CFO Insight LLC
Middle-market business executives sometimes overlook the strategic view of their business due to pressing daily priorities. They often must concentrate on employees’, customers’ and vendors’ activities that provide near-tem cash flows and earnings. But by doing so, they miss investments and activities that will ensure their success in a competitive marketplace.
Strategic planning is not just for the ‘big boys’…. The Fortune 1000 Companies. Strategy is an opportunity for any size company – from the ‘mom & pop’ local dry cleaner to the global $50 million company.
There is no magic formula for strategy development – just a desire by the key executives to look beyond the horizon. When you expand a warehouse, you are making an investment that has many years’ of useful life. Do you only look at the next 12 month’s requirements, or do you think out for several years?
One of the first questions to be answered is, “Where do you want to be in 3-5 years?” How do you get an answer to that question?
Effective strategy development considers people, processes, plant (assets), product and market. Each of these areas represents competitive advantage or disadvantage. Which will it be for your organization? Let’s briefly discuss the issues…
People: This includes individuals within and outside the company. During a strategy review, consider the current employees (and outside resources…), the skills available today, and the skills gap that may be required as you expand the business. What kind of organization do you need to reach your business goals? … and more.
Processes: When an organization’s only defense about why a certain process is used sounds like, “… that’s the ABC-way. We’ve always done it that way,” be assured that it’s time to update the process. Don’t be handcuffed to tradition when the benefits of continuing to use the outdated process can no more be justified. … and more.
Plant: It takes time to build, debug, and raise a facility or machine to full capability. If it requires two years to complete such a project, how can a business think using monthly or quarterly time horizons? And when you do, what risks are you assuming? … and more.
Product: Once again, what is your new product development cycle? If the business has a multi-year development cycle, how can you think in monthly or quarterly time horizons? Buying or licensing products may overcome such shortsightedness, but when you do so, you will pay a premium. Do you want to pay such a premium? … and more.
Market: Competitive markets can change gradually over years, or can change in a matter of months. Think about the impact of the iPad on the computer markets. When you are huddled safely within your 4-walls, you may not observe market changes. Thinking strategically and routinely reviewing your strategic assumptions will insure that you remain competitive. When were you caught by surprise --- as your gross margins gradually declined due to new competitors or improved products? … As linkages or strategic relationships were established in your markets, but because you focused on monthly results, you missed the opportunity completely. … and more.
Yes, strategic thinking is critical – especially in a mid-sized business when you may be exceptionally vulnerable to unobserved strategic shifts, and you have limited resources.
Get outside your four-walls… expand your time horizon beyond monthly results, and look at the landscape from a broader perspective. Be strategic and remain competitive.