Archive for the ‘Strategic Planning’ Category

Entrepreneurs: Beware of Boredom

Wednesday, August 29th, 2012 by Troy Schrock

It is not uncommon for entrepreneurs to get bored when their organizations mature to a certain size.  Management becomes procedural, the business is humming, and life becomes all too routine and mundane.  Entrepreneurs can find this environment stifling.

Unfortunately, the reflexive urge is to engage in behaviors that may be destructive to the very existence of the organizations they started.  They pursue growth, jump into other executives’ domains, launch new ventures, or invest in other businesses – anything to break up the new monotony.  These moves aren’t always bad, but only if approached strategically.  They should not be done merely as desperate reaches for something different.

In starting his second restaurant, Union Square Hospitality Group founder Danny Meyer said, “[The first restaurant] was a great canvas, but I needed a new place to express my creativity.  I didn’t think I should alter a successful restaurant because I was restless.  I didn’t have to get all of my ideas into one place.” (as quoted in Small Giants by Bo Burlingham)

Restless entrepreneurs can learn from Meyer’s recognition.  Proper channeling of creative energy can lead to good results for the initial enterprise as well as any new ventures that may arise.

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Rethinking Hedgehog

Thursday, June 28th, 2012 by Troy Schrock

I recently wrote about Phil Rosenzweig’s book The Halo Effect.  One of the notions he challenges is Jim Collins’s Hedgehog Concept – the discipline of focusing on one thing at which you are a uniquely high performer.  The “Good to Great” companies were Hedgehogs, but Rosenzweig cautions that Hedgehogs end up as roadkill at least as often as they succeed.

The opposite of the Hedgehog is the Fox, jumping about from thing to thing.  Andy Grove, the acclaimed CEO of Intel, is noted for Fox-like thinking.  The technology in his industry was changing way too fast for him to focus on one thing.  He repeatedly led his organization through radical changes, including some where they abandoned the very products that had brought them much success.  Had they not been successful, they would have likely been criticized for not having a Hedgehog Concept.  However, Grove realized that there are appropriate times to be a Fox.

To be clear, I am not suggesting we abandon the Hedgehog Concept, and I don’t think Rosenzweig is, either.  We must find the proper balance between Fox and Hedgehog-type behavior.  Once a strategic direction is established, it’s time to focus on making that work, but prior to that, it’s okay to behave like a Fox.  In fact, that Fox-like behavior may be what keeps you alive if your Hedgehog Concept fails.

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Forecasting is a Learned Skill

Wednesday, March 7th, 2012 by Troy Schrock

Forecasting is a learned skill, and as such, it can be taught and improved over time.  It also will never be perfect.  Yet, I often see CEOs and executives giving the financial staff a terrible time when actual results differ from the forecast.  I have also seen many financial personnel terrified to provide a forecast to the executive team because it is built on assumptions rather than “facts.”  By nature, financial personnel tend to be more averse to making mistakes than others.  They want their numbers to be right, but forecasts are never “right” in precisely matching actual results.  No one can absolutely predict the future.  A forecast can only provide a directional view based on the best knowledge available.

Forecasting is not limited to financial numbers.  Every discipline has some kind of key activity or metric to forecast, so CEOs, CFOs, CIOs, COOs, and any other kind of business leader ought to be able to understand the uncertainty and apprehension involved in forecasting.

You can only become excellent at forecasting by working on it.  Mistakes will be made.  Through practice, you will gain a better understanding of the drivers of the key activities which are drivers for the financial results.  Not only will the accuracy of your forecasts improve over time, but you will also gain a deeper understanding of your business (which is the greatest value of forecasting).

For more insight on financial forecasting, consider reading Before You Hire a CFO

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Choosing Smart Numbers (Part 2)

Wednesday, February 15th, 2012 by Troy Schrock

(Read Part 1.)

Once smart numbers are developed, they need to be properly communicated.  The reporting process is as important as the numbers themselves.  Information cannot inform decisions if not shared in a practical and useful way.  A simple scorecard captures the smart numbers on a daily – or at least weekly – basis.  In addition to providing the current smart number, the scorecard should provide context (for example, the smart numbers for each day that week, the prior six weeks, or the last year).

Who should see the smart number report?  At the very least, the executive team should see the report.  Other managers may benefit from seeing the overall company perspective contained in the smart
numbers report.  Keep in mind, the purpose of the smart numbers is to enable decision makers to react quickly to the current reality.  Anyone who can help the company by knowing the smart numbers should be included in the distribution.

The second insight is a practical tip.  Business conditions change over time, so you should periodically review your smart numbers to ensure they are still applicable and appropriate.  Sometimes a slight modification is required, while other times, one or two of the existing smart numbers may need to be replaced completely.

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Choosing Smart Numbers (Part 1)

Wednesday, January 18th, 2012 by Troy Schrock

The first metric type in the list from the last post was leading indicators.  Since these metrics provide advance alerts for decision makers, we commonly refer to them as “smart numbers.”  Smart numbers should be viewed on daily – or at least weekly – basis.  Some organizations even monitor smart numbers on an hourly basis.

To help you in choosing smart numbers, here are a few general types I have seen in my work as an advisor:

  1. Revenue forecast.  For some businesses, this is based on factors like time of week/month/year, traffic volume, general economic attitude, etc.  For others, it is a view of the revenue
    pipeline – a cumulative view of upcoming work.  For example, it may be the dollar value of bids won and bids sold for a given period.
  2. Effectiveness of delivering on value proposition.  Every business has a value proposition.  You should have a smart number that measures your effectiveness in delivering on that promise to the market.  For example, if your business has a guarantee or return policy, track how many times you have to honor that guarantee, which can be converted to the dollar value of damages
    related to missing on your promise.
  3. Cash position or availability.  Availability factors in cash-in-hand as well as cash available from a line of credit.  This may also take also take the form of modified working capital availability (total cash and receivables less payables).
  4. Measure of your base economic unit of value.  Every business has a base economic unit of value such as a billable hour or unit produced.  How many units have you produced and how many do you project to produce over a given time period?
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Business Strategy: Types of Metrics

Wednesday, January 4th, 2012 by Troy Schrock

There are many different types of metrics (key performance indicators, or KPIs) that can be used to gauge progress or relative position.  In addition to the four domain areas for balanced measures, here is a list of metric types that your strategic metrics should include:

  • Leading (advance alerts)
  • Lagging (results of past decisions)
  • Internal
  • External
  • Quantitative
  • Qualitative

Though it is common to equate metrics with financial results, most metrics will not be money-based.  There are many key processes and activities that make good KPIs.

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