Better strategic planning drives bottom line results

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I’m reading an interesting book titled “How Toyota Became Number One” Leadership Lessons From the World’s Greatest Car Company by David Magee.  It discusses the Toyota strategy process in detail from their first introduction into the United Sates until the present time. It also talks about how their strategic thinking and customer understanding differs from the U.S car companies.

It points out that Toyota isn’t perfect and have made some market and strategy mistakes, but they recognized them quickly and corrected them just as quickly.

There are several major differences between domestic manufactures and even the other Japanese manufacturers and Toyota, but they all start with better strategic planning.

Toyota develops strategies based on recognizing what the customer needs and wants, and then executes to that strategy. How do they know what the customer wants? They ask them. They don’t guess and build large quantities of what they think will sell and push the units into the dealer network they study the customer. The book talks about the development of the Lexus brand in the U.S. Toyota sent a team to Laguna Beach, CA in 1985 to “live a life of luxury” and study the habits of luxury car buyers. They learned what the customer wanted and the shortfalls of the other luxury cars on the market. The result is Lexus, the largest luxury car brand in the United States selling over 300,000 cars per year.

Toyota’s strategy isn’t to be the number one car company in sales, it is to build the best car on the market and give the customer more value than he or she pays for. They believe that holding to this strategy and keeping a long-term focus rather than short-term results will drive sales.

The book talks about how Detroit automakers rode the SUV wave throughout the last decade. They were the highest margin cars ever built and they built them bigger and bigger up to and including the Excursion, the Suburban and the Hummer. Toyota offer SUV’s as well in the Highlander and the Land Cruiser, they didn’t go after the SUV market in a big way. They instead spent nearly $1 billion on development of the hybrid Prius. GM put nearly as much money into development of the Hummer Because SUV’s were the current fad and they were very profitable. One doesn’t have to look hard to see which company planned for the future and which one went for short-term profits.

The messages I got from reading this book complemented nicely with what I had written in my book, “Bottom Line focus”.

1.  Understand your customer’s needs and wants.
2.   Deliver value.
3.  Develop a strategy that drives your vision
4.  Execute to that strategy.

This isn’t intended to be a commercial for Toyota cars and trucks, it’s a roadmap for long-term viability and profitability from a company that seems to have done it right.

There are other examples of excellent quality, customer service and best value for the customer’s money you just have to look for them.

I will say they are more rare than companies that don’t have a clear vision, and strong execution.

Better strategic planning and vision provides better bottom line results because the best marketing strategy is word-of-mouth from loyal customers.

Small business planning must include health care costs.

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Based on what little is known about the new health care bill that was just passed it will have a huge effect on small to mid-sized businesses. One of the line items as reported in a summary by the Wall Street Journal is that in 2013 companies with over 50 employees must provide “affordable” health care or face a fine of $3,000 per employee. (Excluding the first 30 employees). It doesn’t state what “affordable” means.

In the same paragraph it states that the insurance industry must pay an annual fee of $8 billion starting in 2013 and rising in subsequent years.

I guess it’s lost on me how an industry can pay $8 billion in annual fees and still provide affordable insurance packages to small business.

I don’t know all of the intricacies of the proposed bill. I guess that makes me about as smart as the folks who passed it, they didn’t read it either. What I do know as a mid-sized company CEO for over 15 years affordable health coverage is in the eye of the beholder.

I cannot think of a single year where our health care costs were not increased to one of my companies. Every year we scrambled to try and balance plan benefits against rising costs while trying to keep employee contributions down.

Large corporations have bargaining power and volume, and are able to secure better pricing. The small and mid-sized business owner has no such advantage. While the new plan talks about Insurance exchanges to allow small business the opportunity to shop their coverage I don’t see that as any different than what they do currently. We had to shop our coverage every few years to keep costs in line.

The bottom line of all of this is costs for business will increase, and employers will take a harder look at hiring full time employees. Prudent companies will consider health care costs in their strategic planning process, deciding whether to make investments in automation vs. full time employees with an ever increasing cost base, It will make the playing field even more uneven with countries such as China where benefits and regulation are not a concern.

Health care reform is certainly needed. It’s unacceptable that so many Americans, especially the “working poor” as they are called, are without health care. The United States spends roughly twice as much as other developed countries on health care and millions are uncovered. There simply has to be a better way. But history has shown us that a government mandated and controlled program isn’t it.

One of the chief reasons why we spend so much on health care is the cost the insurance companies and health care companies absorb trying to deal with government bureaucracy. To see government health care effectiveness you don’t have to look any further than the VA and how our veterans are treated.

The full impact of this bill on business is unknown, even by those who passed it.

What’s the value of the strategic planning process?

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Maybe that question should be addressed to individualcompanies as “what’s the value of your strategic plan?

We’ve all read that the majority of small to mid-sizedcompanies don’t have a strategic plan. Of those that do have a documented planonly 10% execute them.

There must be a reason why strategic planning is such a lowpriority with the majority of businesses.

Since becoming a business coach I’ve had the opportunity to review numerous documents and work with many companies in developing their plans. The one common thread that came through from most of them was, they simply don’t know how to plan.

In many cases if they documented one it was poorly conceived and soon became lost in the day-to-day realities of business. Many are nothing more than a series of spreadsheets built to show increasing sales and profit year over year. Some financial forecasting is warranted in a plan but they area measurement of plan attainment, not the plan itself.

 A good strategy starts with a clear vision. This is the first step and one that is frequently overlooked. If you don’t start yourplanning process on a solid foundation, how can it ever be successful?

Most management teams have great difficulty committing wherethey want to go and what they want the business to look like in five years. Iusually get a response I want to grow X% or I want my sales to be X dollars bythat timeframe. That isn’t a vision statement, that’s an off the wall forecast.A clear vision is one you can articulate to all stakeholders and use as adecision tool by asking does this investment take me closer to or further frommy strategic goal?

A vision statement must include specifics, what will we looklike in 5 years? How many locations? What markets will we be in? What productswill we sell? What will we be known as within our chosen industry?

After you can answer questions like this and articulate thevision clearly then you are ready to begin the planning process.

Biggest problems facing small business?

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The short answer is it depends on who you ask. In doing some research for this article I literally found dozens of “biggest problems” depending on what the writer wanted to sell me.

There are surveys that call out numerous external problems ranging from the high cost of health insurance, taxes, government regulations, and the list goes on.

In my current role as a business coach I find business owners and CEO’s frequently list their biggest problem as whatever is hot at the time I’m talking to them.

I decided to go with my own history on this one since over the years I seem to have developed an unfortunate and extensive history of dealing with problems.

I founded a value added logistics company in 1989 that grew rapidly from no sales and eight employees to sales of over $40MM with more than 600 employees in the U.S and Europe. I sold out of that venture after ten years and bought a small HVAC manufacturing company with a small group of investors and ran that for five years.

These companies were in different industries and on different growth paths but the problems I experienced were quite similar.

Currently as a business coach I see the inner workings of many companies in various industries.

So what are the biggest problems facing small to mid-sized business today? My version is as follows:

Cash –It’s hard to get and there is never enough. If you are a fast growth company you can rapidly outgrow your available sources, if you are an underperforming company you can’t get it. The majority of companies don’t manage it well.

Lack of a clear plan– the SBA says that over 50% of businesses that fail don’t have a plan. I can say from my 30 plus years of experience not only is that number conservative, buy most businesses don’t know how to plan. Lack of a plan worsens the cash problem by allowing you to waste cash chasing tempting diversions, and throwing money at problems.

Ineffective leadership – this issue takes many forms. In my experience it is frequently in the form of depth of leadership. The founder of the company is

hands- on and effective but has little or no management depth behind him or her. This eventually causes the company to stop growing and eventually could lead to failure.

Sales / marketing effectiveness- this leads back to planning and leadership. Many companies have not taken the time to decide what their USP is. They try to compete in conflicting areas, such as lowest price and highest service. One takes away dollars and the other adds cost. Part of the planning process should include a very clear answer to one simple question, “with all of the products and service available to my customers why should they buy from me?”

Lack of execution- this may be the biggest of all. Research has shown and my own experience backs up the following facts:

·     Over 90% of strategies that are developed are never executed.

·     75% of improvement projects fail.

·     85% of leaders spend less that 1-hour per month on strategy.

·     Over 90% of employees don’t know the company’s strategy. (This is a direct result of top management not documenting and communicating it)

·     Well over 90% of organizations don’t have meaningful performance measurements in place.

One thing all of these problems have in common is they are all internal and within the control of the management team. Business must look internally for problem solutions and position themselves to survive in an increasingly global and competitive economy.

America is in the midst of a leadership crisis.

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The daily news bombards us with stories about major corporations failing, government spending spinning out of control, and political and corporate leaders marching off to jail.

Interestingly, this leadership vacuum exists only at the higher levels of government and industry. It doesn’t exist in small and mid-size businesses.

I know that’s a fact because the owners, CEOs, and senior executives of these businesses tell me so. For over forty years I’ve worked as a manager, coach, and consultant with hundreds of executives. Not one has ever said to me, “This company is not doing as well as it should because of my lack of leadership skills.”

Who’s to blame for their company’s problems? It’s they. Over and over again I’m told, “They don’t care; they didn’t do it right; they don’t get it.”

I’ve never understood why these executives don’t just fire “they” and hire somebody else. Come to think of it, I bet many of them have tried that, but somehow they keeps sneaking back on the payroll.

Take an objective look at your leadership skills.

Of course, the above paragraphs are meant to be tongue-in-cheek humor. It’s just my way of saying that our natural tendency is to blame others. But as a leader in business, you must objectively assess your own leadership skills.

All companies have problems. In order to solve your company’s problems, you’ll need to understand and change the leadership style that got you into trouble in the first place. Start by looking for areas where you personally can improve. Until you change, not much else will. Before you can lead others effectively, you must first be able to lead yourself.

Over the course of my career, I have known literally hundreds of executives. I can’t think of one of them, myself included, who could not benefit from some level of on-going leadership evaluation, coaching, and development.

Yet many executives, especially owners and CEOs of small businesses, find it hard to acknowledge that they have room for growth. They’re reluctant to ask a coach or someone else for help. And because they’re top dog in their company, they do only what they want to do rather than what they need to do.

Take an honest look inside your organization. How many of these issues are present?

• Excessive meetings with no agenda and no results
• Consensus-driven decision making (CYA for all us older folks)
• Lack of personal accountability
• Poor communication between entities
• Reluctance to terminate poor performers
• Misaligned and uncoordinated efforts (silo effect)
• Personality conflicts and power struggles
• Apathetic and unmotivated employees
• Inconsistent results
• Poor time management
• Reactive rather than proactive effort
• Micro-management
• Declining sales and / or market share
• Lack of teamwork
• Duplication of effort
• High employee turnover
• Substandard quality
• Numerous unresolved issues and postponed decisions

You may not want to acknowledge this, but to some degree all of these issues can be attributed to ineffective leadership.

Lead by example.

Your commitment to excellence, integrity, fairness, and open communication will be visible to people in your company. It will inspire them to rise to the performance level you exhibit.

Notice that I didn’t say “to the performance level you expect.” Expectations are mere words. When people respond to expectations, it’s often out of a sense of duty, a desire to please, or the fear of punishment.

Leadership, on the other hand, entails action. When you act as a leader, people will want to follow you to be where the action is. Your example will motivate them to grow and achieve.

Once you’ve developed your plan and communicated your vision, there will be a short honeymoon period. But soon people will be looking to you for results. Will there be real change, or will it be back to business as usual?

Simply wanting your vision to be realized doesn’t work. You need to take the lead and make it happen. When you walk the talk, people will follow. Develop a vision you believe in. Live it, breath it, take responsibility for it, and generate enthusiasm for it. People will respond.