Four Fatal Flaws of Business Planning

The effective development of business plans is drawing a lot of attention these days. In no way does this mean that companies are becoming more effective in their business planning or business plan creation. Many companies claim to be doing regular business planning but most are not. Executives and managers continue to make fundamental mistakes that undermine otherwise well intentioned strategy formulation efforts.

Here are four fatal flaws that consistently creep into business planning processes that if avoided, can significantly improve both the process and the results.

Skipping Rigorous Analysis Before Starting On The Actual PlanMany executives and managers believe their business experience and knowledge base alone equips them with all the information they need to conduct effective business planning. This belief is almost always untrue and serves only to undermine the kind of critical thinking from which truly creative strategies are born. This becomes complicated, since most planning is done by a team and all participants come with preconceived notions and differing sets of data on which to base the plans. Having an experienced facilitator with success in business planning is critical. A good business planning process takes full advantage of the numerous tools of strategic analysis to gain key insights regarding how the industry is evolving, how competitors are changing positions, and where an individual firm's sources of competitive advantage lie. Don’t ever overlook the critical role of defining the company’s Core Purpose and Core Values before you start.

Believing Strategy Can Be Built in a DayMany executive teams earnestly believe that effective strategies can be identified, explored, and agreed upon during abbreviated offsite meetings where the main driver of the agenda is the timing of snack breaks. While offsite meetings are useful forums in which to share information and address key issues, meetings should be adequately timed over days or weeks if necessary, so that sufficient preparation, review and discussion can occur before and during the event. We have found that breaking the process into multiple sessions, each with assigned pre-work, allow participants to reflect on the work being done in less pressured surroundings and provide clearer input to the plans.

Failing to Link Business Planning with Strategic ExecutionAccording to a recent survey, execution overall and strategy execution in particular hold the first and second positions when it comes to "top issues" in executive's minds. Executing strategy requires the work of the entire organization, whereas business planning only requires the top team. One of the greatest challenges of the planning team is the ability to link their work with ongoing strategy execution. Strategic success demands a simultaneous view of planning and doing. Managers must be thinking about executing even as they are formulating the plan. They also must find a means of effectively cascading the corporate plan down into the various functions and business units so that all of the work is aligned.

Dodging Strategy Review MeetingsBusiness plans quickly become obsolete when there is no activity in place to keep them alive. Worse, managers sometimes feel freed from execution accountability when reviews are continually rescheduled or dropped from the calendar altogether. Successful businesses have made their business process a continuous and dynamic one. This is a more realistic approach than the once-a-year planning meeting that still dominates many corporate business planning efforts. The most direct way to maintain a consistent focus on strategy is to schedule and hold regular strategy review meetings. At the end of the business plan formulation, managers should establish a strategic governance process where business plan review meetings are scheduled a year in advance. In the meetings, with each of the strategies and tactics having an owner responsible for it, there is accountability. The measures that have been developed provide a strong basis for review of the success of the pan and what may need to be modified to keep on track.

Business planning tied to strong execution is a winning combination. Our clients are enjoying this success. How may we assist you?

Thanks

John

John Maver
President
Maver Management Group
(925) 648-7561
Maver Management

Turnaround Management – Tips that work

Is your company in a “turnaround” condition? The common definition of a turnaround is very broad. It is basically about improving performance from one state to a better one. Being in this situation can cover more than just those companies that are about to go under. It can also be companies that have great opportunities for growth ahead of them, but need to change the way they do business in order to capitalize on them. While there are common lessons that apply to all, in this article we will focus on turnarounds from a negative position.

In the recent economic climate, we have become accustomed to companies struggling, with many going out of business. They haven’t been able to control their costs effectively or create the sources of revenue that will sustain the company. The majority of respected surveys put the success rate of turnarounds in these situations at between 20% and 35%, depending on the definition of under-performance and success. Those with turnaround experience know that turnaround situations are usually highly stressful and, if unsuccessful, very poorly rewarded.

Yet, they offer some excellent insights on what is important for a new CEO to consider. Clearly, there are factors that are unique to certain situations but in general these seven factors have led to success in most turnaround situations for troubled companies. For those companies who are not in turnaround mode but need business acceleration, there are some gold nuggets in here too.

1. Identify the real problem.
There are two generic reasons. Either something major went wrong for a short time, usually loss of a dominant customer or a dramatic market change; or something minor went wrong for a long time, usually poor understanding of customer or product profitability, that led to misguided allocation of capital and resources. Given the economic climate, it is tempting to blame market changes when things go wrong. That may also be true. What matters is the need to establish what went wrong and fix it.

2. Take control of time.
Senior teams, and particularly new CEOs, experience relentless demands on their time from all stakeholder groups from the Board, down through the banks, suppliers and customers. At the same time, management is constantly harried by a series of apparently urgent tasks, each of which is critical in its own way. The CEO needs to create breathing space for actually working on the business operation as a whole. While there are the fires to fight, there is also a necessity to protect the time that they and their team need to think, understand the problems in the business, formulate the plan, and implement it.

3. Get the finances under control.
Creating a bottom-up budget and making the team accountable for every part of income and spending. In addition to problems of solvency and profitability, most companies in turnaround situations have issues with liquidity. Whereas profitability can be addressed internally by sensible planning and performance management, liquidity usually requires external support from financiers, ranging from payment holidays through to cash injections. Sources will need to be reassured that there exists a viable business both in the short and mid-term, and that they are not throwing good money after bad. This liquidity brings breathing space that allows management to make calm, rational decisions that support long term survival and profitability.

4. Make promises you know you can keep.
In a turnaround situation, all of the stakeholders are concerned: employees, shareholders, banks, creditors, business partners, customers and suppliers. Increasing their confidence is critical to making any progress. Management has to be proactive and make a series of promises, which it knows it can keep. Hitting these checkpoints is the most effective tool management has to build its credibility.

5. Upgrade the executive team.
New plans almost always require a new team that is committed and able to execute the plan. Seldom is there a dramatic change in the fortunes of a company without a corresponding change in the senior team. This means at least two or three changes in senior personnel and that started with the change in CEO. It should be done quickly and bringing in senior consultants with specific experience is an excellent short term aid.

6. Simplify
Complexity is a double-edged sword in turnarounds. Companies often get into trouble when they take on too much and when they are in trouble they try extra benefits to get out of what they are doing. When resources and time are constrained, the business needs to concentrate on doing a small number of things well. This can mean reducing product lines, cutting or selling business units, outsourcing business processes or numerous other simplifications depending on the situation. The process of simplification needs to go far enough to give the remaining activities the focus of management time and investment required to do them well.

As you are reading this article, you might think that all of these tips are common sense and relatively obvious. However, all of them are also easy to dismiss, overlook or delay. DON”T!!

Let us know how we can assist you. We have experience across a broad range of industries and turnaround situations.

Thanks,

John

John Maver
President
Maver Management Group
(925) 648-7561
Maver Management