We Have a Strategy…Now What?

In a recent Blog posting (A Simple Strategy), I outlined a simple but effective process for creating a Strategy Map for an organization. Many organizations use different processes to create a strategy and that is a good thing. However, simply creating a strategy is not enough; the strategy must be successfully executed as well. A new strategy does not permeate an organization by osmosis! There are two key steps to implementing strategy: first, create a prioritized list of strategic projects and second, plan and execute each project. Here are some tips on how to do that.

Create a list of prioritized projects: There are many ways to create a prioritized list. When working with a client, I prefer to use a brainstorming technique to start. First, the organization’s planning group reviews the Core Competencies, along with their related Value Drivers, Must Haves, Must Do’s and Metrics (see A Simple Strategy). The group should be made up of people from different areas and levels of the organization in order to get a comprehensive perspective.

Next, the group lists up as many ideas for strategic projects as possible, with no discussion or judgments made. Once the group has finished with furnishing new ideas, discussions begin. Often, as the discussion takes place, a consensus will form around the projects that seem to be of the highest priority. If no clear consensus emerges, the group may use a weighted vote to get a better idea of priorities.

In the end, the group must have a list of clearly prioritized projects, each project having its own priority level. You cannot have 2 projects with the same priority, as it leads to much confusion and conflict over resources. Once the list is complete, strategic project planning may begin.

Strategic Project Planning: Project Planning should normally be done by the entire project team, if possible. However, creating a Project Charter answering key questions about the project may be done by the project manager and a smaller group. It is possible that this work can be done effectively by the same group that created the prioritized list of strategic projects. The key questions fall into five areas: Organization and Authority, Strategic Alignment, Deliverables, Metrics and Project Impact (For a copy of the Strategic Project Charter Checklist, click here).

Organization and Authority: Who is the project manager and what is the project Manager’s authority? Who does the project manager consult if a decision is not within his/her authority?

Strategic Alignment: Who are the stakeholders? How does the project align with the organizations Core Competencies and Value Drivers?

Deliverables: What is the work to be done? How will it be done?

Metrics: What is success? How will the Value Driver Metrics be applied to measure success?

Project Impact: What resources are required to execute the project? How will the project impact company resources and operations?

My next posting will be a Case Study on Strategy and Execution from one of my clients.

Competitive Advantage: Are You Focused on What is Important?

Competitive advantage is what all businesses are seeking: it allows your business to charge higher prices for your products and services or to get more customers. Everyone is seeking competitive advantage in their market.

Gaining and maintaining competitive advantage requires that your business be focused on the proper things; that is simple, but not always easy. There are really only two areas of business focus in order to establish competitive advantage: first, you must be competitive in your industry and secondly your business must differentiate itself from the competition. Sounds like a contradiction to me! Let’s take a closer look at each.

In order to be competitive in your industry your business must do “industry basics” well. For example, if you are Starbucks, you can have the nicest storefront possible, with great music and a cool ambiance. But, if your coffee is not at the right temperature, or tastes bad, you will not be able to compete in your market. For a coffee shop, temperature and taste are basics and the company must focus on them in the right way.

In what might seem to be contradictory, it is also true that you should not exceed your industry basics in the name of competition. That practice can be costly and self-defeating. Take the example of a distribution company that competes in a market where 5 day delivery of goods is the standard and customers do not expect more. If a company were to spend time and money on next day delivery, they would be wasting money creating differentiation that their customers don’t want. Doing so puts the focus in the wrong place and could actually hurt the business.

In many cases, businesses do not always focus on the right places to understand industry basics. For example, a business’ financial results, in comparison with the industry median for that result is often a good place to see where your business stands in your industry.

A software development company might look at their software production cost (Cost of Sales); they may not be competing on price, but if their production costs are significantly higher than others in the market, they will have a hard time competing. Proper focus here will keep them competitive in their industry.

Differentiation, on the other hand, is not about industry basics. It is about how your business can do something differently to distinguish itself in the industry. Of course, what you do differently must also be something that your market wants!

Let’s look at distribution again. Supposing that the company that tried to differentiate with quick delivery took some time to talk to their customers that are retail operations. Perhaps they might discover that their customers spend time breaking down the goods they receive from the distribution company into smaller lots for reshipping. The distribution company might be able to save their customers time and effort by packaging their goods in such a way that the customers would have minimal repackaging to do.

At times, it might be possible to turn an industry standard on it’s’ head in order to gain competitive advantage. Prior to Starbucks, most of the coffee industry was centered on fast food coffee chains such as donut shops. Fast was the operating word. Starbucks created a product that included not just upgraded coffee, but an entire experience.

The company wanted people to stay longer, not leave quickly. Starbucks achieved tremendous success with that strategy; only recently have they made moves that have harmed them (but that’s the topic of another Blog).

The name of the game in competitive advantage is to stay focused on the right things for your industry!

Strategy, Finance and Project Management

I have heard it said on many occasions, “But we don’t do any projects!” Of course, the company executive who has said this really means it. And, in a certain sense, he is correct. His company more than likely does no client projects. The reality is that if the company has a strategy, and renews that strategy periodically, then the company has projects. The fundamentally projects are about change, any change. And the reality is that without proper project management that links together strategy and finance, many attempts at renewing strategy are futile.

Proper project initiation and planning asks a series of fundamental questions that set a performance baseline that can be integrated into pro forma financial statements. Once integrated, the pro forma statements enable a company to review a range of possible financial outcomes in order to decide whether or not the project meets the company’s criteria for being undertaken. The baseline also permits the company to make intelligent decisions at markers along the way, called Phase Gates, as to whether or not the project should continue.

Here are questions that will help a company get the project right the first time around:

What is the project; what will it deliver? Fundamental question – often ignored. This is like taking off on a trip without ever determining where you are going. Now, the answer to the question may not be readily apparent when it is first asked. The company may have an idea of the business objective that they want delivered by the project, without understanding exactly how it will be accomplished. A crucial part of planning is determining, in more detail, what the end objective will be?

Who are the stakeholders? As with the first question, this one is frequently unanswered, in particular with strategic projects. As I mentioned in a previous blog posting, A Simple Strategy, identifying each of strategic stakeholder and what their stake is can be the difference between success and failure. Stakeholders can be both internal and external to the company, but most often it is employee stakeholders that are missed.

What is success and how is it defined? You would think that this is a question that would never be missed. Not so! When defining success for a strategy project, each area of the company needs to have their particular element define, and how that element is linked to success measures. The link needs to be concrete and measurable.

What is the work, who will do it and how much is there to do? Defining the actual work to be done to a level of detail that guides competent team members is foundational. This work will lead to the creation of a project schedule, cash flow statement and budget. Of course, the previous questions set the stage for these last three, whose answers become the baseline mentioned above.

Once all of the information about schedule, budget and cash flow are integrated into forward looking pro forma financial statements, the company has information for good decision making.

Customer Service Personified

This past week, I took my wife for lunch at the Union League Club in Chicago. While I was there, I saw my good friend Joseph. Actually, he saw me first, as Joseph is a member of the wait staff at the club. By the time I had my soup from the buffet Joseph had placed my favorite soft drink at a table in the corner that he knew I preferred. As I approached, he caught my eye, flashed his signature smile and held out his hand to greet me, saying as he always does, “It’s good to see you!” My wife shares my opinion that Joseph personifies customer service.

Now, the award winning Union League Club in Chicago has many outstanding employees who give great service all the time so that it is easy to say that the club administration is doing all the right things to encourage their employees. Many of their employees have been on staff for years, indicating that they enjoy working at the club, and it shows! All the same, there is something special about Joseph; you can’t just teach somebody to be the way he is, although others could learn from his example. After thinking it over for a while, I concluded that there are four qualities that Joseph personifies: pride of ownership, personal warmth, attention to detail and enthusiasm.

Pride of ownership: It does not matter in which of the clubs restaurants you see Joseph; he always acts as if he owns the place. I mean this in a good sense, that he wants people to enjoy his restaurant and he will do everything possible to see that you do.

Personal Warmth: I believe that there are few people who can go to one of the club’s restaurants more than a couple of times that don’t know Joseph and consider him a friend. He consciously works at getting to know you and what you like. His efforts include more than just food and drink; in his unobtrusive way, Joseph gets to know about you as a person and remembers what he learns.

Attention to Detail: Joseph is always moving, seeing what is going on and who needs something. He is able to anticipate what you need next almost before you know it. As I mentioned above, my favorite soft drink will appear on the table before I get there with my food. Grab a dessert and he will be there with a fork before you sit down.

Enthusiasm: It is obvious that Joseph loves what he does. His underlying enthusiasm for his work shines through as he surveys the room and does whatever needs to be done. At the same time, Joseph has a great sense of timing, knowing how to take care of something without becoming the focus.

Recently, I took my granddaughters to the club for lunch for the first time. They were in Chicago, and I felt were ready for the experience. I was sorry that Joseph was not there that day, as I had prepared them in advance to watch him as an example of how to approach life with a great attitude and the spirit of great customer service that anyone in business should possess.

A Simple Tool to Calculate and Track Cash Flow

Last week, in the posting It’s Cash That Counts, I wrote about the difference between net profit in a Profit and Loss Statement and the reality of cash in the bank. Business owners get into trouble when they really on Net Profit to understand where their cash is. This month, I would like to present you with a simple tool to help you calculate future cash flows as well as to track current cash flows.

To better follow this posting, I have created an Excel spreadsheet, which can be seen in Google Docs by clicking here. (You may want to open the spreadsheet in a separate window or tab. Not only will the spreadsheet help you with this explanation, it can also be extended to a full year to use in your business.

On the left hand side of the spreadsheet, you will see a summary of the January Profit and Loss Statement, indicating a profit before taxes of $750. The business owner may look at this and scratch his head, asking, “My bank account is overdrawn, what gives?” The reality is that due to the timing of cash flows, he will only have incoming cash of $3,000, based on the percentage of cash sales along with collections of his accounts that pay in Net 30, 60, 90 and more.

When the business owner calculates cash flow out, first for Cost of Sales, it turns out to be $6,250 because not only does he pay some of his accounts in cash, but he also has payables of Net, 30, 60, 90 and more. In addition, he has his regular expenses, or overhead, that cost him $3,950 a month.

Therefore, the business owner’s total cash outflow is calculated by adding together Cost of Sales Cash Out and Total Expenses, which equals $10,200. Since his Total Cash in equals only $3,000, the owner has a Net Cash Flow of -$7,200. As you look across the months sales gradually increases to the point where cash flow is no longer negative. However, if the business owner does not have either an equity investment or a loan to cover the shortfall, he may be out of business in 3 months.

Below, you will find detailed instruction on how to gather information to calculate your cash flow. Using this same tool, you can also forecast your cash flow into the future. Forecasting is a useful exercise that will help you understand in advance when you will need the working capital to stay afloat.

Calculate Cash Inflow

The first task is to calculate your actual cash inflow. Follow these steps.

Cash Inflow for the Month
o Using the Income and Expense statement for the current month, and any other available information (invoices or contracts) to calculate cash inflow for the current month
o Using the Income and Expense statement for the previous month, and any other available information to calculate Net 30 cash inflow for the previous month
o Using the Income and Expense statement for the month before last, and any other available information to calculate Net 60 cash inflow for the previous month
o Using the Income and Expense statement for months prior to month before last, and any other available information to calculate Net 90+ cash inflow. All income that is more than Net 60 is usually added together into Net 90.
o Total Cash Inflow = Cash + Net 30 + Net 60 + Net 90

Cash Outflow for Cost of Goods Sold in the Month
o Using the Income and Expense statement for the current month, and any other available information (invoices or contracts) to calculate cash outflow for the current month, calculate Cost of Goods Cash outflow for the month.
o Using the Income and Expense statement for the previous month, and any other available information to calculate Net 30 cash outflow for the previous month.
o Using the Income and Expense statement for the month before last, and any other available information to calculate Net 60 cash outflow for the previous month.
o Using the Income and Expense statement for months prior to month before last, and any other available information to calculate Net 90+ cash outflow. All income that is more than Net 60 is usually added together into Net 90+.
o Cash Outflow for Cost of Goods Sold the month =
Cash + Net 30 + Net 60 + Net 90+

Monthly Expenses
Use the total of monthly expenses from the Income and Expense Statement

Total Cash Outflow:
To calculate the total cash outflow for the month, add cash outflow for cost of goods to monthly expenses.
Total Cash Outflow = Cost of Goods Cash Outflow + Expenses Outflow

Calculate Net Cash Flow:
Subtract cash outflow for the month from cash inflow for the month to calculate Net Cash Flow.
Net Cash Flow = Cash Inflow – Cash Outflow (could be negative number)

• Add the beginning cash balance to the monthly net cash flow to determine current cash.
Current Cash balance = Beginning Cash Balance + Net Cashflow (could be negative number)

Cloud Computing and the Variable Cost Model

This week I have a guest Blogger, Michael Hugos, a leading authority on Business Agility and Emerging Technologies. Michael recently completed speaking engagements in Europe and Asia, and is currently on a tour of US cities. Here are his thought provoking ideas on Cloud Computing.

Economic prosperity in this high change and unpredictable real-time economy that we live in means companies need to free themselves from the constraints and risks of fixed cost operating models. In the last century business models were largely based on fixed cost operating models that employed capital investments to leverage economies of scale and produce incremental profits by turning out ever increasing volumes of standard products and spread operating expenses over larger and larger numbers of units sold.

This model worked as long as product demand was reasonably predictable and stable because it allowed companies to allocate labor and capital to optimize production and maximize return on investment. But when product life cycles are shortened to months instead of years and when the predictability of mass markets is replaced with the uncertainty of a global real-time economy and rapidly evolving consumer preferences, the capital intensive fixed cost business model is just too risky.

So how can companies reduce their risk and move toward a variable cost operating model? One of their best opportunities lies in the use of a technology known as “cloud computing”. Over the last 10 years information technology (IT) has moved from driving mostly back office functions to driving front office, customer-facing functions – IT is now mission critical to just about every function a company performs. And cloud computing delivers computing power and services to customers on a variable cost pay-as-you-go basis determined by the number of users and their volume of transactions.

Companies that understand how to leverage cloud computing and software-as-a-service (SaaS) offerings such as the popular Salesforce.com sales support software enabled by cloud computing will enjoy variable cost operating models that make them optimally suited to succeed in our present economy. Business operations and IT are so closely intertwined there is hardly any meaningful distinction left between the two, so companies using cloud computing will see operating costs rise as business grows, but just as importantly, they will see operating expenses drop automatically if their business declines. They will be free to enter new markets quickly and experiment with introducing new products without big investments in IT. They will not have the risk of being stuck with large sunk costs in technology if demand for their products and services does not meet expectations.

Some of the companies (and their stock symbols) providing cloud and SaaS offerings are: Amazon.com (AMZN); Cisco Systems (CSCO); Google (GOOG); Hewlett-Packard (HPQ); IBM (IBM); Microsoft (MSFT); and Salesforce.com (CRM). Cloud computing provides ubiquitous storing and processing of data just as public power grids provide ubiquitous availability of electric energy. And providers of cloud and SaaS offerings enjoy economies of scale that enable them to provide their services at lower price points than most companies can achieve if they try to do it on their own.

Universal access to low priced electric power delivered by electric utilities drove a wave of innovation in business operations and made possible the introduction of thousands of new products based on related technologies such as electric motors, transistors and electric lights. We have only begun to see the business innovations and new products that will be introduced based on universal access to low priced cloud computing services and related technologies. Cloud computing and the variable cost business models it supports will drive sustainable economic growth for many years to come.

[Michael Hugos, principal at Center for Systems Innovation [c4si], delivers seminars and executive briefings and mentors project teams in agile systems development. His newest book is Business in the Cloud: What Every Business Needs to Know about Cloud Computing.]

URLs:

Center for Systems Innovation
Amazon listing for Business in the Cloud

State the Benefit of Your Business Clearly

This past weekend my wife and I had the good fortune to see a live production of Garrison Keillor’s A Prairie Home Companion. Garrison and his crew are very funny people, sometimes because they are way out on the edge and others because they are true to point when making fun of American culture.

One of the skits they did was about a mythical organization of English teachers counseling a young job seeker who bordered on the hysterical. After appropriate coaching, the young woman could string together modern business jargon with the best. I suppose I laughed immoderately because the young woman’s answer to the dreaded “5 year” question sounded scarily familiar.

Whether you are the executive of a large company, an entrepreneur or a job-seeker, it is important for the health of your business, startup or job search to be able to express what you do clearly and in particular, to state the benefit clearly. People don’t really care that much about titles or past history; what they want to know is how your intervention will benefit them. The 3 things to remember are: tell a good story, have the right to tell your story and state clearly the benefit of what you or your company does for the client.

Tell a good story: a good story always has a proper structure; a main character, a beginning, narrative, conflict and resolution. Many of you remember that from English Lit 101. When speaking about your business, your business is the main character and the narrative is about your potential client. The conflict is the problem or area of pain that the potential client is experiencing and resolution is how you will help the potential client overcome the problem.

If told well, a good story will reverberate with the listeners who hear their own story. In the case of a potential client, a good story will lead them to say, “That person really understands what I am going through!”

Have the right to tell the story: a good story exudes authenticity. In order to tell a good story you must have a real connection to the story. A story that is truly your own will have substance to it; you will have the authority about you that people will respond to! Having the right to tell the story will enable you to create a vivid image that will be fixed in a person’s mind.

State the Benefit Clearly: always state what you or your company does in terms of the benefit. If the mission of your company is to help other companies improve their operations and lower costs, you might express the benefit be saying, “We help companies improve their bottom line”, for example. A person that I met recently, who had years of experience as an office administrator explained that her benefit was to “Analyze and organize to make you more efficient.” Of course, you must avoid the trap of falling onto the latest business jargon. When you indulge in jargon, you risk having the listener not understand what you are talking about, and feeling that you may not know either.

Following these three tips can help lead you down the road to clarity!