Julia's blog

I don't think anyone would argue with me when I say that a business needs to have a good understanding of its competitors, but in truth very few SMEs do.

I was reminded of this last week at a planning day for a client. We were talking about the competitive environment of the business and the management team were sharing their knowledge about the company's competitors. I think it's fair to say that the information they presented was largely anecdotal and generously embellished with personal opinion!

This wouldn't matter except that the business was using this type of information when making strategic, pricing, positioning and people decisions. And they are not alone. Many SMEs are using lousy competitor information for decision making (especially when it comes to pricing), and relying on knowledge that they have tripped over in the normal course of business, rather than information they have actually, and actively, gone out to find.

Businesses that are disciplined about scanning the competitive landscape give themselves a huge advantage, and it's not hard to do. It's really about deciding what information you want to collect and then regularly seeking it out and reporting back.

One business I know gives each member of the management team a competitor to track. To keep the investigation focused the team members have 13 pre-agreed topics to seek information about and twice a year the team gets together to explicitly share the information. Of course important developments are shared as and when they occur.

You can do this too. To give you a hand, here are some suggested topics to find information about, grouped together under themes:

Information about the product:

• product portfolio
• pricing policy
• promotional campaigns

Information about the customers:

• customer perceptions
• customer loyalty
• brand reputation

Information about the business:

• financial performance
• financial structure
• supplier relationships and economies of scale
• distribution channels
• number of employees
• investment in training
• investment in product development

Clearly some of this information is hard to get a hold of and the point is not to turn your employees into undercover detectives but rather to encourage them to keep their eyes and ears open for particular information. It will also take time for this information to bubble up so it's important to keep the project running continuously and not just make it a one-off.

The point about giving each person in the management team responsibility for a competitor is not only to ensure the job gets done, but also to provide a central place for everyone in the business to take competitor information to. It's so much more valuable to funnel the information into the whole of the business than just share it with the water cooler and the chap from accounts.

 

One of the most appealing aspects of life in a small or medium sized business is that you get to play so many different roles.  But sometimes this causes abject confusion.

A common example of this happens at annual strategy days or quarterly planning meetings. Leaders often tell me that their teams find it tough to separate strategy and execution because in practice they do both. As a result the sessions become frustrating, with the team merrily flipping between the conceptual and the practical.

When this happens I often recommend to teams that they imagine they are working in a much larger organization: one that has the formal corporate hierarchy of a board, CEO, business-unit leaders and managers. I then suggest the team metaphorically put on a different hat according to which part of the planning process they are in.

I borrowed the idea of hats from Edward de Bono’s “ 6 Thinking Hats” but in my example the hats take on roles rather than perspectives. In practice when I am running such a session I bring along real hats for the team to wear; like actors at a dress rehearsal the result is even better.

If you want to try this, here are the hats the team wear, the roles they play and the questions they should ask:

The board

The first hat to wear is that of the board. The board’s role is to decide the level of risk that the business is prepared to accept: the strategic risk.

With your “board” hat on, think about these three questions:

•    What level of risk feels right for our business?
•    How much performance (ROI or whatever measure suits you) are we willing to sacrifice in exchange for lower strategic risk?
•    What level of resources should we devote to mitigating risk?

Or more simply, how much are we prepared to bet?


The CEO

The second hat to wear is that of the CEO.

The role of the CEO (and senior management team) is to formulate the strategy. Having worn the “Board” hat you now have a clear understanding of the level of strategic risk that your business is prepared to carry. 

As the CEO you need to ask two questions:

•    What strategic uncertainties does our business face?
•    What strategic options do we need so that we can cope with those uncertainties?

Or put more simply, given the amount we are prepared to bet, what should we do to maximize our winnings?


The business-unit leader

Now put on your “business-unit leader” hat.

Having already worn the CEO hat the strategy is formulated, now it’s time to bring it to life with some action.

As the Business-Unit Leader you need to ask:

•    What key activities should we undertake to implement the strategy and achieve our performance targets

Or simply, what are we going to do to create some wealth out of this strategy?

The manager

The fourth and final hat is that of the manager.

By now we have chosen our level of strategic risk, formulated the strategy, and settled on the key activities to bring the strategy to life. As the manager we need to look at the best way to execute the activities.

So, as the Manager you need to ask:

•    How can we best execute the activities?

By which we of course mean: show us the money!

I did this little exercise with a client last week. We looked at the ten initiatives the business had started in the last six months and did a bit of investigative work to find out who had provided the genesis of the idea behind each initiative.

The CEO, who is a very entrepreneurial chap, accounted for many, and the management team – thanks largely to the head of sales - the remainder. But notably, no ideas had bubbled up from the pool of over 100 employees.

I wasn’t that surprised. It seems that unless one actively encourages employees to come up with ideas, and then to share them, they often don’t. The reason for this I suspect is because so many of us – and I include myself here – enthusiastically shared our mediocre ideas with superiors when we first joined the work force only to have them greeted with disdain!

But this is not as dire as it sounds; rather it presents a fantastic opportunity. Since the key to year-on-year profitable growth is innovation, businesses that harness the ideas of all their employees will out-perform those that don’t.

And it’s really not that hard to make a start. Here are 6 ways to encourage your employees to come up with ideas, not just today but every day:

The need for ideas: a common misunderstanding amongst employees is that employers don’t want their ideas, so explain why ideas are key to growing your business.  Before you do this though I suggest you start with an explanation of how growing the business is good for everyone - this appeals to the “what’s in it for me” that lurks inside many an employee.

No idea is a stupid idea: no-one wants to look silly, especially not employees, so make sure that all ideas are gratefully received!

It’s all about purpose: employees are more likely to generate ideas that will help your business if they understand the purpose and vision of the business. You and your management team have probably got this down pat, but does your most junior employee understand what the business is really trying to achieve?

Why do we do it like that:  encourage your employees to challenge processes and procedures. The simple question “why do we do it like that?” has uncovered some mightily ineffective processes in a number of businesses.

Here’s one we made earlier: you can’t beat a real life example of a good idea to inspire your team and illustrate the type of idea you are looking for

Box it: paradoxically constraints stimulate creativity. Give your team 3 questions to work-up for ideas -such as “how can we halve our delivery time?” - and you will unleash more creativity than had you just asked for general ideas.

Of course you will get a mixed bag of ideas. Some will be “suggestion box” type ideas that you can either implement or (kindly) discard, some will be useful and some will just seem completely ridiculous. Be on the look out for the latter, as Albert Einstein said “If at first, the idea is not absurd, then there is no hope for it”.

The other day an enormous Excel spreadsheet arrived in my inbox.
"Here's our annual plan," announced the email proudly "what do you think?"
I looked at the mass of numbers; the only words I could find were the column titles.
"I think this is the budget" I replied.
"You're right, it is the budget. Our annual plan is to make the budget."
"But what steps are you actually going to take to make the budget?"
"Oh, not sure yet."
It's May. CFOs are buried in 2010 budgets. CEOs are muttering about containing costs and steadying revenues. Plans are being born.
Or are they? A budget isn't a plan; it's simply a financial interpretation of a plan. If you are serious about making 2010 a good year, you need to be serious about planning.
It's not too late to get it right, but you do have to start now. Here's how:
Book an annual planning day in the diary of your whole management team.  And don't let anybody wriggle out; despite what they may think, nobody is too important to the daily running of the business to attend this session.
Hold the annual planning day offsite. If you don't do this you will lose half the team to their computer. In my experience an offsite held in a little cottage half way up a mountain works very well - not least because the iPhone/BlackBerry doesn't. The best offsites start with dinner and a sleep over the night before, thereby getting all the social stuff done before the day itself.
Start the planning day with a recap of the business foundations (purpose, passion, profit driver, brand promise and core competencies) and strategic intent ("big hairy audacious goal", five year targets). If you are a bit rusty on these I suggest you hold a strategic planning day in advance of the annual planning day to work these up.
I think a high level SWOT analysis is a useful tool next. Not only does it get everyone in the right frame of mind for planning the business, but it also gives people a chance to air their concerns.
A review of the year just gone is a useful next point on the agenda. But just cover off three highs and lows. If you want to do this in more detail than I suggest you do so over dinner the night before.
Now we are into the planning bit. First up I would start with the question "what do we want to achieve by the year end?" While you want to end up with measurable goals out of this section, leave it quite open to begin with. You want to unearth goals such as "new product X on market" which you won't do if you head straight for goals around revenue, profit and ROI.
Decide on, say, five measurable goals. Maybe three around the financial metrics (revenue, profit, working capital) and two around something that is important to the future of your business but will not drive profit this year (such as foot in the door with "A" list clients/new geography, new product).
Once armed with the goals, spend some time nutting out the five strategies you will adopt to get there.  Remembering that after the planning day there will be no action unless someone is held accountable, I would allocate an accountable person to each strategy right now.
Next take the five core strategies and work them up into tactics for each quarter. You will probably want to focus your effort on tactics for quarter one, just noting for future quarters when you will start those things that will be kicked off later in the year. You can complete the tactics for the subsequent quarter at your next quarterly meeting. You do have one, don't you?
At the end of the planning day you should have agreed on five annual goals, five core strategies for the year, and a handful of tactics for the first quarter. You can quickly document this in a one-page spreadsheet.
You are probably now thinking that this is a lot to cover in one day, and I tend to agree. I regularly recommend that the "annual planning day" be a two-day event but I also realise how hard it is to get the management team away for one day, let alone two, so it's your call.
What next? Well there is much to do to bring your annual plan to life in the business. But first you can give it to the CFO so that he can work on creating a budget that reflects the plan, rather than a plan that reflects the budget.