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June 25, 2012

Strategic Planning:
Focus More on the Forest ? and Less on the Trees

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?Sometimes, it?s hard to see the forest for the trees.?

Certainly, you?ve heard this saying before ? in fact, you?ve probably said it yourself more than once. It?s a perfect description of the dilemma many closely held business owners often face:

As the owner, you?re the one who?s ultimately responsible for the success or failure of your business. Therefore, you may feel like you have to manage and oversee all the minutiae and details involved in running the business.

But is this really your job? Most experts would say no. Instead, the most important job of a business owner is to set the strategic course and direction for the company and cast an over-arching vision that inspires everyone else. Or in other words, to take your focus off of the ?trees? and shift it to the ?forest.?

Strategic and Business Planning
In business-speak, focusing on the forest instead of the trees is known as strategic planning. Note that strategic planning is different from business planning.

Strategic planning is big-picture planning: It is the process of defining your company?s strategy and making decisions about how you will allocate resources to pursue this strategy. Strategic planning focuses on things like goals, mission, vision and values for the organization.

Business planning is more tactical, focusing on specific action items that need to be accomplished in order to make the strategic plan become a reality. As the name implies, a strategic plan should lay out a detailed strategy for how the business will implement the tactics outlined in the business plan to achieve the stated goals and vision.

Creating a strategic plan enables a business to be proactive in charting out a course for its future, instead of being reactive to forces that are outside of its control. It also helps ensure that the goals of the business and of individual employees are in alignment with each other, and that everyone is pulling in the same direction, instead of against one another.

With a strategic plan in place, you can more easily decide how to best employ your existing resources ? both human and capital ? toward the achievement of your long-term objectives. Also, a strategic plan makes it easier to identify which opportunities you should devote these resources to, and which ones might be best to stay away from.

How to Do It
At this point, you may be saying to your-self, ?I know strategic planning is important, but I just can?t seem to find the time to make it happen.? But if you wait until you and your management team have the time for a strategic planning session, it will probably never hap-pen. So make a commitment now to set aside the better part of one or two days for you and your key managers to get offsite, roll up your shirtsleeves and plan your business? strategy.

It might be a good idea to bring in a facilitator from outside your company to help structure and lead the strategic planning session. He or she should be someone who knows your industry well and can share best practices that have worked with similar businesses. Such an impartial outsider can likely bring a fresh, ?out-of-the-box? perspective to problems and issues that are hard for you and other insiders to see.

What should you focus on when planning strategically? Management consultant Verne Harnish, aka the ?Growth Guy? (http://www.gazelles.com), has identified four key areas that companies should zero in on in their strategic planning efforts:

1. People ? According to Harnish, this includes not just your employees, but your customers and suppliers as well. What does your ideal employee look like, and how can you attract more of these (and fewer less-than-ideal employees)? What types of customers are your most profitable, and what should your salespeople be doing to meet more of them (and fewer unprofitable customers)? And are your current suppliers aligned with your company?s strategy, vision and mission?

2. Execution ? This includes all the processes that are followed in the manufacture of products or the delivery of goods and/or services to your customers, as well as internal procedures that govern workflow throughout your organization. One possible sign of execution problems Harnish points to is increasing revenues that are not resulting in proportional increases in profits. Tightening up execution can increase your productivity, gross margins and profitability.

3. Growth and Cash ? Harnish?s first law of what he calls entrepreneurial gravity is that ?growth sucks cash.? Therefore, any strategic plan must consider the impact that growth will have on the company?s cash flow. He encourages companies to calculate and monitor their cash conversion cycle before embarking on aggressive growth plans. This measures how long it takes from the time a business spends a dollar (on raw materials, inventory, marketing, overhead, etc.) until it gets that dollar back in the form of collected accounts receivable.

4. Strategy ? This encapsulates everything else. Harnish believes one of the most obvious signs that a company?s overall strategy needs to be re-examined is whether top-line revenue is growing or not. If it?s not, or if revenue isn?t growing as fast as you?d like, take a fresh look at what products you?re selling to which customers, for how much, and how you?re marketing to these customers.

An Ongoing Process
Ideally, you should schedule a strategic planning meeting with all your key man-agers and other employees once a year. But this doesn?t mean the strategic planning process should be confined to just an annual meeting. Daily execution of the action steps identified and outlined in your strategic plan is what will determine whether the plan is successful or not.

Also, don?t be afraid to tweak your strategic plan as circumstances change. You don?t have to wait for the next annual planning meeting to make necessary adjustments. By then, you could have missed out on timely opportunities ? or worse, been victimized by unforeseen events that adversely impacted your business.

We can help your business with the process of strategic planning. To learn more, give us a call today.

Vision vs. Mission: What?s the Difference?

The terms ?vision? and ?mission? are sometimes used interchangeably, but they?re really two different things:

? Vision provides a blueprint for what the organization wants to be and what it should stand for. It is long term in nature, answering the question, ?Where do we see the business three, five or 10 years in the future?? A vision should inspire and motivate everyone in the organization.

? A mission (or mission statement) defines the fundamental purpose of the organization. It should succinctly answer the question, ?Why does our company exist?? In crafting a mission statement, dig deep in identifying a reason for existence beyond just creating a product or making money. Strive to create a mission statement that?s easy to understand and remember, instead of writing some long-winded ?corporate-speak? phrase that doesn?t really mean anything.

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Management Strategies:
Dealing with Volatile Raw Material Prices

Any business that manufactures goods or products of any kind knows how vulnerable it can be to wild fluctuations in the prices of raw materials. And when you look at a chart of commodity prices over the past few years (at right), it resembles
a roller-coaster ride at your favorite summer amusement park.

After a decade of relative stability going back to the early 1990s, the Commodity Price Index (CPI) began a gradual climb in 2002 (from 49) that accelerated sharply in mid-2007 and peaked a year later at 220. Commodity prices then plunged in early 2009, with the CPI falling to 100 in March, only to begin another steady climb until peaking again in April 2011 with a CPI of 213.

Commodity prices then fell again through the end of last year before starting to rise in early 2012, when the CPI rose to 196 in February. The price indexes for food, agricultural raw materials, metals and fuel have all tracked the CPI fairly closely.

No Signs of Stability
Volatility in raw material costs has been attributed to everything from soaring fuel and energy costs to a weak dollar and rising worldwide commodity demand, especially from China and other emerging market countries experiencing rapid growth. Unfortunately, there don?t appear to be signs of stability in any of these areas anytime soon.

Unpredictable raw material costs can wreak havoc on a manufacturer?s gross profit. Of course, falling commodity prices can increase profits, but these profits can vanish just as quickly when prices shoot back up again.

To help shield themselves, manufacturing companies should develop strategies for dealing with this volatility in raw material prices. Here are a few ideas to consider:

Shop aggressively for raw materials. If you?ve always relied on the same one or two vendors to supply raw materials, broaden your scope to look for other suppliers that might offer better prices. Let your existing suppliers know that you are soliciting bids from their competitors and give them the first crack at retaining your business ? but also make it clear that, all else being equal, the lowest price will win.

Also consider committing to minimum quantity purchases, if this is feasible. If you know that you will be buying a certain amount of a particular raw material over the next six months or year, for example, you might be able to negotiate a lower price by telling your vendor they can expect this volume from you.

Decrease your fixed and variable costs. While you might have limited control over raw material costs, there are many fixed and variable costs you probably can control. Have you taken a close look at your overhead lately? What about inventory ? are you using just-in-time (JIT) inventory management techniques to minimize inventory holding times? And are you managing your supply chain for maximum efficiency?

Change your product design. Pro-ducts are not always designed with manufacturing efficiency in mind. Sometimes, relatively minor tweaks in product design ? a slight change in shape or size, for example ? can result in increased efficiency that boosts the bottom line.

Institute commodity surcharges. Price increases of any kind always have to be handled carefully. But in today?s environment, many customers are understanding of increases that are properly positioned and explained to them.

Positioning price increases as ?commodity surcharges? that are proportional to your increased raw material costs helps customers understand the reason for the increase. Commodity prices are published by many trade associations, so your customers can probably verify the increases if they want to.

It Works Both Ways
Keep in mind, however, that customers will expect these surcharges to be reduced or eliminated if and when commodity prices decline. When gasoline first topped $4 a gallon in the summer of 2008, many businesses that are heavily fuel-dependent (like landscapers and delivery services) added fuel surcharges to their bills. But when prices fell back down near $2 a gallon, some didn?t remove the surcharge ? and many of their customers noticed.

So approach the issue of commodity surcharges carefully. It might be simpler to just institute a straight-line price increase if the market will bear it.

To discuss strategies for dealing with raw material price volatility in more detail, please contact our office.

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What Is XBRL ? and How Could You Benefit?

There?s something new and exciting going on in the world of financial data and reporting: XBRL, a technology language for the electronic communication and exchange of financial data between businesses.

XBRL allows unique tags to be placed on items of data in a business or financial report. The tags include such information as item descriptions, units or currency that make it easier for users of the information to identify and understand it. Companies can customize these tags to create elements (or extensions) that describe their own unique reporting situations. XBRL-tagged data is computer-readable, which makes it easier for businesses to extract, search and analyze the information.

Note that XBRL is not a new accounting standard and will not change what data is reported; rather, it simply changes how the data is reported. In 2009, the Securities and Exchange Commission adopted final rules requiring public (but not private) companies to submit their financial statements in XBRL format. The requirement is being phased in over four years. XBRL may offer:

? Greater automation ? Resources can be shifted away from costly and time-consuming manual processes that involve comparison, assembly and re-entry of data and toward more useful data analysis. For example, most data searches can be completed almost instantaneously using XBRL

? Better data creation ? Financial or business information tagged in XBRL format can be used to create many other documents in different formats, such as HTML, ASCII text, or a Microsoft Excel spreadsheet or Word document.

? Better business information reporting ? This includes the entire reporting chain of business information, from data collection through internal and external reporting for more accuracy and efficiency.

? Uniformity of data ? XBRL includes a common set of definitions by which all organizations tag their data, making it easy for information to be compared from one organization to another.

Please contact us if you?d like to learn more about XBRL and its potential benefits to your company.

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