Boiling Frogs and Strategic Planning
Procedure for boiling a frog: Place the frog in a pot filled with room temperature water. Apply very low heat and very slowly raise the water temperature. As the frog will not notice slow changes in temperature, he will happily sit in the pot. Continue slowly heating the pot until you have a boiled frog.
Procedure for strategic planning in smaller companies: Assemble a key management group; establish medium term goals; do a SWOT (Strengths-Weaknesses-Opportunities-Threats) analysis; define metrics; and initiate a one year action plan. Resources to be used in planning are management experience, immediate problems, and issues reported in the media.
The two procedures are related when management fails to recognize on-going, entrenched trends which, being part of the everyday environment, are ignored in the planning process.
Potential damaging trends could include increasing reliance on one customer, product, or supplier; an aging management group; aging assets; low retention of new customers; stable returned product rates; and stable production yields. In the medium term, any of these trends could potentially jeopardize the business, yet they may be an important part of the business’ culture or are too uncomfortable to address. In my experience, changing entrenched trends is a very difficult job. Frequently, management is comfortable with the everyday status quo and has no desire to upset “business as usual”.
Addressing potentially damaging trends has to start by identifying them. With near universal computerization of business records, that job needn’t be time consuming. Looking at data for the previous five year should be sufficient for meaningful information. Besides the normal accounting reports, records easily obtained include sales data by customer and product, supplier payables, employee lists, fixed asset registers, shop order histories, and customer complaint files. Just by examining the raw data, unexpected trends may jump out at you. Of course, the more experience you gain, the more likely you’ll find something important.
What you should be looking for are unsustainable trends (e.g. increasing market share), “treading water” trends (e.g. few new customers ordering in the second year), or concentration trends (e.g. profitability becoming dependent on one product or customer). Once these trends are quantified, they become an integral part of the SWOT analysis.
Trend changing solutions will take time and creativity. They may involve revising sales procedures, adding younger/older people to the management team, adding product lines, rethinking what production equipment to purchase, or qualifying the company for ISO registration. They may involve replacing key personnel.
Be prepared to jump out of your comfort zone when preparing for strategic planning. It may be hard work, but the alternative may ultimately be a lot hotter.