Assumptions are a Necessary Part of the Planning Process

Assumptions are temporary estimates about some probable future event or development over which you have no particular control. When you make an investment in a stock, you assume it is going to give you a positive return. Maybe you based that assumption on the historical track record of that stock. Maybe you based that assumption on a reliable tipster. Either way you are making an assumption about the future.

Some assumptions are as easy as assuming the sun will rise in the morning and others are as complex as predicting the economic outlook for the next ten years. If it is so difficult to make accurate assumptions, why even bother? Because assumptions are necessary for a good plan, and better assumptions make a better plan.

You have to make assumptions of future trends in order to prepare for those trends now. Because the marketplace changes so rapidly, some companies choose not to make any assumptions and maintain the status quo, each year refreshing the same game plan over and over without making any significant changes. This doesn’t solve their problems and leaves them exposed for a number of negative possibilities.

Assumptions built on experience, awareness and research are the guide for actions and strategic initiatives. For example, if access to capital is becoming quite restrictive, how will that impact your growth and expansion plans over the next 18 months? How should you shift your actions today to prepare for those assumptions becoming a reality?

Wishful thinking is different from assumptions. A CEO can be so excited about the new store he is building that he is convinced everyone in the area will stop shopping at their familiar stores and only shop at his beautiful new store. When confronted with the response by the competition who are vigorously working harder to retain their customers, only then does he realize he was thinking more along the lines of wishful thinking that a proper assumption of the situation.

Drill down into the details when making assumptions. Proper assumptions are based on solid facts. The deeper you get into the details, your instinct and historical information will form a clearer assumption of future activities.

Define Your Strategic Competency

A strategic competency is rarely if ever a single thing. It is usually a mix of three elements:

Skills: A skill is any manual or mental activities that result from talent, training or practice.

Process: A process is any manual or mental systematic series of actions that are directed toward some end. Include any significant "know-how" resident in your organization.

Knowledge: Knowledge includes any information, data, or understanding of facts or principles resident in your company.

A strategic competency must be strategic in nature. For example, if you are the best at how to hold an employee birthday celebration, it doesn’t have much strategic value, because such celebrations are not going to directly improve your relationship to your customers or your competition.

A strategic competency is something that can be used over a long period of time, and it is usually knowledge based. It is something that should elevate you above the industry norms and provide an advantage in the marketplace.

A strategic competency must pass four specific tests:

Is it a combination of skills, process and knowledge?
Does it differentiate the organization from the competition?
Does it create strong value for the customer?
Is it difficult to copy?

If you don’t get a resounding "yes" to each of these questions, you should be skeptical that you have a strategic competency.

Why Do You Sell What You Sell?

When I ask this question of my clients and their executives, I see a few blank stares. I get a moment of two of silence and then I hear generic justifications. I don’t want justifications, I want you to look at your product and service line and one by one explain why these items are being offered to your customers.

This exercise should cause other questions to be raised. Such as:

When did we start offering this and why?

How does this product or service fit with our future direction?

Is this a profitable product or actually a drain of resources?

How well do we sell this?

How well can our front line staff explain the features and benefits?

What percentage of our customers actually use this product or service?

Do we want more customers using this product?

If yes, how do we make that happen? If no, why are we still offering it?

Sometimes in the evolution of a company, products should be dropped and new ones added. I see many companies holding on to products because back in 1982 it was a hit and some of the board members or managers remember those days. That product may no longer apply to the markets you are currently going after.

There is no advantage to offering everything. Strategically, it is much better to offer fewer products and services you do extremely well than to divide your efforts too thinly across areas with minimal return.

One client doing this exercise realized of the 80 products and services they were offering, only about 35 really were of benefit to enough customers that made them justifiable to keep.

Streamlining your products and services not only help your focus, but makes it easier for your front-line employees to be better acquainted with what you are offering so they can more comfortably sell it to help those who need them.

It's All about the Research

Think about the strategic planning brainstorming sessions you have with your management team, maybe even including the board or other managers. The facilitator poses the question: "Where do you want to be in 5 years?" For the next hour everyone offers their gut feelings and the ideas get written on the flipcharts. After a break the team comes back and as a group decides what the future should look like.

This is all by gut feel with no empirical data to support these conclusions, which is why most companies are fearful of taking bold steps. They don't trust the process, and frankly, they shouldn't.

Let's say for example you wanted to invest $100,000 of your retirement funds, and you decided to make this decision without any research or expert input. You just decided one day watching television you liked the ads for Burger King and you felt in your gut that with the new ads, their stock will rise and you would be making a good investment. How sound a decision is that? How comfortable are you with that decision-making process when $100,000 of your own money is on the line?

Strategic planning maps out the process of how an organization can go from Point A to Point B. Simply a gut feel on a Saturday morning at a retreat center just isn’t enough information to be planning that navigation to the next point.

When using the Fast Forward process everyone involved in the planning must do their share of research on the specifics they have been assigned before the actual planning steps happen. Good information gathering makes for better choices, and better choices make for a smoother ride through difficult transitions. Companies failing to properly research the necessary information are gambling with their future and their customers. Today is a completely different era than even only two years ago. Now is the time to focus like never before.

Competitive Strategies Define Direction

Take a look at last year's strategic planning document. What was the direction of your competitive strategies? Were you aiming for a niche market that although had low volume delivering high margins? Or were you trying to compete as a commodity to get high volumes even though the margins were low? Or did you take the time to research and develop ideas that created differentiation to your organization where you can have high volumes along with high margins? You achieve this by delivering premium products or services at premium prices.

All three of these strategies can make your company sound, but your actions must align with your competitive strategies and your competitive strategies must align with your approach to leading the organization.

Niche Market

To reach a niche market you have to segment your market and offer special features for a specific type of customer. In some cases customization is required along with a good bit of research to understand the needs and proper approaches for this market. Obviously, if you want to attract young white collar customers to use a particular product, then you must find ways to rise above the competition and reach that customer or prospect in the correct manner based on their buying habits.

If a blue collar customer is the niche you want to serve more, research the products that best fit their needs and still fit the proper margins. Learn their buying habits and develop strategies to directly reach them. Needless to say, the different market segments used in this example are going to have different buying habits and have different product needs. The organization needs to strategize which niche they want to be the expert in and work to deliver for that niche.

The Commodity Strategy

Some organizations accept the fact they are not well positioned to serve a niche market and prefer to hold the course they have been on for decades by being another commodity in the marketplace. Although I don’t agree with using this as a long term approach to be competitive, it can be a stopgap approach. Let's say you want to make some shifts over the new couple of years to better position yourself but you don’t want to just sit without any strategies until you get a better definition of who you want to become, so you want to at least maximize your current situation.

A commodity strategy accepts you are one of several options for prospective customers, and you want to attract high volumes with lower margins. This is a strategy that can be profitable, provided you have an economy of scale. For example, the large banks in this country have hundreds if not thousands of branches across the country to serve their large numbers of customers. They have an aggressive approach to grow by acquisition as well as with service. Their profitability is based on their size! Their size allows them to offer slim margins because of the volume they can create. How does a credit union or smaller community bank compare? Most have an advantage in offering slightly better rates and lower fees but the commodity shopper is mostly looking for convenience followed by best rates. Wal-Mart has become expert in their ability to use their economy of scale to drive out smaller competitors and those competing in commodity-focused arenas could face the same fate.

Differentiation

By differentiating your organization from the rest of the pack, you are able to have the best of both worlds with high volume and high margins. How is this possible? When current and prospective customers must be part of your organization you have the ability to operate from a greater position of strength. Differentiation is all about uniqueness and brand recognition. Apple has been able to create this with the iPod and now the iPhone. Apple is creating must-have products where price is of much less concern to the buyer than the uniqueness of product and the brand of Apple. Obviously, Apple had to work hard to establish the brand with effective advertising and build the uniqueness in the mind of the potential customer where price was an afterthought.

Be Honest with Yourself

Looking in the mirror and being honest is always a difficult thing. It's hard to admit weaknesses and I find people embellish their strengths.

This can be an obstacle to strategic planning. Effective planning requires honesty so you know where your strengths are and how strong they really are so you can set objectives to make them even stronger. In evaluating weaknesses it helps to have an outside perspective who can ask the tough questions. As one of my clients said, "Sometimes you have to ask someone outside of the family whether your baby is ugly or not." Weaknesses are naturally difficult to face, and in some cases even recognize depending on the management team dynamic.

It's easy to put the best spin on the situation and believe you are the best in customer service and product offerings. However, in the final analysis you are what you are, and if you are having a net loss in customer accounts, and your profits are decreasing, then something is obviously amiss.

Declare an amnesty day where your team can "confess" openly to their concerns and views on the strengths and weaknesses. It's always better to be solution-focused rather than blame-focused, and honesty in this process will get you to better solutions quicker.

It's better to be honest when preparing for your planning process, than to work hard on spin control when the competitors or regulators are knocking on your door.

Sustainability

One of my clients wanted to do some brainstorming during a rebranding process. The process was designed to give them a fresh look, a fresh image and an opportunity to reemerge in the community as they pursued a new group of customers.

The process lasted pretty much the entire day and fresh ideas were popping all over. Toward the end of the day names were getting whittled down to fewer options, and it suddenly dawned on a couple of participants that a new name and image was going to be arrived at. Immediately, feet got shoved into the dirt and the resistance happened and the big shift in image and name became stalled. In fact the board finally voted on simply using the initials of the previous name for the “rebranding.”

To get significantly different results you have to do something significantly different.

When you find you are losing customers and market share and the competition is becoming a more preferred provider, some significant shifting has to occur. You can't just dust off what is already in place and hope it produces different results. You have to make some shifts.

Sustainability is key. I find when companies are in difficult times, people run around in a panic trying anything they can to change results. As soon as those desired results become more visible the natural tendency is to slide back to the comfort of old habits. In other words, no sustainability to the changes, no real shifting has taken place, so any change in results are temporary.

Well thought-out management strategies are not reactionary, temporary or easy to slide back off of. They have measurements, accountability and sustainability. Strategies that have been designed to create proper changes will be better accepted by the staff, have better implementation and be treated as less of a fad where employees expect to slide away from after a few weeks.

In your planning process look for ways to create sustainable changes, not just knee-jerk reactions that only panic staff and have no lasting result.