In a recent discussion with an employee of a firm, she complained that there was no consistent leadership. Chaos resulted from changing direction frequently. It seemed that the firm had a case of bipolar disorder. She confirmed my suspicion that there was no strategic plan.
Once a business knows what it is trying to do as we described in an earlier blog as the transformation process, the next step is to develop a strategy to perform that transformation. The strategy defines how the enterprise will go about making not just the transformation but how that process and the business it operates within will exist and survive in the marketplace.
Twenty years ago many businesses were having meetings to develop Vision, Mission, and Value statements. The lobbies of many companies today have framed versions hanging on the wall. Some of these statements are well thought out and others are just standard wording. These statements should serve as the jumping off point for a strategic plan on how the business will fulfill customer needs and wants. Briefly each statement answers a question.
• Vision – What will the business look like to the market place when it is successful many years in the future?
• Mission – What is the core business and why will the customer be compelled to use it as a supplier?
• Values – What basic principals of human interaction will the team adhere to in dealing with each other, customers, suppliers, and the community?
Based on these statements the enterprise establishes its overall goal and short, medium, and long term renditions of this goal. Only at this point can the strategies be defined which will lead to the achievement of the goals. It seems too simple but many firms are well on their journey before they realize that “Knowing where one wants to go is fundamental to any successful journey.” The business in the first paragraph is one of those. Although it has been in existence for years, direction shifts frequently because there is no set of goals clearly articulated and to be kept in mind as the target of any action to be taken. A goal is needed to support the fundamental screening question: “Will this action support the goal of the enterprise?”
The strategic plan is the collaborative glue that allows all the functional units of the enterprise to operate in unison. Without it the organization divides into functional silos which operate to achieve their own subjective, departmental goals. In most cases these sub-optimize the true goal of the entire enterprise.
To develop a strategy for an enterprise, it is necessary to have defined vision, mission, and value statements on which goals can be developed. Those goals serve as the targets in the strategic planning process. The enterprise wide strategic plan itself is the starting point for all subordinate functional plans within the organization. This process aligns the business and every action can ultimately meet the test: “Will this action support the goal of the enterprise?”
Sunday, November 15, 2009
Thursday, October 15, 2009
Core Competency
If the transformation process is the core of the business, it is necessary to protect, control, and improve the process. That may not mean the core competency is the actual production of product. Some companies have superior skills in the area of product design, others in processing documents or sales, and still others in delivering a service. The key is determining what the “transformation” process is that exists as the core competency of the business. Many companies have patents and trade secrets that protect their core competency. So what is your business’s core Competency? The following questions will focus your thinking.
1. What does our customer want? This question is for established businesses and pushes to examine customer desires. With a new product offering or a startup business, it means crystallizing the value proposition that we expect the customer to pay for.
2. Is our business unique in offering this product or service? If no one else can make the same offer in the marketplace the business has a powerful position. However this needs to couple with #1., above, to make sure the offering is not only unique but desirable. A monopoly on something no one wants is worthless.
3. Is it difficult for “would be” competitors to enter the same market? Obstacles to entry can be technology, capital investment, skills, geography, etc. These keep entrants out but if the perceived reward is great enough they may invest for the later pay out. A corollary to this is: Can an unrelated offering fill the customer need as well or better?
4. Can the business continue to evolve the offering to stay ahead of potential competitors? This focuses on the business’s ability to move down the learning curve rapidly and stay ahead of competitors. As competitors try to match the business’s competency the business has moved to a new higher level of competency.
5. If an outsider were allowed to do this task for the business, could they meet the needs of our customer without our business? If a business allows a core competency to be performed by an outsider it exposes itself to creation of a competitor. The computer and electronics industry is filled with examples of this. Overseas suppliers are often the ones who can most easily introduce a competing product to the ones that have been outsourced to them.
If a business wishes to be the master of its own destiny, it must not give its core competency to others to perform.
1. What does our customer want? This question is for established businesses and pushes to examine customer desires. With a new product offering or a startup business, it means crystallizing the value proposition that we expect the customer to pay for.
2. Is our business unique in offering this product or service? If no one else can make the same offer in the marketplace the business has a powerful position. However this needs to couple with #1., above, to make sure the offering is not only unique but desirable. A monopoly on something no one wants is worthless.
3. Is it difficult for “would be” competitors to enter the same market? Obstacles to entry can be technology, capital investment, skills, geography, etc. These keep entrants out but if the perceived reward is great enough they may invest for the later pay out. A corollary to this is: Can an unrelated offering fill the customer need as well or better?
4. Can the business continue to evolve the offering to stay ahead of potential competitors? This focuses on the business’s ability to move down the learning curve rapidly and stay ahead of competitors. As competitors try to match the business’s competency the business has moved to a new higher level of competency.
5. If an outsider were allowed to do this task for the business, could they meet the needs of our customer without our business? If a business allows a core competency to be performed by an outsider it exposes itself to creation of a competitor. The computer and electronics industry is filled with examples of this. Overseas suppliers are often the ones who can most easily introduce a competing product to the ones that have been outsourced to them.
If a business wishes to be the master of its own destiny, it must not give its core competency to others to perform.
Thursday, October 1, 2009
Core Business Fundamentals
The fundamental core of any business is a transformation process. That transformation is embodied in manufacturing as a physical change to a product. In a transportation or logistics business it can take the form of movement of items or people from one location to another. In a service industry it can be more difficult to discern. Education, for example, is the transfer of knowledge to the student. A lawyer, as another example, uses specialized knowledge to replace that of the client to represent the clients interest.
What makes the transformation process important is that someone else, a customer, is willing to pay for that process. In the eyes of the customer the process adds value. Business is based on this value to the customer. It sets the market price for the output of the process. It can also indicate, when the business listens to the voice of its customers, what they want or for what they are willing to pay. Applying some advanced business tools will allow a business to focus on the parts of the overall process that add value in the eyes of the customer and eliminate those that do not.
The object is to perform the process at the lowest cost and yet fulfill all the customer’s desires. The difference between what the customer is willing to pay and the processing cost is the profit that keeps the business in operation. Business systems such as ERP (Enterprise Resource Planning), the disciplines of Lean and six sigma, and the root cause analysis or Theory of Constraints are tools to use in improving the cost versus price ratio. That improvement means improved profit or lower total cost.
What makes the transformation process important is that someone else, a customer, is willing to pay for that process. In the eyes of the customer the process adds value. Business is based on this value to the customer. It sets the market price for the output of the process. It can also indicate, when the business listens to the voice of its customers, what they want or for what they are willing to pay. Applying some advanced business tools will allow a business to focus on the parts of the overall process that add value in the eyes of the customer and eliminate those that do not.
The object is to perform the process at the lowest cost and yet fulfill all the customer’s desires. The difference between what the customer is willing to pay and the processing cost is the profit that keeps the business in operation. Business systems such as ERP (Enterprise Resource Planning), the disciplines of Lean and six sigma, and the root cause analysis or Theory of Constraints are tools to use in improving the cost versus price ratio. That improvement means improved profit or lower total cost.
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