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Is Long Range Planning Still Relevant?

In today’s rapidly changing business environment, some argue conventional long range planning may no longer be relevant.

As background, here are the elements of a traditional strategic plan1:

  1. Mission – why you do what you do
  2. Vision – where do you want to be
  3. Core values – what guides you
  4. Driving Force – What is the nature of the products, services, customers, market segments and geographic areas that a company chooses to pursue?  What is it now?  Should it change?
  5. Strategic analysis
  6. The Five Forces2 – suppliers, customers, threat of substitutes (technology), ease of entry (potential entrants)
  7. SWOT – Strengths, Weaknesses, Opportunities and Threats
  8. Analysis of competitors SWOT
  9. Competitive advantage
  10. What should we continue, what should we change?
  11. Operating Plans & KPI’s (Key Performance Indicators)
  12. Budget, both capital and operating
  13. Balanced Scorecard – Finance, Internal Processes, Learning & Growth, Customer Satisfaction

Among those challenging traditional strategic planning is Clayton Christensen.  In his book, The Innovator’s Dilemma3, he questions traditional concepts of strategic planning in an environment populated by increasingly innovative and agile competitors.  His focus is on large companies who historically are not good at being agile and innovative and therefore lack the ability to respond to small, entrepreneurial, innovative competitors.

Rita Gunther McGrath, in her new book, The End of Competitive Advantage4, makes a frontal attack on accepted strategic planning methods designed, in her opinion, for another time. These are methods based on the presumption that competitive advantage is sustainable.

McGrath believes that the best one can hope for is “transient competitive advantage.”  Her prescription for achieving transient competitive advantage includes smaller, faster, more agile organizations where “management-by-consensus” is a thing of the past. Her emphasis is on marshalling rather than owning assets, including talent. To ensure the appropriate deployment of these assets from one opportunity to the next, it is necessary to recentralize control over the resource allocation process, moving it out of strategic business units (SBUs). This raises the question as to the relevancy of SBUs and suggests that they be replaced by transient teams as a primary form of organization.  They engage in a continuous process of creating and testing options, doing things fast and “roughly right” rather than relying on traditional strategic planning methods.

Like Christensen, McGrath’s message is aimed at large, historically slow moving companies.  So as a TEC member, is strategic planning still relevant to you?  What do you think?

Some closing thoughts:

  • “Strategic Planning is the single most important function of the CEO”, Patrick Below
  • “I have always found that plans are useless, but planning is indispensable.”, Dwight D. Eisenhower
  • “If you don’t know where you are going, any road will take you there”, Lewis Carroll

Click here to read more on this subject.  ( http://hbswk.hbs.edu/item/7341.html )

1”The Executive Guide to Strategic Planning”, by Patrick J. Below

2”Competitive Strategy”, by Michael E. Porter

3Clayton M. Christensen, The Innovator’s Dilemma (Boston: Harvard Business School Press, 1997)

4Rita Gunther McGrath, The End of Competitive Strategy: How to Keep Your Strategy Moving as Fast as Your Business, (Boston: Harvard Business Review Press, 2013)

Organization and Staffing – Ground Rule #4 – Dealing with Advancing Age

This is the eleventh in a series of posts that will describe what the CEO of the Reliance Electric Company thought about basic commitments, how the organization was going to operate and ground rules for managers. Once again, all the content of this article is based on the work of B. Charles Ames as outlined in his management manifesto titled Basic Management Concepts dated January 14, 1974.

Organization and Staffing – Ground Rule #4 – Dealing with Advancing Age 

I am going to deviate a bit from my normal practice of simply repackaging the words Chuck Ames used in Basic Management Concepts for Ground Rule #4.  Ground Rule #4 deals with advancing age in the workforce.  Some of the content needs to be brought up to current EEOC standards.  Plus, there is some new research that suggests our opinions about the capabilities of older people in the workforce may not be quite accurate.  See “Why Everything You Know About Aging Is Probably Wrong” from the December 1, 2014 Wall Street Journal.

Ames wrote that some individuals, as they age, may reach a point where their job responsibilities exceed their energy levels and capabilities.  At some level this is certainly true and will indeed happen to us all.  Ames felt that the organization had an obligation to people who served it loyally.  He stated they should be paid fairly and given assignments where they could be successful.

He went on to say that older workers unable to make a continuing contribution needed to be removed from the mainstream.  He figured it wasn’t fair to the individual or the corporation to leave people in roles where they were likely to be unsuccessful.  An appropriate ground rule, regardless of age, I would add.

In conclusion he wrote that advancing age alone should not be a reason to exclude anyone from consideration for an assignment.  He stated there is nothing more wasteful than bypassing an experienced individual because of age even though that individual has the drive and energy to be successful.

Certainly an excellent ground rule whether it is 1974 or 2015.

B. Chuck Ames and his wife Jay currently manage the Ames Family Foundation.  They divide their time between a home in Vero Beach, Florida and a second home in a suburb of Cleveland. 

 

 

 

How We Will Operate | B. Charles Ames Series

How We Will Operate

This is the fourth in a series of posts that will describe what the CEO Reliance Electric thought about basic commitments, how the organization was going to operate and ground rules for managers. Once again, all the content of this article is based on the work of B. Charles Ames as outlined in his management manifesto titled Basic Management Concepts dated January 14, 1974.

Reliance Electric was a $1 billion conglomerate at the time our company was acquired.  They had been on a run of successful acquisitions for several years.  They owned about a hundred companies producing electric motors, power transmission equipment, retail food packaging and weighing equipment, telecommunications equipment, and more.

How do you run a conglomerate with a wide range of diverse businesses . . . effectively?  Ames wrote the following.

  • In light of Reliance Electric’s girth, the Divisions of the company needed to work together to take advantage of lessor endowed competitors.
  • The company centralized “certain functions” when it was economically advantageous.  The interests of the corporation trumped those of any individual Division.
  • Reliance followed a uniform set of administrative policies throughout all operations.  Human Resources, for example, would be managed consistently throughout the organization.

So far, so good.  Here is where it gets interesting. Ames was clear here:

  • The company would not force integration where it didn’t make sense or seek consistency among the Divisions without regard to individual differences of the Divisions.
  • The company would not impose corporate policies on decisions without seeking into from the Divisions.

What Ames wanted us to do was gain a competitive advantage from our size and diversity, without messing around with the basic integrity of the divisional profit center concept.  An interesting balancing act, to be sure.  And, the basic business strategy of the company.  Because Ames wrote it down and distributed it all of us, we knew what was expected.

B. Chuck Ames and his wife Jay currently manage the Ames Family Foundation.  They divide their time between a home in Vero Beach, Florida and a second home in a suburb of Cleveland.  

 

Failed Change Initiatives Come Down To The CEO

 Most TEC-involved CEOs and organization leaders are well aware of the elements that need to be in place to create change initiatives.  In today’s world, change comes more rapidly than ever.

But by and large, these initiatives are not sufficiently successful … at least they don’t reach the performance levels we aspired to.

Why?

In his TEC presentations, Michael Canic of Bridgeway Leadership, Denver, provides a litany of required efforts under the headings of the right environment, focus and people.  But we get all that.  We do it, at least most of it.  So, why don’t our people make it happen?

He was asked about the top three reasons after a recent presentation.  They are, in his consulting experience:

1.  CEO Commitment

We say we are, but we actually aren’t.  Canic says, “There is a massive difference between the will to win, and the will to do what it takes to win.”  We earnestly put in place the roadmap for the change initiative and make assignments to our most competent direct reports, with touch base sessions.  But then we get distracted with all the other demands on our time.  We fail to give the impression that the change effort is a “must”.  We send a “mixed message.”  The energy we initially created subsides.

What the CEO has to do, he says, is have just one major commitment at a time … and focus relentlessly on it.  There might be three important ones, but deal with them sequentially.  It will be CEO attention that makes them happen, he says.  By your paying attention, people take responsibility to perform on schedule.

2.  CEO Capability

Simply, this means that some important elements aren’t put in place.  The CEO doesn’t know about them, or doesn’t feel they’re important to the initiative.  We’re good at knowing the technical things that have to happen, but not the “people” things.  These include knowing that people really do understand the purpose … what success looks like … have the knowledge and skills to do what’s expected of them … that they know what’s expected and by when … that they get affirmation … and help when they have a problem.  Simple things when we say them … but often missed.  Have a very visible Master Calendar, showing initiatives, champions and timelines, and manage to it.  It shows people the whole process is being managed, and they see where their part fits in.

As Canic says, what YOU do as CEO is not as important as what your PEOPLE experience.  Don’t assume.

3.  CEO Control of His/Her EGO

Too often, he says, CEOs compromise their own forward success by reflecting their past success in how they comport themselves, in their demeanor.  People recognize this immediately.  You aren’t on the same “level” with them, not on the same “team” with them … and it affects their commitment.  Successful change leaders hold their egos in check.  They put what’s necessary in place, and then spend the rest of their time being a servant, helping others to be successful.

Interestingly, he notes, all failed change initiatives come down to the CEO!

 

Hey, Guys. Meet RONA.

When Reliance Electric acquired our nice, privately held, mid-sized business they paid a significant premium.  They were a strategic buyer.  They wanted an introduction to some of the horizontal markets where we strong.  Congratulations.  The seller got a bigger multiple of earnings.  We got RONA.

RONA is short for Return on Net Assets.  Based on Generally Accepted Accounting Principles the total purchase price of an acquisition of this nature is allocated to assets of the business based on the individual fair market value of the assets acquired. Overnight, depreciated assets suddenly became valuable once again as the premium in purchase price was spread over these assets in what amounted to a “write up.”  This might be considered normal accounting mumbo jumbo except that one of B. Chuck Ames metrics required to fulfill the Basic Commitments outlined in the first part of this series.  RONA.

Ames expected at least 18% return on net assets employed.  The write up in assets moved the bar for our performance hurdle to a new, some would say, unfair level.  What was fair about the metric was it allowed Reliance to earn back the premium it paid for the companies it acquired.  And, it was also a very clear performance expectation for the managers of the company.  We all knew exactly what was expected.

The metrics Ames incorporated to insure the ability to fulfill Our Basic Commitments to our shareholders and our employees included:

  • Sustained rate of growth in earnings per share 4 to 5 points above the going rate of  interest.
  • Improved quality or stability of earnings so that in periods on economic decline earnings would not fall below the level of any prior period.
  • 7% Return on Sales after tax.
  • Increase earnings contribution by 15% per year.
  • And, of course, 18% RONA.

Ames was very specific about operating units that did not achieve these profit goals.  The unit was regarded as a “drain on, rather than a contributor” to the corporation.   He made it clear to everyone that this drain could not be tolerated.  There was no commitment to a plant, product or market that did not at least offer the prospect of hitting the performance targets.  Further, it was the manager’s responsibility to make realistic assessments of a business unit and decide to get out of it if it wasn’t going to make its “fair contribution.”

Interestingly, Ames was quick to debunk “the allure of volume” argument.  He wrote that return on capital and absolute earnings can be improved by walking away from marginal business, even if it meant shrinking the overall size of the business.  His metrics were about making money.

Selected metrics, of course, will vary by company.   They need to be relevant to the goals of the organization.  The suggestion would be to pick three or four that apply to the individual situation and use them as guideposts for judging performance.  The focus these metrics according to Ames would be on earnings.

The next installment of Basic Management Concepts will describe the Growth Strategy Ames devised for Reliance Electric.  Once again, all the content of this article is based on the work of B. Charles Ames as outlined in his management manifesto titled Basic Management Concepts dated January 14, 1974.

B. Chuck Ames and his wife Jay currently manage the Ames Family Foundation.  They divide their time between a home in Vero Beach, Florida and a second home in a suburb of Cleveland.

How Effective is Your Sales Compensation Plan?

We are often asked to review sales compensation plans.  An effective sales compensation plan is a delicate mix of incentive, motivation and fairness.  A plan with a poor design can not only hurt morale, but also inhibit successful hiring.  Here are some critical factors in designing (or re-designing) your sales compensation plan.

Apply the K.I.S.S. principle (Keep It Simple Stupid).  We see way too many plans that most of the salespeople don’t understand.  Therefore, the plan becomes ineffective.

Design the plan to meet your company objectives.  If you are looking for more new business, then reward that activity with a higher commission.  If you want to grow one segment of your business over another, then reward that activity.

Pay for sales related activities.  Salespeople sell, engineers engineer and accountants collect money.  Don’t have your salespeople performing non sales related activities and then complain that sales goals are not met.

Pay promptly.  Tie reward to performance with minimum delay.  It’s okay to pay commissions after receipt of payment from your customer.  But, pay it within 30 days and not 3 months.

Implement some level of base salary.  If you hire a new salesperson as an employee make some portion of the compensation a base salary.  A base salary gives license to provide direction.  If you want to pay commission only, then retain an independent manufacturer’s representative.

Do not let a “draw against commission” run a muck.  If you have some salespeople “in the hole” more than 6 or 9 months of draw; you have a management problem not a compensation problem.  If salespeople are not performing, replace.  No compensation plan will make a poor salesperson better.

Check around your industry and your marketplace.  Maintain a competitive compensation plan to retain and find good salespeople.  If you pay less than a competitive wage, you can expect less than spectacular results.

Review your compensation plans annually and adjust as needed.  There is no intrinsic benefit to a plan that originated in 1948.

Not everyone is equal.  Salespeople differ in experience, motivation and talent.  There is no reason to pay every salesperson the same.  Just make sure the plans are fair.

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Keep these tips in mind when it comes time to review your sales compensation plan. Every business is a little different and has unique goals and circumstances.  A fair, competitive and simple comp plan, however, is the common element to drive sales.

What Is Easy Is Seldom Excellent

This famous quote from Samuel Johnson is echoed in an article in the October 2013 issue of Working Knowledge by Michael Blanding, a publication of the Harvard Business School. Mr. Blanding reports on work by Harvard Business School Professor Joseph Badaracco, who has taken a closer look at the concept of struggle in a business context. He notes that humans instinctively try to avoid struggle, yet as leaders, everything meaningful we achieve in life has some form of struggle attached, and rarely do we pause long after one struggle before we’re on to the next. So we have a paradox — that struggle can be both something to overcome on the way to success and something to embrace as it gives meaning to our lives.

Professor Badaracco observes that there is a new economy in which “markets today not only control the buying and selling of goods and services, they shape nearly every aspect of our lives. Employees see themselves as individual brands, forever on the lookout for new opportunities; home life has become an act of managing supply chains, outsourcing housecleaning, childcare, and even grocery shopping to others; and churches market themselves like fast food companies to potential parishioners.”

This requires leaders to live constantly in the midst of struggle, “making leadership both more difficult and more rewording than it was a generation ago.”

In this new economy, leaders more than ever must keep themselves accountable to the commitments they make, to their employees, to their investors, to their partners, and to other stakeholders — knowing that if they don’t, credibility will be damaged and the market will punish them.

Leaders say they are motivated by seeking the good life, but it’s surprising how few true leaders would prefer to kick back and watch things from the deck of their boat rather than create, build, try, experiment, and — yes — struggle, partly because it’s fun and partly because hard work tells them what they are doing is important. “The struggle is part of who they are.” Click here to read the full article.