Lessons From the Business World

The Next Step

In past work, we identified what could potentially happen to our business environment and how we could modify our business model to cope with expected and unexpected environmental changes. We also identified important core projects, those that have to be implemented no matter which direction our business environment takes. Now lets move forward to complete the next step of the business strategy process.

To the previously identified core projects/initiatives, we need to add those additional projects and changes which need to be addressed based upon our most likely environmental/business scenario. So, go back to the most likely scenario and identify the remaining projects which must be completed to enable that business strategy. For each of these projects, develop a project plan with resources, timing, capital requirements and contingencies. Please note that when the term "projects" is used here, it means more than systems and automated infrastructure. To complete the most likely business scenario, you may need to address changes in core processes, financial accounting and measurement, organization, customer channel design, roles and responsibilities and other areas. The implementation of a business strategy requires many changes which are likely to have impact across the entire organization.

Once the necessary projects/initiatives have all been defined and prioritized (both the core projects and the strategy specific ones), develop a aggressive priority-based implementation plan, but one constrained by available resources, talent, working capital and management expertise. Remember it makes no sense to tackle more that your talent, resources and available capital can handle. At this point, some companies will resort to outsourcing to consultants many of the projects which cannot be addressed through internal resources. That concept may work for a few projects, but it is unlikely to be appropriate for a large number of projects. Outside consultants require significant internal company management as well as time consuming access to line professionals who will be using the resultant systems and processes. Project management expertise is often one of the leanest resources in a company and professional staff time often is a close number two. So, outsourcing is not a way to get many projects completed quickly. Prioritize by business need and undertake cautiously based upon available talent and capital. There is no better way.

Lets pause for a moment here to think about what we are doing. We are implementing a fixed (at least in our minds) business strategy in the middle of a continuously changing world. The point is that no business strategy can afford to be fixed, even when it is new and just being implemented. The business environments that were projected (the best case, the worst and the most likely) must be monitored at least every six months and possibly in volatile industries such as high technology chip design or synthetic financial instruments on a quarterly basis. Each of those monitoring sessions should lead to a quick reassessment of the business environment, strategy and its core projects/initiatives. The need for optional projects, those that we called strategic options, should be monitored on a quarterly basis. A business strategy is a living entity that will change during and post implementation.

Addressing the unknown

This segment of the business strategy process is both interesting and creative. Prior to starting with step one (Environment), you should assemble a small, but business/industry knowledgeable group of professionals to help ponder the future.


In the first step the team should get into a work room with multiple electronic white boards or large charts to contemplate the future of your industry. Think about the next three to five years and what drivers of change could have a significant impact upon your industry. Document the drivers, both exogenous (external/uncontrollable) and endogenous (internal/potentially controllable) and the components of your industry that will likely change as a result of these drivers. Once the drivers and expected changes are documented, develop at least three scenarios describing how your industry could possible look in the future (again 3 to 5 years out). The three scenarios should reflect the:

• Worst case operational scenario from your company's perspective


• Best case scenario


• Most likely scenario

Now hypothesize and document three business models (what your company would look like in the future), one targeted at each of these industry scenarios. In other words, what would your business model have to look like to survive, at minimum and desirably to prosper within each operational scenario, the worst, the best and the most likely. When all three business models are complete, document them to a moderate level of detail. Within this documentation, make sure that you identify and define the major initiatives and strategic projects which must be undertaken from today's baseline model to make each of the three business models functional within their selected environmental scenario. You certainly won't be perfect in your guesses with respect to these scenarios or the business models and initiatives, but just by working through them with your team you will build knowledge, open up minds, and promote communications about what the future might bring.

Basically, this approach is called scenario planning. My belief is that many professionals don't see their industry and market trends changing around them because they have never thought about the possibilities of the future. Effectively, they are closed to many aspects of the future simply because they have never considered the full array of possibilities. By performing scenario analysis you force professionals to think about and ponder the possibilities of the future and thereby make them more in tune to detect early any of these trends or key changes which actually do occur in the future.

At this point you have three business models, each targeted at a different business scenario of the future. We have built these because we simply don't know and cannot predict what will happen in the future. No one can accurately and reliably see the future. So, by looking at the best, worst and most likely scenarios and building business models around them, we have addressed what we think are the potential extremes of the future. That is the best that we humans can do.

Now we array the three business models in a common format where the entire team can see them so that we can look horizontally across them. Initially we want to identify all initiatives and strategic projects which appear in all three business models. These are our strategic core and they are the initiatives and projects which we should proceed to implement under any condition, since they support all three of our potential scenarios of the future. So get started with the planning for these.

Next we want to look for initiatives or strategic projects which appear in two of the business models. These are our strategic options for the future. We likely want to make a optional investment in building or gaining access to these capabilities. For example, we could make an investment in another company that already has a needed operational capability. If the investment is structured correctly, we could walk away from it if the need for the capability never materializes and simply consider the spent money as a cost of business insurance or buy more, possibly controlling interest if the need for the capability does materialize. Thus these really are strategic options for the future.

If the initiative or project appears in only one scenario, do nothing now except to scout the market for future options on that capability should the need arise.

This part of business strategy building is both interesting and fun. It is also a great training ground for up and coming professionals in whom you, as company management, would like to make an investment.

Note: if you cannot read the graphics under discussion, try double clicking on them. Most will appear in a larger format.

Finding the Corporate Soul

As an initial discussion of methodology, lets begin with the first five blocks of the business strategy process flow as seen in Exhibit I.

Early within a strategy effort it's important to review and understand the corporate soul, as can been seen from the vision, mission, values and brand image.

If any of the mission, vision and values don't exist (that really does happen), then the strategy effort should be paused until at least a draft of those entities can be created. By the way, even if they do exist, what you often find is there is no uniform understanding of them throughout the management and professionals of the company. As you interview the management and professionals during the strategy development process, test the quality and consistency of their understanding. If it is good, great. If quality and consistency are absent, address this issue early within the recommendations developed during the strategy development effort.

If the brand image does not exist, make a team decision whether the omission is critical enough to pause the strategy process to create it or if it is functionally desirable to make its creation a high priority recommendation. As you can see from the arrow pointers of Exhibit II above, the mission, vision and values must exist at least in draft prior to the development of a business strategy or the brand image. However, when it comes to the business strategy verses the brand image, either can come first depending upon the nature of the company and its products/services and the maturity of the company within the marketplace. For emerging companies the brand identity is a defining factor and should be in place at least in concept prior to business strategy development.

With respect to products and services (the fifth block of Exhibit I above), document and understand the companies products and services and, at a summary level, the processes which support those products and services. In conjunction with this analysis, understand and document the market segments, values, needs and lifestyle problems of the target customers, as well as the competitors active within the target market and their core product/service offerings. If these data do not exist, a judgement must be made with respect to the sufficiency of what does exist to support the ongoing strategy effort. Remedial work might be required.

The goal of this initial project phase (the first five blocks of the project flow) is to build a comprehensive strategy team understanding of the company, customers, customer segments served, products and services delivered, and where possible the competitors and competitive offerings within the selected market place. Yet, a strategy is useless unless the customers want the lifestyle impact of the products/services which your company is offering. Customers do not directly perceive products and services, they see status, solutions to problems and lifestyle convenience, so be sure that you view the products/services this way too.

The mechanics behind this process of building understanding are:

• Team understanding of the goals and desired outcomes of the strategy project



• Set of hypotheses of what the team is likely to find, conclude or disprove during the project phases -- hypotheses which the team is willing to verify or disprove
  


• Set of analyses to be conducted to prove or disprove the initial hypotheses



• Data collection forms and templates as well as targeted interview guides to discover and document the collected information in a structured way
  


• Collection and analysis of existing data and information



• Set of comprehensive interviews of company professionals, managers, and selected customers to augment and drive understanding of the collected information and data
  

Something that is good to do during this phase of a strategy project is to outline the entire final report for the project within the first one to three weeks of the project. Within the outline show a table of contents for the chapters, the chapters themselves with corresponding hypotheses, and graphical outlines of the quantitative and qualitative analyses to be conducted as well as the resultant graphics to be built. This outline basically contains the team thoughts on what they expect to find, not find or disprove during the discovery phase of the project and what conclusions and recommendations they are likely to draw based upon those findings. This outline is then placed on a common server for all team members to access and update on a daily basis as each progresses and completes their part of the work. The trick is not to become attached to the initial hypotheses. The goal of the analysis is to prove or disprove the initial hypotheses based upon actual project findings and to create new/additional hypotheses as the data dictate. Egos must be set aside.

You would be surprised how much focus the team achieves by creating this draft report very early within the project and how much insight with respect to project methodological issues and potential or actual omissions is gained through seeing the final report grow in content on a daily basis. One of the biggest threats to a successful strategy effort is the collection and manipulation of way too much data to be useful. The draft report focuses the data collection and analysis efforts on just what is necessary to achieve project goals and to prove or disprove project hypotheses.

Strategy efforts contain significant mass and therefor inertia. They require significant physical effort to move forward along with the tremendous input of intellectual capital. So, it is good to keep them focused and as short as possible. A good rule of thumb is three to five months. Creating the draft hypotheses early and placing the draft report on a common server both help to provide level of effort containment, but the project scope must also be intelligently controlled.

Take a close look at the scope prior to starting the project and at the same time assess the skills and potential time commitments of the available professional staff. By the way, professional staff who have been "selected" always have less actual quality time available than they believe. A rule of thumb is the following

• A 25% commitment is useless for day to day work but may prove useful as an advisor on where to find the right people and focused information



• A 50% commitment might produce an actual 25% of quality time and can be useful for limited project deliverables.



• A 100% commitment as an investment in the experience and personal intellectual capital of a young professional is desirable and essential for the core professional staff

From the scope and commitment assessment, build an initial project plan. If that plan indicates a project longer than three to five months, either limit the scope of the initial effort or augment the staff skills and/or commitment. Be careful here, adding endless physical staff to a project that is badly scoped or managed will not improve quality or decrease elapsed time, as many software programming projects have proved in the past. It is much more useful to limit the scope of a project up front to a viable and achievable physical and intellectual level of effort. It's better to succeed with an initial effort to define strategic direction and build team morale and experience and then drive a second effort from that foundation of success than to fail in a discouraging and endless initial effort.

The Yellow Brick Road

This process flow graphic is my favorite tried and proven strategic business planning methodology. The graphic is small and relatively busy, so we will break it into three parts which will be displayed and discussed separately in the next three postings.

An important point to understand is that just as there is no single "best" business strategy for a company which will be emotionally accepted, implementable and work well (see the earlier posting "The best is probably not"), there is no single best strategic planning methodology either. A good philosophy is to spend the early hours in a project working to try to understand the underlying corporate personality (to be discussed within a later posting) and the available professional staff skills. Then tweak the planning approach and methodology to be compatible.

The other point to ponder is that strategic planning is a seldom used and often underdeveloped skill within many companies. To succeed, you may need outside help. If that is the case, understand that every business leader/thinker which you might consider bringing in to work on a strategic planning effort brings with her/him two things:

* values

* opinions/lessons learned

Either of which may be incompatible with your corporate personality and professional staff thinking/experiences.

You must be sure that the person with which you choose to work has values and opinions which are compatible with the thinking/experiences of the planning team and with the corporate personality -- often not an easy person to find. Also remember that a consulting company brand does not a person make. Hiring experienced assistance from the best consulting or strategic planning company may still get you people with whom you cannot work. Hire the person, not the company.

A strategic planning project is a great way to build the knowledge and capabilities of resident company professionals. Any project like this should include one or two up-and-coming professionals so that they can learn new quantitative and qualitative skills and build a broader knowledge of how the company actually works. This is always hard to do since these important young professionals already have full-time responsibilities attached to career paths which they really want to follow. However, participation in the strategic planning process will increase the breadth and depth of their corporate knowledge while teaching them new skills such as data synthesis, quantitative analysis, business writing, interviewing, and project management of business analyses.

Knowledge Drives Corporate Value

Every company ponders its corporate valuation today. What are we worth? How can we increase our net worth. Who might we buy? How do we best spend our free working capital? How many buildings should we build and where? How do we raise our stock price and corporate valuation?

These may be a reasonable set of operational questions, but they lack direction and wisdom from a strategic standpoint. Corporate valuation today is not based upon capital assets, but upon brand identity, committed professionals and knowledge, insight and wisdom (what I call the knowledge pyramid). Lets speak about the knowledge pyramid for a minute.

Every corporation has data, kind of like every corporate office has dust or trash bins. Data are useful but only as a foundation for knowledge, insight and wisdom. Yet, many corporations never get beyond data. They manage data as if it were the most important corporate asset. They manage data as intellectual capital and answer every unique informational request through a labor intensive and single faceted exercise.

Stellar corporations recognize where and how value is created and progress up the value pyramid to knowledge, insight and wisdom. The progression is not easy since each step up demands deeper thought, contemplation and interaction between the target customers and the resident professionals -- an effort that will prove to be well worth it.

Data -- Raw, unprocessed facts or aggregations of facts

Information -- Data organized to tell a story or answer a question

Knowledge -- Information placed in a strategic business context

Insight -- Knowledge framed within significant industry/customer/product service experience

Wisdom -- Insight blended with a deep understanding of human nature

In today's world, your corporate valuation is based upon how quickly you progress up the knowledge pyramid and how long you can remain at the top levels.

So what does this mean to business strategy. Well it means that any complete business strategy must address the creation and maintenance of corporate intellectual capital (collected and documented knowledge, insight and wisdom). Intellectual capital that goes far beyond data. It means that one of the most important projects that any company will undertake is the migration from data to knowledge, insight and wisdom. Those data bases you are thinking of building are not just an information technology project, but a corporate-wide strategic project. Treat these informational projects in a form commensurate with their importance. Staff then with your best, brightest and most experienced business and operational professionals and not solely from the information technology department. They are not technology projects, but business value added projects.

The knowledge pyramid is the key to corporate valuation today -- it is also the key to survival within this ever changing and always challenging global business ecosystem. No one can survive by standing fixed in today's dynamic business market place. Management through continuous change is essential; management empowered through the knowledge pyramid.

When organized and documented the knowledge pyramid is called intellectual capital. Not only does intellectual capital empower today's thinking and decision making, but it forms the only reliable corporate memory in this world where the average professional employee will experience 7 to 8 different companies during her/his business career.

Arrow of Progress

Every company lives by the arrow of progress. The three components of the arrow are branding, business strategy and knowledge. The primary purpose of this blog is to discuss business strategy, but as a core part of business strategy we need to make a diversion to discuss the other two. Lets start with branding.

Branding of a company's products and services is critical and very powerful. A good example of the power of branding is Santa Claus. When he was first conceived, he was presented in a number of forms; green, brown or white clothes, thin or fat body forms and different color beards. Coke saw the opportunity not only to brand Santa, but also to do it in their colors. They did just that through the power of their brand and some great advertising. Santa took on the red, white and black Coke colors and was forever deemed to be slightly chubby (probably from drinking too much Coke). He remains that way to this day. Thank you Coke (I think).

When you think about your brand, there are five factors that you should consider:

* Brand identity

* Consumer value perception and brand relevance

* Brand reception/esteem

* Brand linkage to marketing

* Consumer understanding


Lets briefly discuss each.

Brand identity -- How is the brand for your product/service different or unique to your target audience? What value do you bring to the table that no one else is duplicating? Do you appeal to customer status/style, entertainment, efficiency, or do you solve an every day problem of life.

Consumer value proposition and brand relevance -- Do the target customers understand and appreciate the value that you are offering then. You can have brand identity and still not appeal to the target customers. You must find a brand identity which is valued.

Brand reception/esteem -- How is your brand received within the market. Is it valued and held in esteem by the target customers (think BMW, the driver's car in the US or Tiffany, the only jewelry store for the Japanese)?

Brand linkage to marketing -- How will you market your brand of products and services in a way that will highlight brand identity? How will you get your message across?

Consumer understanding -- Do the customers really understand what you are offering and how to best use it to better their lives?

The bottom line is that your brand identity is your promise to the target customers -- you must demonstrate that using your brand is in their own best interest based upon the individual values of each target customer. You had better be true to your brand promise; let the customers down just once and the brand may be trashed.

Once you identify your brand, every professional in the company should have it on top of their mind. It must become a common touch stone for all in the company. If you want to test this, ask your key employees to write your brand identity on the back of a single business card. Are the results completely different or are they identical or at least similar?

Branding is intellectually difficult for most companies, but especially so for many non-profits. Non-profits are usually short staffed and overly busy. Spending time on branding is often seen as a waste of time. Yet, in today's world where more and more organizations are requesting donations every day (you should live in Charleston where I do), unique branding is critical. The exercise is likely to be difficult unless your organization is working with children (emotional branding) or reducing crime (safety branding). Those heading museums, aquariums, foundations, or providing assistance to the poor may have a very challenging time.

Many people believe that a business strategy can be developed prior to a brand identity and branding strategy. It is possible to reverse the order and develop the business strategy first and then build the branding strategy, however I believe that brand identity must be at least initially framed (a formal strategy does not have to be complete) prior to the development of a great business strategy.

What do you think?