Effective Strategic Planning—first, let’s clearly state your strategy

Effective Strategic Planning—first, let's clearly state your strategy

Wilkening & Company has participated with clients in the strategic planning process, and has used client strategic plans for a number of purposes such as market planning and goal setting.

We have found a wide diversity to what is called a “strategic plan.” In many cases we find that a strategic plan is merely a multi-year financial plan and forecast—presented in a series of spreadsheets. As said, its purpose is essentially financial in nature and it is often used as the “top end” of the budget. While these tools may be effective for future planning, we would like to present a different definition or format for the strategic plan.

In our experience, we have found that there are two characteristics of a successful strategic plan and the planning process. These generally are—

  • Development of a clear and concise statement of strategy; and
  • Active participation by employees (and other constituencies) in the strategic-planning process.

In this discussion we will focus on the first characteristic, or the statement of strategy.

Wilkening & Company believes that a strategic plan should be a clear statement of direction articulated in a one-page document with no more than two or three numbers (we will allow you an extra page if needed) that declares the following:

  • What products or services a company will offer;
  • What markets or customer groups will be served with these products & how will they be reached;
  • How does the firm want to be known by all of its customers (its proposition of value); and
  • How will we know we have succeeded?

Let me give you a very brief example of a statement of strategy for a small industrial manufacturing company that was once a division of a Fortune-500 holding company.

The company will offer hand-actuated tools to skilled tradesmen to assist with the cold working and fitting of thin-wall copper, steel and stainless steel tube in diameters from 3/8 inch to 1-1/2 inch with generally low-pressure fittings, valves and connectors. These tradesmen will generally work within the plumbing, refrigeration and heating and air-conditioning industries.

We will sell our tools in both US and foreign markets. The company will sell through exclusive arrangements with channel partners that will stock and distribute our products to the 5,000 worldwide sellers who sell to targeted tradesmen. Additionally, the company will sell directly to the 8-largest US tool marketing firms and the US government.

All products will be sold under the brand name of ACME which has been a recognized market brand for the past 75 years. We are currently the oldest and most recognized brand in the market but have mixed perceptions of value amongst end users as the result of recent cost cutting and adverse channel-partner actions. However, end users know they can rely on ACME’s unlimited lifetime guarantee for all products. This type guarantee is offered by no other competitor. In the future, we want our all of our products to be known by our end-user customers as the highest quality and the second highest-priced product in the marketplace. Further, all end-users will know that any new ACME product is always available on their seller’s shelf. Our channel partners will know the company as having the highest commitment to service and quality in the market with premium margins for successful partners.

The company has steadily lost share of market for its major products because of a lack of manufacturing capacity and inconsistent quality during the last two years. By reliable industry estimates the US and foreign demand for company products in applicable markets is $280 Million in 2010—65% in the US. Market growth is estimated to be roughly 2% per year. We now have 6% of that worldwide market. By 2015, the company will have gained a share of 15% worldwide which is 1st in share by 5 percentage points, and have no more than 70% of sales in the US market. During this period, the company will have a return on net assets employed (RONAE) of 32% or more. However, RONAE will be lower for the next three years, but never below 26%.

We have just stated a 5-year plan in 360 words and less than one page. Whether you like the plan or not, you understand it. But more importantly, what does this statement of strategy communicate to anyone that reads it?

  1. Each major discipline of strategic implementation (engineering, marketing, sales, operations…) knows its role and how to allocate resources.
  2. We can probably name our 150,000 worldwide end users and know how to find them.
  3. The value proposition is clear.
  4. As important as knowing what to do, management knows what not to be doing—i.e.: what “adventures” not to undertake.
  5. If we are going to succeed, we need to have the capacity to do so, and the continuing quality of product.
  6. Company (and individual) goals are clearly outlined and include crossovers with sales, profit, cash flow and the balance sheet—both quantity and quality.

Notice in the plan we have not talked about how the company will fund any necessary (and certain) capital spending. I am not sure that discussion belongs in a statement of strategy. If the Board and management agree to a direction (as stated)—it seems to me that capital-funding needs are implicit. Otherwise, you cannot agree to the strategy. What do you think?

With such a statement agreed-to by management and the Board, the company can then begin to build the organizations, systems, plans, annual budgets and spreadsheets that will provide the path to achieve its stated strategy. And if management or the Board (or your banker) is ever in doubt about what you are trying to accomplish and why, the one-page statement of strategy is always a quick and handy reference and guide.

Do you have a statement of strategy? If not, could you complete one in a single page? Try it.

Next month we will discuss active employee and other constituent participation in your strategic-planning process.

Wilkening & Company has assisted clients with the formulation and implementation of business strategy. If you would like to discuss of share your statement of strategy, feel free to contact us.

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