of that strategy.
If you too are awakening to the need to work on your strategic plan too late in the year to do it well, don’t settle for a puddle-deep process. Implementing new powerful strategies can begin any time of year. Create a first quarter or first half operating plan, then kick off a robust strategic planning process January 1, targeting implementation at the start of Q2 or Q3. Better late than never.
With today’s coronavirus crisis, standing in front of your team is not only nearly impossible, but also unsafe. But your team needs to hear from the leader and video is a great substitute. Here are some simple steps to leading with video.
The most powerful place for a leader to lead from the front is standing before his or her team, delivering a message. Some leaders hate doing it – and don’t do it. Of course, there are other ways to lead. And in most times, they can work well. But when your team is afraid or when they are confronted by a difficult challenge, they want to look into the eyes of their leader. It’s human nature.
With today’s coronavirus crisis, standing in front of your team is not only nearly impossible, but also unsafe. But video is a great substitute and incredibly easy to do. If you do it, you will be rewarded by your team. If you don’t, your team may feel more nervousness, be less committed and, ultimately, less effective. Demonstrated leadership at this time is required!
Take Fred Cuda, CEO of The Blake Group, headquartered in Connecticut with 13 locations across the northeast. He’s a quiet leader but knew he needed to amp up his leadership for the sake of his team and his company. At this link is his first-ever video, which he sent out to his team on March 20. Watch it. You’ll agree that he’s not likely to win an Oscar nomination, but he wasn’t shooting for that. His team knows him and felt the authenticity of the message.
The sense of vulnerability gave them comfort. Cuda has continued recording these videos daily and is getting messages back that his team of over 200 people appreciate them and are looking forward to them each morning. Daily videos are amazing but recording once or twice a week is great too.
Some simple steps:
Think about how your audience is feeling.
Think about how you want to change that feeling.
Acknowledge how they’re feeling (put a voice to their emotions).
Give them a few reasons to feel differently (some hope, evidence).
Be yourself, fully authentic and open.
Keep it short, 3 minutes is plenty.
Just do it. Don’t worry if you don’t look smooth! It will get easier with each one.
Another client just did a great job as well, Ben Pinnell with Hickory Construction in Tennessee. He used Vimeo on his phone (super easy) and shared it with his team. This is his first use of video as leader of the firm. Watch it. We like Vimeo because it has many options to manage the sharing of a given video. Recording with Zoom (or other similar video-call programs) is easy too.
Please start leading from the front. Cuda and Pinnell weren’t excited about doing videos for their teams, but they did it anyway because they felt it was good for the company. You can do it too.
Don’t make it complicated. Don’t wait for marketing to help you figure out what to say. Don’t think of it like a performance that requires practice. Don’t give yourself time to get self-conscious. Just do it and don’t look back.
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Written by Ryan Miller
Twenty-five years ago, just 3,500 feet above downtown Atlanta, Georgia, the engine quit as my brother and I flew a small Cessna 172 to visit friends.
We were enjoying the view of the city below us when there was sudden and total silence.
Peaceful and terrifying at the same time.
My brother John, who is now a captain for a commercial airline, was my flight instructor. He had just helped me “solo” for the first time, so we decided to take the long trip from Maryland to learn some new skills.
Nearly paralyzed, I watched John immediately execute the “engine out” checklist. Step 1: maintain control of the aircraft. Step 2: set the pitch (angle) and airspeed of the plane to maximize the amount of time it will stay the air with no engine.
As it turns out, an airspeed of 68 knots is optimal for a Cessna 172.
Once the pitch and airspeed were set, we had bought ourselves enough time to begin troubleshooting and call a “mayday.”
He then worked through the rest of the checklist and ultimately got the engine restarted.
In the first few weeks of the Coronavirus crisis, my work focused on facilitating the process (in person at first, and now virtually) for CEOs and Executive Leadership Teams as we developed and implemented business continuity strategies.
We got in front of the dry erase board, navigated the extreme pressure and pace, and created plans to ensure business survival. Executive leaders took the controls and actively flew the aircraft.
Most companies are now controlling expenses and optimizing their financial position. They are setting their pitch and airspeed to stay in the air as long as possible as though they are experiencing a complete engine failure.
With active control in place and the plane at optimal pitch, it’s is time to work through a checklist of actions. What should you be doing next? Here are some recommendations to consider as you work to get the engine restarted:
Actively engage specialists: Right now, you need access to specialists who can help you pivot and/or navigate the various financial resources available to you. Consider your local economic development organization or look for support from your professional associations.
Keep your rhythm and focus on objectives: You worked hard early in this crisis to establish a daily rhythm and process for your Executive Team that kept them operating at the right level. Even when the pace starts to slow, don’t let your guard down and slip back into fighting brushfires all day.
Stabilize, document and optimize: While many companies have sufficient business continuity plans, much is still figured out on the fly. Now is the time to document what you have, particularly new workflows, and look for ways to make them better and more secure.
Look for signs of overload or burnout: Not all failure happens during the acute phase of a crisis. Stay intensely focused on your people. Who is still shouldering too much of the workload? Without having daily face-to-face contact, spotting those at risk and keeping morale high is more important than ever.
Take good notes and keep good records: Chances are that a day of work right now feels like a week. That is what happens during a crisis, and without notes to refer back to, everything will begin to run together. Don’t lose the opportunity to learn from the big and small lessons this crisis is teaching you and your team.
Start planning for recovery: As you are able, begin to dedicate resources to planning for the inevitable disruptions, bottlenecks, and resource limitations a “rush to return” could mean for your business. What can be done now to ensure you, your suppliers and even your customers make a smooth landing?
We have just emerged from several weeks of crisis, and even well-positioned companies are moving forward cautiously.
Use the above prompts as you begin to build your checklist for the next phase.
But don’t stop there—ask others in your industry what they are doing right now and what challenges they are facing.
How about taking time now to make sure the crisis did not create a new or increased risk exposure for your company by reviewing the list of Critical Functions?
Above all else, keep flying the plane, keep the nose at the right pitch, and stay disciplined as the Coronavirus situation continues to evolve and challenge all of us.
Have you established control of your “plane” and set the pitch? If so, what is on your checklist at this point in time?
Consider using a One Page Planning and Performance system to take control of your business during both good times and difficult ones as well.
Ryan Miller is Principal, Critical Functions, LLC at Risk and Resilience Advisors. Contact him at email@example.com
Like many technology startups that struggle with adolescence, Twitter has taken awhile to develop a solid business plan. But that hasn’t bothered investors, which have plowed an estimated $900 million into the firm since its inception in 2007. “We don’t necessarily have to start making a lot of money right now,” co-founder Biz Stone told CNBC in a 2010 interview, a year before a Russian company invested $800 million into the firm. Stone may be right. With 140 million users, a good number of people are obviously getting value from Twitter.
But it’s far less excusable for the average mid-market company to go without a codified business plan. Unlike Twitter, which sells something no one needed before they began using it, a mid-market company that manufactures pantyhose or sells legal advice absolutely needs a business plan. They’re operating in markets where the rules of competition are far better established.
Biz Stone, co-founder of Twitter (Photo credit: Wikipedia)
Mid-market companies especially need business plans if they someday want to become much larger companies. Forbes Global 2000 companies live and die by planning. Small firms don’t need planning as badly because their CEOs can often manage the most important details of the business in their heads.
But middle market firms ($10 million to $1 billion in revenue) are at a size where formal planning and accountability truly matter. A 2011 study by Ohio State University and GE Capital of nearly 1,500 mid-market companies found that those with the strongest financial performance were far more likely to have the core elements of a business plan than the rest of the companies. Some 66% of the growth leaders had formal growth targets (vs. 31% of the laggards); 58% of the leaders formally tracked their progress (vs. 33% of the others); and 53% communicated their goals and progress to employees (vs. 24% of the rest). All to say that skipping business planning is a bad idea.
Over the last 30 years, whole forests have been felled so that books on business planning could be printed. (Watch me present my favorite planning system.) Yet ironically very little has been written about switching on the planning process in companies that have long operated without one. It is a critical but delicate task. If you do it wrong, your managers will resist. They may even revolt. One successful online publisher that too aggressively implemented business planning watched 40% of the leadership team leave the company four months later.
At the very least, your managers are likely to miss their targets and engage in ugly plan review meetings. Their morale will sink, and they will pressure you to shelve the plan so things can get back to “normal.” Normal means little accountability, which in turn means lower performance. Too many CEOs justify backing off planning by saying, “Now just wasn’t the right time. We’ll try it next year.” While business planning is necessary to guide companies through treacherous markets, it is unnerving for managers who have never felt the performance pressure that a good business plan will induce.
Instituting a rigorous business plan is a complex rite of passage that CEOs must phase in deliberately but delicately, steadily ratcheting up of the pressure on their team to meet their targets. The lessons of several mid-market firms shine light on how to institute it without sending off fire alarms.
First, Steer Clear of the Common Pitfalls
Academics and consultants have created a cottage industry selling business planning processes. Many planning processes are designed to be instituted meticulously. When the CEO rigidly enforces the program, their team is likely to reject it. Helping an organization become excellent at planning is a process, not an edict.
Other CEOs worry about upsetting their team, so they create a plan with a clear direction but allow soft goals (e.g., “increase market share” or “improve customer satisfaction”). The problem is you can’t determine whether executive team members have delivered or not. While this is much less threatening to executives, it rips out a critical element of planning and will decrease its effectiveness.
Another common but flawed technique to soften the blow is to reduce the internal exposure of each executive by having the CEO hold private one-on-one review meetings with each of his direct reports. It’s less embarrassing if no one but the CEO knows an executive missed his targets. But hiding poor performers won’t get the results that a good planning process can deliver. When each team member knows how others are performing every month, a funny thing happens: They all get serious about their own performance.
Increasing Pressure Slowly But Surely is the Key
Business planning, when done right, creates clarity for a management team: the markets to pursue and not pursue, the products to offer, the processes for bringing those products to market, and metrics to monitor progress.
But by mapping all that out, business planning also brings pressure to perform. CEOs need to introduce this pressure delicately — low pressure for improvements in the first quarter, medium pressure in the next quarter, medium-high for the second half of the first planning year, and full planning pressure for year two and beyond.
GSC Logistics, a mid-market transportation provider on the west coast, started with just two plans—a sales plan and an operations plan. For the first three months after creating the plan, we reviewed results and talked about what we were learning. In the second quarter, we modified some measures to make them more useful. In the second half, we’re digging into challenges that the planning process has helped to identify. The pressure is building. Next year we’ll get more of the leadership team involved in planning.
My experience and 16 years of research by the performance research firm Elkiem have found that three elements of a business plan can slowly but steadily raise the pressure on managers to perform:
• Targets for both success and failure. You must start with clear goals that are measurable and date-based. Goals are the definition of success. They should be just achievable—not stretch, and not easy marks. Don’t start by defining failure, the point at which heads will roll. Threatening to jettison poor performers shouldn’t happen in year 1 unless you’re in need of, and ready for a shakeup.
• Rewards for success, discomfort for failure. At the start of the process, the CEO must act as a cheerleader, letting the team taste what it feels like to “win”—the emotional rewards for success. In the second or third quarter of planning, those not performing to plan should start to feel discomfort —things like team-wide brainstorming to help them overcome obstacles, more CEO attention, budget cuts or critical reviews. Some managers will try harder and improve their performance; others will resist the planning. Having a majority of your team adapting to the planning provides a counterbalance to those trying to avoid accountability.
• Exposure. As soon as you create your business plan, you need to schedule monthly review meetings. Your entire management team must be present, and each executive must present his results. Just knowing that they’ll be exposed to their peers creates significant pressure. For the first quarter, nary a critical word needs to be said by the CEO. But the CEO must enforce everyone’s participation.
An engineering firm I worked with was overly reliant on its CEO for direction. He brought in business planning to provide a clear set of targets for each executive, and to raise awareness of broader business issues. As adroit project managers, they adapted quickly to the process. The CEO set attainable goals and adjusted them as the team learned exactly what needed to be measured. Their COO became the main driver of the plan review process. The entire executive team now finds it essential.
Yes, I know that Twitter hasn’t needed a business plan. But unless your company is inventing new markets, you do need one. Just be very careful about how you introduce it.