Some small businesses start with a strong initial intention and moneymaking idea; others seem to begin accidentally with no deliberate strategy. As your business evolves, the need to develop a conscious strategy becomes more important. Here’s what to know.
Conventional wisdom recommends creating a long-term business plan for the next five years and then a tactical plan for the near term, typically one year. The problem with this approach: Your business assumptions often change faster than your ability to execute ideas. Businesses require continuous planning to keep pace with changing market forces and new demands from customers and employees.
John Hagel III, co-chairman of Deloitte's Center for the Edge consultancy, challenges the conventional approach to strategic planning, arguing that the best-performing companies – especially in technology – deploy an effective approach he calls “Zoom In-Zoom Out.”
First, successful companies zoom out to develop long-range assumptions about the forces that may affect the business over the next 10 to 20 years and create a vision around these findings. Then they zoom in to focus on a short time, say six to 12 months, and work on two or three initiatives that Hagel terms “needle movers.”
He also warns against the common pitfall of spreading skimpy resources over too many choices, benefiting no one initiative. Growing is a great business objective if growth translates into results.
Leaders must also stay engaged with the status of long-term assumptions. Hagel explains how companies often latch onto rigid assumptions in their long-range plan, failing to alter strategy when the market shifts. Eastman Kodak (KODK) and Microsoft (MSFT) offer two examples: Both once dominated markets, but failed to adapt to change.
Hagel explains how Kodak’s executives believed that photography’s future always hinged on film (oddly, the company was among the first to seriously explore digital photography, in the 1970s, yet missed the opportunity to invest in this new direction). Microsoft accomplished its initial goal of becoming the leader in desktop computing, then became mired in its own plan as the likes of Apple (AAPL) and Google (GOOG) outmaneuvered Bill Gates and company in the personal technology space.
Kodak and Microsoft zoomed in to create initial success, but neglected to zoom out to challenge assumptions.
Hagel emphasizes achieving critical mass in a market before any potential competitors. Think about how you might create a winning strategy that other businesses in your area or field can’t replicate easily: a clear market niche, a unique solution to your optimal consumer’s biggest challenge or a recruiting program that makes your business the employer of choice.
Over-diversification of operations, especially into incompatible or competing activities (think of a manufacturer that makes bird feeders, lawn mowers and silicone implants), tends to strain resources and retard growth in each separate line of the business. If you need too long to explain your whole enterprise, it’s likely to be poorly structured.
The best-performing companies define the optimal customer and that customer’s needs and expectations, and methodically build products and services to respond to that need. Leaders must challenge assumptions about the business, considering regulation, demographics, new methods of competition, the investment environment and emerging client needs. Hagel advises business leaders to discuss long-view issues in every management meeting and dive into specific objectives every six months.
Hagel cautions against two common failures: ignoring the big picture and focusing solely on the incremental and adopting a rigid long-term strategy. While businesses do tend to look at financial metrics, these lagging indicators may not help you understand trends that might affect you long term. Hagel favors metrics to serve as leading indicators, such as customer satisfaction, levels of repeat business, demonstrations of loyalty through referrals and major sources of business opportunities.
Discuss trends revealed through the leading indicators, and then decide the direction of your business and what you must do to get on the right path of growth.
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Scott Thompson is the co-founder of Bridge Business Consultants (BBC). BBC is a consulting firm that specializes in helping business owners and certified public accounting firms recognize tax incentives and realize expense recovery. BBC also specializes in business exit planning and has been recognized by The Wall Street Journal for their Business Exit Solutions. Scott is a certified specialist in Retirement Planning. Laura Thompson (co-founder) is a CPA and certified specialist in Estate Planning.
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