Is it really revenue growth strategy? Or just annual planning?
Introduction to SignalsFromTheOP
Transcript follows
Hi, I'm Ed Marsh, thanks for joining me for Signals from the OP, a video series that tackles issues that should be of strategical importance to industrial manufacturers.
This week's topic is gonna sound convoluted. I'm calling it The Strategy of Strategy. But bear with me and hopefully it'll become clear why I think that convoluted title is important in order to really understand the context of strategy.
It's that time of the year of course, many companies may have wrapped up what they do for strategic planning. Some may be in the midst of it and some may be waiting until early in calendar 2018 to do their planning, of course depending on when their fiscal year is, understanding some of the regulatory changes that are pending, even as I record this video, et cetera.
So it's an opportune time to be talking about strategy. And let me give you a little context. Many of the companies that I work with are privately held and because they're privately held, they're not subject to some of the same regulatory requirements to have a formally defined board and have some of the same formality and reporting and planning processes and you know, revenue accountability et cetera.
Doesn't mean that they shouldn't. Just means that they're not required to but as a result, many of the privately held companies with whom I work don't have formal boards of directors. They may have boards of advisors, they may have something they call board of directors that's really constituted differently with a different purpose or they may just get together with family or senior management and do some annual planning.
That planning in many cases isn't really strategy, regardless of what it's called. It's often more like an extension of operations. It may be forecasting, it could be talking about tactical plans, could be kind of a staff meeting, all hands on deck, annual share the goals, invite staff feedback sort of thing. Those aren't really strategy.
Real strategy is a process of understanding where the business needs to go. What you gonna have to build, put in place, implement to get there and what could interfere with accomplishing that?
Now public companies obviously have some peculiarities or differences than privately held companies. There's a lot of accountability and reporting that is required of the board and of the senior executives, signing off on financial statements for instance. But there's also a lot in that structure that's been efficient that we can learn from.
I'm a member of the National Association of Corporate Directors and the NACD does a lot of research and does a lot of work establishing best practices for directors and for the supervisory role of directors working with management. Every year, they do a survey, governance survey of directors and the 2017/2018 governance survey has some really helpful information I think for privately held businesses, whether there is a formal board of directors, a board of advisors, family getting together to do planning or whatever. It talks about the issues of planning.
Here are some of what directors are telling NACD that they're worried about. 58% are worried about major disrupted industry change, will the industry be the same, will their business look the same, will they be selling in the same kind of a market in a year or two years? Business model disruption. I work with a lot of capital equipment clients. They get an order and we see 30% of the money. They ship the machine, and we see 30% of the money. 30 days later, after it's installed, they receive 30% of the money. That kind of a thing.
But it could be, as we move to product as a service sorts of models, as data gets monetized, it can be very very very different business models.
36% are worried about talent management. Manufacturing companies simply have a hard time staffing now with quality employees and CEO is something that we hear about in the publicly traded sector where there is a scandal or suddenly a CEO is replaced or is relieved of responsibilities. But of course, that's a consideration in privately held businesses, too. A car accident can really create disruption and it's something that succession planning needs to be absolutely part of what companies are thinking about.
38% are really worried about cybersecurity. We got a lot of middle market, privately held family owned closely held, 30 year old industrial manufacturing company that was basically shut down for almost a week last year because of ransomware attack. It's a huge issue, not to mention of course maintaining credit card numbers of customers for MRO parts and that sort of thing. And imagine the exposure associated with what are simple business functions.
22% are worried about changing consumer buying habits. That's something I talk about a lot in the context of marketing and sales and directors are worrying about it. And of course, it's last, it's not last in terms of number but I've got it at the bottom of the last because everyone is aware of technological disruption but it's something that directors are worried about. How is it gonna change the business, how is it gonna change their customers' businesses, how is it gonna change their customers' customers' businesses? All of those of course impact the liability and profitability and plan for a company.
So what's interesting of course is none of these talk about product features. None of them talk about sales forecasting, none of them are talking about tactics for implementation. They're all worrying about the big picture kinds of things and that's what strategy is.
But often, strategy, "fails". And a recent article in HBR which you can get to through this bit.ly was entitled Most Strategies Fail Because they're not Strategies. And what it did was essentially went through and identify the fact that many what are announced or presented or published strategies are really just goals. And that misses the strategic framework that's necessary. In order to accomplish something or to really build and execute a strategy, it's gotta be far reaching, far visioned, it's gotta be deep, it's gotta be uncomfortable, it's gotta not just be some sort of a linear projection of the next step or two, based on what the last five or 10 or 50 years have looked like.
But it's gotta take into account the changes that are happening and it's gotta envision what's possible, both opportunistically and defensively, what the threats might be. It's scary. And it's uncomfortable. And it's also not a process that many companies have done. So what I'd ask you is number one, do you do this? If you do, congratulations. What could you do to do it better?
If you don't do it, do you want to? And some companies may just say, "No," and that's okay. If it's a lifestyle business and the goal is gonna be to try to sell it in a couple years and you don't think you need to undertake this sort of thing to defensively, to be ready to sell or to improve enterprise evaluation in the meantime, fine.
But if your goal is to grow your business, be vibrant and thrive through the disruption that's going on, I'd suggest you need to do this and the trick is, it's really hard to do with kind of that chummy board of advisors, with the family getting around and doing a "strategy planning." Or with the senior staff, each of whom has their own silos and their own perspectives and opinions of each other.
Those sorts of things lead to this kind of strategic planning, not this kind of which is really strategic planning. So as an example, I'd say that if you're not working actively on three models that will allow you to monetize data and recurring revenue from data that you're generating in your interaction with customers and through their use of your products on an ongoing basis, you're probably not doing the kind of strategic planning you need to.
Or, alternatively, if you're not tracking three risks that can kind of strike your business like an asteroid from outer space and wipe it out like the dinosaurs over night, then I'd say you're probably not doing what you need to from a strategic planning perspective.
Doesn't mean that it can't happen, though. Often, what it requires is a fresh perspective. So there's a couple of things that I can offer you. First of all, I have a guide that lays out a framework of questions which will facilitate the important conversation that needs to happen with advisors or directors, with senior management and with other stakeholders, including family members if you're in a privately held family-owned business. Download your free copy
Also, that's one of the services that I offer as a consultant, working with companies to facilitate that conversation, build this sort of strategic planning framework and then actually go through the process and help develop a strategy and then even build the execution framework behind that.
So if you like this kind of a provocative and somewhat counterintuitive or unusual look at big strategic issues facing businesses that often don't get as much attention as they should, then I'd ask that you subscribe to Signals from the OP, I release a new video about every week or so and I include a transcript with it. And I welcome your participation, subscription and joining me for future episodes.
Thanks very much, thanks for joining me today.
