When it comes to the annual business plan review, it may seem like your boss is out to get you. Maybe it is that he is just a little out of it after having seen tens of these before yours. Maybe he just wants you to remember that he is one step ahead of you. Maybe he wants you to be sharper. No matter; he might just as well be out to have at you!
Have you been in The Board room, with twenty-six chairs occupied by people with perennially frowning faces, where you had the perfect twenty-page plan, with thirty backup slides and in-depth Excel financial models, but then the boss asks that one question that you had not prepared for. You fumble and mumble. You adorn your most respectable “deer in the headlights” look and attempt to move on. But the damage is done and everyone was there to witness it.
In having worked on hundreds of strategic plans and attended many c-suite and board-level reviews, we have seen the CEO’s bag of tricks many times. So we thought, what the heck, why not share it with you. Well, at least, some of it. The following short note tells you how the masters of the craft go-to-work.
Toss The Deck
One of our senior client executives had a real attention deficit issue. When one new and unsuspecting manager marched into his office with his one-hundred-and-fifty-page plan treatise, he opened his window and theatrically dropped the document outside and said “now, let’s talk about your plan.” Some call it the executive summary and other an “elevator pitch”. The test of a good one is that you can tell it like a story to anyone and it makes sense to them even if they know relatively little about your business.
At Cerenti, as with other leading strategy consulting firms, we train our own consultants to build their story around the acronym “S-C-R-A-P,” which stands for Situation, Complication, Resolution and Action Plan. The “Situation” statement spells out your opportunities and challenges. The “Complication” statement lays out the barriers to realizing your goals. The “Resolution” statement states your strategy and the “Action” statements lays out your execution priorities. In each statement, it also helps if you lay your thoughts out into three distinct situations, complications, resolutions, and actions. Practice telling the story to objective test subjects outside of your own team and see if it makes sense to them.
Here is an example elevator pitch on a particular issue.
· Situation: Our international business has stalled, however there are 3–4 brands that are on fire in multiple countries.
· Complication: Our resources are fragmented across twenty brands and thirteen countries.
· Resolution: We will focus all our resources on the winning brands and the five largest country markets and stop supporting the rest.
· Actions: We will shift all advertising and trade dollars and add headcount to drive the power brands.
Master the Basics
All plans ultimately involve a financial analysis, and every manager can easily do a profit and loss statement. Just because you can subtract costs from revenues to calculate income, does not mean that you understand the financial implications. To understand what a P&L means, you need to connect your financial mathematics to “pie economics.”
For example, if your revenues are growing faster than the market is, you are either taking share (eating someone else’s share of the pie) or getting better price realization (eating the best part of the pie) or growing the entire market with a disproportionate share of the growth (baking a bigger pie and eating the excess).
Be prepared to answer the following questions: What is different and better about your product or service that will allow you to gain share and from what customers? Which competitors will you take share from and exactly how much from each? If you are raising price above others, how much share do you expect to lose (refer to economics 101: price and volume are inversely related)? What makes you think you can grow the market and keep the increment for yourself?
Try these questions on your plan the next time and see how well you fare. Hint: if your plan entails both revenue growth and margin expansion, there will be a lot to answer for.
Don’t just please, own it.
One common and deserved pitfall for managers is their insatiable desire to please their boss. It goes something like this. The boss comes back from some boondoggle and announces how blown away he was by some new thing he saw or heard. Examples of the same are “web enabled customers,”, “market back strategy,” “future-fit capabilities,” and the like.
The next thing you know, every manager in the company is scrambling to build those terms and initiatives into their plans. In the process, they often forget to ask themselves, “does this actually make sense for my business?” Worse, still when they head back to the boss with their plan full of web enabled, market back strategies and future fit capabilities, the boss has suffered a total memory eclipse, and the underlings are stuck justifying multiple terrible ideas in their plan. Moral of the story? Stress test everything and own it.
Every plan has a list of funding requests — spanning head count increases, research requests, promotional expenses, etc. Again, be prepared to answer the following questions: Why will this work as you say it will? If I told you, I am giving you an extra $10 million, what would you spend it on? Or, if I told you to cut $10 million in projects, which three would you cut? Why don’t you cut the $10 million in the latter and put them to work against the former?
The point is, make sure your projects are clearly prioritized. The extra $10 million should go to either projects off your list, or against existing projects in manner that does not generate returns at rates in excess of your lower priority plans. Obvious? Yes, of course, but hard when you do not think ahead linearly and laterally.
Get the facts. Please!
Steve Jobs was famous for often skipping consumer research and creating game changing products despite doing so. Managers often cite this as an example for why no customer and market studies are necessary. We have news for many managers — “You’re no Steve Jobs! So just go ahead, do the research, talk to your customers and test your ideas first against clear economic and market models.” Do not do these to simply make a pre-determined business case. Do these to understand how to win in your markets and make real choices.
The best CEOs we know will not buy companies without an in-depth understanding of how they will win in those markets. Acquisitions evaluations require go-to-market strategies prior to the completion of any transaction. This may cost a million dollars or more but is money well spent. Yet many companies skip this basic step. Likewise, managers invest in promotions, product innovations, lifecycle management, etc. often with short cuts around real customer research. The results predictably resemble those of the players in Las Vegas casinos.
Game a bit. Watch the leftfield.
Finally, one other area where managers get tripped up is on the topics that are not on the plan template at all. It is that one question that comes from way out in the leftfield. What would happen to your plan if a competitor were to buy the next largest player in your market? What if they got a key new technology first? Should you vertically integrate in your industry? What if a low-priced competitor (China/India) enters the market? Game theory matters. Spend some time thinking through the scenarios in which competitors take unexpected actions.
But let your boss win (something inconsequential)
At the end of the day, the business plan review is a bit of a mind game. Your boss does want to look good and feel like he added some value. Even though you should be well prepared, do not out do your boss. Be gracious and acknowledge some of his feedback as “valuable.” Make sure you address all consequential gaps in your plan. However, its ok to let the boss get the better of you on some less important issues. Even if you know the answer, keep it to yourself. Remember, it is the ends that matter.
Strategic plans are an important rite of passage to success in business. They are a time of critical reflection and direction setting for your team. It is a lot of work so make the effort count.