Posts made in October 2014

Strategic Planning creates platform for business success

The Kansas City Star

Business Columns & Blogs

Gary Miller, GEM Strategy Management, Inc.

 

By GARY MILLER – Special to The Star

10/27/2014 11:20 PM

Recently, I was visiting with a client who told me he believed that his strategic plan was only 30 percent effective. He said, “I know our strategic plan is not producing the profits we had hoped for, but I don’t know if the problem is the plan or my people.”

Most CEOs know profitable growth is the key driver to creating shareholder value, and developing effective business strategies is the key to profitable growth. Successful strategic planning is not a mysterious process available to an exclusive group of top-performing companies. It is a result of executive commitment, hard work and a well-defined approach.

Despite good intentions and major resource commitments, few organizations have strategic planning processes that lead to high-impact business strategies. At many companies, a focus on short-term results, detailed financial forecasts and formal presentations skews the process, crowding out attention to key strategic issues. Even in cases when the right issues are identified, owners and management teams often lack the time, resources or objectivity required to challenge the status quo.

A successful strategic planning process includes four critical steps:

▪ Build the foundation. Senior management commitment and adequate planning resources are hallmarks of all top organizations. I cannot emphasize enough that these are essential pre-requisites for an effective strategic planning process. Owners and senior staffs of top performing companies build a successful, high-performance culture that drives their decisions by executing these initiatives:

Maximizing shareholder value is the governing objective and permeates all levels of the organization including front-line employees. Key performance indicators are defined and measured across the entire business. Superior performance is generously rewarded at all levels. Poor performance is not tolerated at any level. Market intelligence is demanded to close gaps in management’s understanding of the business environment. Management development programs are provided to teach employees to think like owners. And communication up and down the organization is consistent and continuous.

▪ Implement strategic planning processes. The best companies have more than one model in their strategic arsenal and use the best one to suit the occasion. For example, the outcome of a “strategic performance review” (evaluating whether a business unit is “on strategy”) and an “environmental scan” (evaluating whether major threats or unanticipated opportunities exist) would determine whether a comprehensive strategy work-up is required or whether a less comprehensive approach is adequate.

▪ Develop strategy support systems. The best support systems increase both the efficiency and the quality of strategic planning. They help key insights to be broadcast and understood internally and ensure that current situations are addressed. Owners and senior executives are in a unique position to increase the value of cross-business synergies and align business functions with corporate objectives, while enhancing the business skills and tools to improve operational planning.

Leading companies use many analytic tools and frameworks to achieve optimal results. Tools used to identify key strategic issues include external customer research, competitive bench marking, technology evolution mapping, market segmentation, and scenario analysis. An external focus on customer and competitor developments helps an organization identify strategic opportunities as well as threats. SWOTs (Strengths/Weaknesses/Opportunities/ Threats) analysis are effective frameworks for assessing market attractiveness and competitive position.

Leading companies develop a culture promoting the use of information technology in the strategic planning process. Top companies use information technology to “de-layer” interaction between hierarchical levels and cross organizational boundaries.

IT resources provide shared tools to manage the planning process timeline and activities, support decision making and provide online documentation of the strategy and the final plan.

▪ Align organization decision making to the plan. Organizational alignment can be a powerful tool to change behavior and achieve sought-after performance. Most would agree that managers want to “do the right thing,” but misalignment prevents optimal performance by diffusing focus and undermining process credibility.

To achieve alignment of people and management systems when executing a business strategy, companies are investing in thoughtfully designed communication programs to communicate strategic objectives. They also invest in formal programs for tracking actual results against performance commitments, create accountability and share information appropriately throughout the organization.

In summary, strategic planning is hard work and demands commitment, resources and the well-defined disciplined process described above. Decision processes must be tied to the strategic planning process, and incentive programs have to be aligned to the plan. Owners and senior managers play a critical role in the planning process by setting direction, expectations and providing resources that match the Plan goals. Finally, communicating the Plan’s goals and results is key to consistent performance.

Gary Miller is founder and CEO of GEM Strategy Management Inc., an M&A  management consulting firm, serving middle market business owners on M&A planning, exit planning, transaction negotiations, preparing companies to go to market for the highest valuations, and merger integration. He can be reached at gmiller@gemstrategymanagement.com and 970.390.4441.

Transferring your business internally can be harder than you think

  The Denver Post | BUSINESS

Gary Miller

Posted:   10/19/2014 12:01:00 AM MDT

Gary Miller is founder and chief executive of GEM Strategy Management, Inc.

After growing a commercial electrical contracting company that he bought from his father 38 years earlier, Bob thought he and his wife, Charlene, could transfer the business to their two sons and happily live the remainder of their lives.

But like 70 percent of family businesses trying to transfer on to the next generation, Bob and Charlene’s company did not make it into the hands of their children. Companies being handed to a third generation have even worse odds, with only about 3 percent surviving.

Like Bob and Charlene, most families just assume their business will easily pass from one generation to the next — and continue to thrive — without any planning or forethought.

Unfortunately, this was not going to be the case for Bob and Charlene. Bob had been feeling a little under the weather, and Charlene urged him to go the doctor. The doctor’s report was not good: stage 3 prostate cancer that needed immediate treatment.

Bob had terrible reactions to treatments and was unable to work. Charlene started going to the business to help and both sons tried to pick up the extra workload from their dad, but it was very difficult.

Bob was the only licensed electrical engineer in the company. The sons could not sign off on any of the jobs. They would visit with Bob after hours — when he was feeling up to it — and go over the jobs so he could approve them, but it was becoming more difficult as each week passed.

When the vendors heard Bob was ill, they became concerned and were reluctant to keep extending credit to the business under their normal terms.

The town’s general contractors, who were the company’s largest customers, were also concerned since Bob usually oversaw the crews.

They knew the sons well and felt they were well qualified, but they thought they did not have the same capabilities as their dad.

Bob had never given his sons much responsibility in actually running the company — he thought there was plenty of time for that.

Charlene grew concerned about cash flow and took a second mortgage on the home they had recently built to get some additional working capital to keep the business afloat until Bob recovered.

You may have guessed the rest of this story. Bob passed away within a year. The business closed. Charlene had to sell their home to pay off the mortgages and moved in with family. Their sons went to work for their competitors at a fraction of their previous salaries. Even Bob’s life insurance proceeds were lost since the beneficiary was the company and the money went to satisfy creditors.

This disastrous ending could have been avoided if Bob had properly planned the business transfer. Before it became critical, Bob needed to:

  • Reduce the business dependence on him by empowering and allowing his sons to run the business.
  • Put in place personal and business contingencies, including pushing his sons toward professional licensing, and developing a business line of credit and a durable power of attorney assigned to provide for someone to take care of the day-to-day operations in case of serious illness as Bob experienced.
  • Establish a succession plan and facilitate critical contractor business relationships with his sons.
  • Create a buy/sell agreement satisfactory to all.
  • Hire a seasoned transaction team to develop a comprehensive transition plan, including a law firm for structuring the transition, a tax-advisory firm for minimizing taxes, and a wealth-preservation firm to protect the income and the necessary insurance benefits for Charlene after the sale is complete.

While the implementation of the points above would have made a dramatic difference in the outcome of Bob and Charlene’s company, a complete comprehensive plan could have provided them much more than avoiding this sad outcome.

It could have assured them the business would provide them enough funds to retire in comfort and that their sons would have a business they could one day sell or turn over to their children and fund their own retirement.

Every business situation is different and has its own complexities. Events happen without warning — including divorce, death, loss of a key employee, loss of a major account, loss of a partner, terminal illness — and can dramatically change an assumed outcome.

Bob’s family experienced a catastrophe. Even if you don’t plan on transitioning away from your business for years, having a comprehensive plan in place gives you the peace of mind knowing that your business, your future and your family are secure.

Gary Miller (gmiller@gemstrategymanagement.com)  founder and CEO of GEM Strategy Management Inc., a management consulting firm focusing on strategic business planning, growth capital for expansion, mergers and acquisitions, business transitions, value creation and exit strategies for middle-market company owners. Go to www.gemstrategymanagement.com or call 970.390.4441