I was watching TV the other day, which in itself is not too interesting or inspiring. I find it actually kind of numbing as I am not too much into the police procedural shows that seem to be constipating the multiplicity of channels that are now available. However, I did see a new commercial that got me to thinking. It was by an electronics manufacturing company (which I won’t name here) that I had heard of in the past, but who I had never seen advertize on TV before. Their concept was interesting and their catchphrase was different. They were urging people to be “five years out”.
The focus of the ad was on innovators who created products and inventions that were ahead of their time. I didn’t quite catch the connection between Nicola Tesla (and others) and a modern day electronics manufacturer, but I guess that is what literary license is all about. It was however far more interesting and entertaining than the prime time video pabulum that was sandwiched around it.
What it did convey to me was that thought leaders depicted in the ad were thinking far ahead of the standard process. While being “five years out” might be a little excessive for a business leader (I am hard pressed to recall what our five year strategy was five years ago, but I am pretty sure it is not what we are doing now) I don’t think that it is excessive for a business leader to be “six months out”.
Six months out is that uncomfortable gray area between what we are doing right now in this quarter to make our numbers and what we are expecting to be going a year from now. It is the area between the immediate and tactical, and the long term and strategic. It is the area that a successful business leader can either see or anticipate what will need to be done today to align with the goals of the next year.
As we approach the end of another third quarter we should all begin preparing for the annual planning process. This is the process where we set the goals and objectives for the business for the next year. We also usually try and set a three year strategic plan for which the next year is the first year in the three year plan. We seem to do this every year without referring to either of the previous two years’ strategic plans. This in essence means that you are setting an annual plan and hoping that the sum of your last three annual plans is at least in the direction you need to move the business.
Profiling is something that American Civil Liberties Union quite accurately points out is an unacceptable policy for those with authority. However it is a necessary part of any planning process. Having a sales order target for the year is a good thing; however closing all of those orders in the last week of December will leave little time for the business to translate them into revenue, and beyond that into cash, which will be needed to pay all the sales commissions.
A business leader needs to be able to profile the timing of events across the planning period in order to anticipate the needs of the business. In the planning process an annual goal has been set. Instead of trying to plan and profile an entire year I have found that it is easier to break the year into two, six month sections. I can more readily visualize and anticipate what I will need and where I will need to be six months from now based on where I am and the trajectory that I have today.
Failing to take a six month out approach to profiling a business’ year usually results in what is commonly referred to as a “hockey stick”. This is where a business sets three quarters worth of relatively modest objectives and growth only to run head first into a significant and usually unattainable spike in desired performance in the fourth quarter.
I think we have all either been party to, or victims of the dreaded “year end push”.
Nothing happens immediately in business, unless you unexpectedly announce bad financial performance. Then your stock price immediately drops. Aside from that type of event, it takes time to affect change. Adjusting staff size either up or down to meet business needs takes time. Adjusting production capabilities to meet demand also takes time. Increasing sales doesn’t just occur because it is in a plan. Suspected new customers need to be identified, then qualified into prospects, have their issues addressed and their solutions proposed, contracts agreed and then closed.
That’s a sales order. There is then the time associated with the process to deliver on the contract and turn that order into revenue. Then there is the time it takes to get paid and turn the revenue into cash.
While “five years out” is a great concept for a commercial, it is a difficult idea to run a business on. It’s too far out. However a good business leader should have the ability to be at least “six months out” in order to connect the tactical activities of today to the strategic objectives of tomorrow. Being six months out enables to the business leader to anticipate and avoid many of the business issues and pitfalls that seem to plague the standard business manager.
Einstein said: “Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.” While I am absolutely nobody to question a mind like that, I think that hoping for tomorrow will not be the appropriate approach to business.
I think I would more agree with Benjamin Franklin, who said: “By failing to prepare, you are preparing to fail.”
Category Archives: Planning
Preparation
It appears to me that preparation is becoming a lost art. It seems that we always have something better to do than to prepare for what we need to do. Whether it is studying for an upcoming exam, gathering our materials for a pending presentation, coordinating speakers and logistics for a customer visit or familiarizing ourselves with the business specifics for that crucial job interview, it is preparation that lays the groundwork for success. So if preparation is a key ingredient to the success of almost any endeavor, why aren’t more people prepared? I have noted in the past that business seems to be more enamored with the people I have dubbed “fire fighters”, those people who are called on in times of crisis, than it is with those who quietly go about doing their jobs, being prepared, and avoiding the crises that others are always so willing to deal with. I guess this extends to our entertainment complexes as well. When was the last time that you saw a commercial let alone a television show about fire prevention or crime prevention? I can’t remember one. There are however several shows on about fire fighters and crime fighters. I think if we spent a little more time preparing for whatever we deem important, as well as for possible alternatives, we would end up spending lot more time achieving and a lot less time fighting fires. That would probably best be described as progress.
I am not here to critique a bunch of television shows that I do not bother to watch anyway. I only bring it up as an illustration of what seems to be our preference for drama. Fighting fires is more dramatic than preventing them. This penchant seems to have filtered over into business. In business, as I would assume elsewhere, fighting fires is not more cost effective than preventing them. It might be more dramatic, but it usually takes more time, money and people to fight the fire than it would have to just get prepared and avoid the issue.
So, what has all this discussion about fire fighters have to do with preparation? It’s pretty simple. The best way to avoid fires and other issues is through preparation. If this is the best way to avoid extraneous activities, maintain focus and save money, why don’t more people do it?
The answer is: I don’t know.
Why don’t more sales people take the extra steps in preparing for their customer presentations? Providing the corporate attendees with information on the sales opportunity, products and applications being considered and the status of the sales process enable everyone to understand the customer situation. Written agendas are always appreciated by both those presenting as well as those being presented to. Vetting the topics with the customer prior to the presentation assures that the presentations are on target. Making sure of locations, logistics and equipment availability means that the entire visit will go smooth. This may sound like minutia and detail but these are just the basics.
Providing information and individual profiles of the visiting customers to the corporate attendees and presenters assures that everyone will know who the decision makers and influencers are at the meeting. Providing the titles and responsibilities of the corporate attendees to the customer allows them to understand the responsibilities and qualifications of those that are presenting and talking to them. It also provides each attendee with a written record of who was at the meeting and the role they played. It also provides a location where notes and comments associated with each attendee can be captured. It’s not a lot more work. It is just a little more preparation, but it will make a difference.
How many times have you interviewed a candidate for a position, and had the feeling that they were not entirely prepared? Candidates should not only be versed on the company they are interviewing with in general (as most of them usually are), they should also understand the various and specific markets that the company is in and the primary competitors that the company must deal with. They need to know how the company is doing with respect to these competitors. They should be familiar with the primary senior executives of the firm, as well as any specific programs that have been announced and the progress if any against these goals. Knowledge of the company’s financial performance for the past quarter and past year, as well as the analysts’ expectation of the company’s performance for the next quarter and the next year should also be expected.
All of this type of information is easily available through a number of public sources. However there are always a number of people that want to talk about opportunities and positions, that haven’t taken the time or put in the effort to prepare them with it. If the position is truly desired, this type of preparation is crucial and will differentiate the candidates.
I suppose my point is that preparation takes time and it takes effort. It takes a willingness to do something now that may not be required until some point in time in the future. Good preparation is taking the time and effort to be ready for something that may never be required, but you are ready in the event that it is.
There are innumerable sayings associated with preparation. Most are along the lines of good things happen when preparation and opportunity intersect. Those are nice but I tend toward a little bit more substantial in this case. I think George Washington Carver said it best:
Cost Centers
Throughout history there have always been significant conflicts. The ancient Romans and just about everybody else. The North and the South. The East and the West. Capitalism and Socialism. Yin and Yang. Republicans and Democrats. Dogs and Cats. The list goes on and on. In business the applicable equivalent conflict seems to be between Cost Centers and Profitability. There appear to be two ongoing schools of thought when it comes to business management structures and organizations. There are probably many more than that but for purposes of the time and space that I have here, I am going to impose the writer’s “power of the pen” and focus on the two that have already alluded to, namely cost centers and profitability (and loss). For the most part just about every other organizational structure is a variant or hybrid of these. You will also occasionally see them referred to as “Matrix” management models and “General” management models. A potential disadvantage to this model is that costs end up being the responsibility of a group other than the business group responsible for revenue or profitability. Because the costs are assigned from a shared pool, the cost center, they may or may not be directly linked to the revenue or business activities that the associated costs are supporting. Here costs are in effect “assigned” to rather than directly associated with the revenue they are responsible for generating. So with the lines being drawn and the costs piling up, what do you do? Which structure to implement for the best profitability of the business? As I noted before, businesses like predictability, and there is nothing more predictable than a fixed cost. It may be good or bad, but it is known. And known costs can be planned for and dealt with. When direct costs are associated with and controlled by the business, they can and will become fixed. When multiple business’s costs are lumped together into a “Cost Center” there will always be a question regarding the efficiency and value received by the business for the amount of cost allocated to each business. There will be the incremental cost of the cost center management that must also be allocated and paid for. There will also be less control over the content and growth of those costs in the cost center, unless a budgeted cost arrangement can be put in place between the served businesses and the serving cost center. As I also noted, the arguments in support of cost centers are seductive, but in the reality of their implementation they present multiple issues to the efficient operation of a business. Every effort should be made to find a way to directly attach and fix the costs and decisions about the costs to the revenue and the business that is recognizing the revenue for the most efficient and lowest cost business operation.
There are competing schools of business thought when it comes to costs centers. On one side it is felt that it is easier and more efficient to manage your costs when you group them into one specific organization. The idea here is that if you get your costs into one location that there will be several obvious efficiencies and economies of scale that can be taken advantage of to either reduce costs or at the very least slow their growth. As we all know, reducing costs will help improve profitability and creating cost centers is a very seductive argument for reducing costs.
The other school of thought when it comes to cost centers is that costs should directly be associated with the revenue that they drive. This is the general management model. The idea here is that the revenue, profitability and the costs for a specific business unit should all reside in that specific business unit. In doing this you enable the business unit leader to manage and “fix” his costs in direct proportion to and in association with his revenue in order to achieve his profit objectives.
A potential disadvantage with this model is that some businesses may be too small or may not be far enough along the efficiency curve to endure the incremental costs they require and hence suffer reduced profitability. Because costs are not shared each business unit may in effect be less efficient than they would be if their costs were shared.
Businesses (and business analysts for that matter) like predictability. They like to know in very specific financial terms what they can expect from their businesses. While the Cost Center and the Profitability models both offer certain aspects of predictability it seems that the profitability model offers the best financial predictability. It is only in this model that all specific and applicable costs are known, defined and fixed within the confines of the business. In the Cost Center model costs are allocated according to some predefined algorithm. While the method or algorithm may be fixed, the actual value of the costs that are assigned can vary. Adding another variable into a business’s cost structure increases the unpredictability of its performance.
As an example, assume there is a cost center that allocates its costs based on support requests. If there are three businesses sharing the cost center and one of the three experiences an unexpected increase in its support requests on the cost center, its costs will rise during that period while the other two businesses costs through no action of their own will go down. Conversely if one of the businesses experiences a reduction in support requests its costs will go down while the other two businesses through no action of their own will go up. In this way cost centers can turn fixed costs into variable costs.
Lastly when dealing with cost centers there comes the issue of governance and leadership. In business for the most part we are looking to grow. We want to grow our business, and with it, our responsibilities. When it comes to cost centers we must always ask the cost center leadership to take the contrary approach and reduce the cost center or at the very least limit its growth. In my experience this has seldom been the case with cost centers. If the supported businesses do not have direct control over the cost center growth and costs, they invariably grow at a faster rate than the supported businesses grow.
In the profitability / General Management model all costs directly associated with a particular business are attached to that business. The market doesn’t dictate what costs the business can or will bear. The market dictates what price the business can expect for its good or service. It is then the profitability objectives of the business that dictate what costs the business can bear in the pursuit of the market price. By putting the cost and price controls in the hands of the business owner, instead of separating them into the hands of the cost center owner and the business owner, you will far more regularly get a more efficient and lower cost solution.
There may be questions regarding lost efficiencies, or biases against smaller businesses in this profitability model. These types of businesses may in fact be able to be served by a cost center model, but should be only in a cost center model where fixed amounts of costs are purchased from the cost center by the business. The idea here is that the business must always decide on the amount of cost that it wants or can afford, hence the cost purchase approach to cost centers.
Reorganizations
Whenever a business enters the fourth quarter of the year, everyone’s attention inevitably turns to the topic that they had already been anticipating for the previous three quarters of the year – the possibility of, potential for, or pending business reorganization. Reorganizations are interesting events in a business. Leaders have a tendency to try and keep the structural changes a secret until they can be fully announced. This tends to be a futile effort on several levels. On the first level, when people are involved, as they must be for a reorganization, information regarding the potential changes is going to get out. When a number of people are involved, or are providing input, someone will talk. If people become aware of pending changes before the full structure is in place, it can cause them to behave in ways detrimental to the current organizational structure in anticipation of the future structure. On the other hand if the number of people involved in the reorganization is held to a minimum, and the information is tightly controlled, the reorganizational changes can be withheld from the business. While this may sound like the preferable situation, in reality the lack of knowledge can cause the organization several issues as well. Instead of focusing on the business and opportunities at hand, the team will have a tendency to become more internally focused on exactly how the reorganization will manifest itself. It can also cause team members to feel somewhat alienated by the fact that they were not involved or consulted regarding potential changes affecting their careers. The best statement that I have heard to describe this situation is: If during a reorganization you present your employees with a blank page regarding information on where they will work and what they will do, you will not like the story that they will write, and neither will they. A fine line must be walked when reorganizing. Enough team involvement to get commitment and assure an intelligent and logical structure is put in place to position the business for future growth. Not so many people involved that the situation becomes unwieldy and proprietary information is too readily available and becomes distracting to the business. Some information needs to be provided to the team in order to minimize the internal speculation and distraction to the organization, but not so much information about future organizations that it begins to affect current business structures and behaviors. The key to maintaining organizational focus during and through a reorganization is going to be the length of time that the reorganization takes to complete. In general, the shorter the amount of time involved the better. Like removing a Band-Aid that needs to be changed, doing it quickly minimizes the discomfort. There will be less time for information to prematurely filter out into the organization and less time for the distraction of the team associated with speculation on the new business structures. Some organizations have tried to break down the reorganizing process into shorter or smaller steps and announce each step as a way to minimize the distraction to the business. The example would be to reorganize one business group (vertically) or one management level (horizontally) and then announce the results in an effort to keep information flowing and minimize business distraction and disruption during an extended reorganization process. Again, time will be of the essence here. Until the final reorganization announcement has been made, and noted as the final announcement, the business team’s focus cannot be fully on the customer and conducting business with them. Speculation on the wisdom of the last step and the potential future structures and moves associated with the next step will continue until the reorganization process is over. Reorganizations are rarely an enjoyable experience for anyone. Those that are doing the reorganizing are making difficult decisions that will affect the careers of the people on the team and the success of the organization in the future, while trying to make sure that current performance objectives are met. Those that are being reorganized are concerned about their careers while at the same time continuing to try and perform their current jobs. The less time that these incremental stresses are applied to either group, the better it will be for the business. If the decision is made to reorganize, the optimal approach is to generate a reorganization plan and execute it as rapidly as possible. That is easy enough to say, but in reality experience has shown that it is difficult to do.
If it has been a good year there is always the possibility of a reorganization in order to move resources from underperforming business units to growing businesses to take advantage of the market conditions. If it has been a fair year for the business there is always the potential for a reorganization in the hopes of kick-starting the business for the next year. If it has been a year of underperformance, or worse another year of underperformance, chances are that a reorganization is not only a probability, it is probably pending.
Anticipation
Projecting is not what they do in the movie theater. Well, it actually is, but that is not the type of projecting I want to talk about here. What I want to discuss here is the idea of projecting yourself into the position of someone else. By putting yourself in the position of your business associate, customer or boss you can try and gain some insights into what factors are important to them, how they might respond to you, and what you can do to be prepared for those eventualities. By anticipating what the people you are doing business will want or how they will react, you can be prepared for future business actions. It is also a key to the art of thinking ahead.
The business environment has been relatively unstable for some time now. This has driven a focus on seemingly shorter and shorter term deliverables and objectives. As the focus has become shorter the number of controllable forces that can affect the desired outcomes associated with the business has gotten smaller, and in most instances has become more internally oriented to the business. In short we have a tendency to think and act more and more on our immediate needs, drivers and goals, and less on those needs of the customers, the others we deal with and the future.
We cannot afford to be only present day demand / response driven in how we conduct business. We need to remember that each activity is a link in the business chain. It was driven by the previous business activities, but more importantly it will drive other different future business activities. When we focus on only what we want, and are concerned with only what we need and how we will react, we are looking at only one half of the business equation.
Our business activities do not occur in isolation. We are working with customers and responding to the requests and requirements of other business groups. We have to project ourselves into the other half of the business activity. By taking this next step and anticipating how those we are conducting our business with will react, we can adjust our current activity to generate the future response that we desire.
I admit that this is a pretty basic concept, but it seems to be one that we are paying less attention to as we look at today’s meeting calendar, or try to worry about this month’s or this quarter’s numbers. When the headquarters staff teams are looking for forecasts, the first inclination is to get them some numbers (whatever numbers are handy at the time) and get them off your to-do list so that you can get back to actually conducting business. The problems that occur next month or next quarter because of the hasty forecast or early customer sales recognition are to be worried about next month or next quarter. Hence we seem to be always explaining the present and not planning on the future.
When you start looking at why people are interacting or conducting business with you in the manner that they are, it should change the way you interact and respond to them. Instead of just providing a number in a forecast, add a trend and an explanation of the trend. I think that’s what I would like to see when people provide me a forecast, so wouldn’t others want the same type of information? By providing that extra anticipated piece of information you have already provided the answer to the next question.
Sun Tzu in “The Art of War” always noted that the good battles to fight were the ones you had already won, before you fought them. He also stated that by anticipating and preparing for the future conditions, the best battles were the ones that were won without ever having to fight them at all.
The same should be the case for business. By taking a minute and trying to understand why the business request or the customer interaction is in its current form, projecting yourself into the requestors or customers position and anticipating what the next or future interaction will be, you can start managing the future and not just the present. “Good” issues are those that you have ready solutions to. The best issues are those that you never had to deal with because you were able to anticipate them and avoid them all together.
John McKay Was Right
John McKay was a very successful college football coach at the University Of Southern California (USC) in the 1960’s and early 1970’s. I am not aware of many unsuccessful football coaches there, but I guess there may have been one or two. Coach McKay was also the first head coach for the Tampa Bay Buccaneers professional football team when they came into the league in 1976.
As an expansion team the Buccaneers did not win a single game in their first season. Despite all the planning, preparation and strategies, they were not able to win. There was a question of the talent that was present on the team, but coach McKay never said that was the issue.
What coach McKay did say is best summed up in a comment he made in response to a question he was asked after one
“I am in favor of it.”
What he brought out, with a sense of humor, is that planning and strategy and talent and everything else is good, but it is the execution, the doing of the things that you are supposed to do, that is the key to winning, or losing.
Making sure you have a workable plan and that you have the best talent are keys to a successful business. Making sure that everyone is executing their responsibilities and achieving their objectives is the key to successful leadership. Your team’s“execution” will be the difference between winning and losing in the market place.
Secrets and Common Knowledge
I heard it once said that the difference between a business secret and common knowledge was that common knowledge was far more difficult to come by. I think to some extent this is probably the case.
Whether in sales or business management, as you progress up the ladder you become more of a “knowledge” worker and somewhat less of an implementation worker. By the nature of your expanded role you are entrusted with more information regarding the plans and strategies of the accounts or business (usually both).
This is pretty heady stuff. You are entrusted to know things that others are not. The urge is to show off and tell others the things you know. The requirement is to communicate strategies and directions so as to best align the resources to execute on the plans. The need is to do so without “broadcasting” in such a way as to reduce the value of the information by providing it to those who do not need, or should not have it.
I have stated in the past that the value of information is in sharing it. The art is being able to select what to share and who to share it with and how to share it in such a way as to be able to achieve your sales and business goals without your proprietary business information becoming “common knowledge”.
Dilbert Was Right About Strategic Plans
Strategic plans are essential to the continued well being of any business. We are all aware of this. I have been involved in organizations where the strategic plan was considered the most important document in the organization, and I have been places where it was considered a necessary (or unnecessary) evil. Wherever I have been, I have invariably found that the most successful strategic plans have adhered to what I call the Dilbert Rule for Strategic Plans.
When asked by his (pointy haired) boss for his suggestions for the strategic plan, Dilbert responded with
“Why don’t we find out what we make the most money at, and do more of that…”
Of course this was rejected out of hand as far too simple for a strategic plan. I would agree that for an entire strategic plan it probably is, but for a starting point I don’t think you could do much better. It requires a self analysis of profitability and competitive situations that will be the cornerstone of what the business is doing and will be doing going forward.
The key here is to identify your strengths and to build going forward from them. Too many times we tend to identify traits that we want to be strengths instead of those that are strengths, to build our future business on. It is by looking at both the current and desired capabilities that a good strategic plan can be created.
Next week I’ll be looking at the Jethro Bodine Clampett school of ciphering in your business. This topic covers the “goes into’s and goes out of’s” of your business. Its basic but it also works.
What’s a Cycle?
We have all heard the phrase “cycle time”, but what does it really mean to your business? The simple definition of a “cycle time” is the amount of time it takes to complete an operation or activity. It has now been adopted by, or applied to just about everything in a business. Again, simply put, you need to know and understand the various cycle times – how long it takes to do things – in your business.
Each aspect of your business has an associated cycle time. Your sales cycle time is the time it takes from when you initially introduce the sales opportunity to the customer, to when you get their signature on the order. Your production cycle time is from when you get the order to when you actually have a completed product meeting the order specifications ready to ship. Your development cycle time is the time from product concept to generally available deliverable product.
Another lesser know but equally important cycle time is the Marketing cycle time – The time from when you introduce a marketing program to when you actually see a change in the sales volume from it. It will take time for the market to understand the program. The program will then (hopefully) modify buying behaviors and change the sales cycle time. It will then appear as a change in sales volumes.
Although we might all want our business actions to take immediate effect, we must understand the cycle times we are affecting when we do things. We must understand how long it takes for effects to be seen. We do not want to tie up scarce resource resources waiting for the effects, but we also do not want to be caught without resources when the effects are manifested. Understanding the cycle times of a business enable you to plan and schedule business instead of react to changes as they occur.
Everybody’s a Critic
As we all become wrapped up in the day to day aspects of running a business we tend to forget how things came together, and what was required to get us to this point. The old adage “Plan your work, and then work your plan” really does start to ring true. A strong planning process can help avoid many issues and smooth out those that you do encounter. It is during this planning process that it helps to remember what I consider to be another truism: “When it comes to plans, it is far easier to critique then it is to create” (I am sure this one has been said/written somewhere else before, but I don’t know where. So for now I’ll claim it.) Whenever we are shown a presentation or plan it seems to be our nature to point out what is “wrong” with it. We have a tendency to try and poke holes in it and show where it may not be sufficient to meet the needs. Unless you have been very concise about what it is you wanted and expected (something few leaders are really good at) being this type of critic is usually a counterproductive process. When putting together a plan, focus on the aspects that are correct and will be retained in the plan going forward. That should be a positive lead into the areas that will need further refining. Creating a plan is not an easy thing. It is a lot easier for everyone with encouragement than it is with criticism.