Telling It Like It Is

THE ENTERPRISE—WHERE HAVE ALL THE HEROES GONE?

THE ENTERPRISE—WHERE HAVE ALL THE HEROES GONE?

I once worked with a behavioral sociologist who would often ask,”Who screwed up that we needed a hero?”  This question made us all think hard.  Our conclusion was “maybe nobody ’screwed up,'—maybe someone just did something above and beyond—something really heroic.”  The three pieces below frame the subject of “heroes” in three different ways. (I didn’t cover “first responders" like police, EMT, firefighters, etc.whose jobs put them in heroic crisis situations.)

Today, far too often, we have replaced admirable heroes with celebrities. Role modeling is hard. Real heroes are role models—in that moment at least. “Sully," the pilot who safely landed a jet plane on a NYC river, was, in my book, a hero. The tragedy of 911 created many heroes, too many of them are no longer with us. Everyday people are heroes; maybe by saving a child or a dog from an oncoming car, or rescuing a person from a flaming auto crash or a frozen lake. 

Heroes exist in all walks of life, at all ages, and in all genders, races, and ethnic backgrounds. Take a minute right now and think of 2-3 real heroes you’ve known, seen or emulated.  Deciding who are real heroes these days is very difficult. Media's always-on coverage exposes many people to be neither as heroic or admirable as we might have thought. Fame is fleeting; so is misplaced heroism.

Who do you truly admire and tried to emulate during your life? If you can name a few (other than your parents or Jesus Christ) you are truly  fortunate. Think about people who inspire you to be a better person.

We need more genuine heroes these days. Our next generations desperately need people worthy of admiration and being role models. Being able to win, to run fast, throw or hit or catch a ball accurately, sing a song or play an instrument, or portray real heroes from history in dramas. That doesn’t make those athletes, musicians, actors or entertainers no matter how highly they might are regarded in their professions.  Ditto elected officials, business leaders, and other notables.

There is a depth to people who are true heroes—and it is no about being famous. It is more about being worthy of respect, admiration and an inspiration to others for what they do and why or how they do it.  So now tell me: Where have all the heroes gone? Who are yours?

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Where have all the heroes gone?  Perhaps business leaders can help fill the void.

©John Mariotti 1998

When I was growing up, the folk-singing group Peter, Paul and Mary had a hit song: "Where have all the flowers gone?" The melody is coursing through my head as I begin this column. Another thing I remember about growing up was that, back then, we had heroes. They were real people, but somehow larger-than-life figures whom we could admire and emulate.

Maybe it was the influence of being a post-war child that made it possible to believe in heroes–-at least some of them—like Sir Winston Churchill. You may remember his stirring admonition--"Never, never, never, never, never give up."

I remember heroes in sports. There were legendary figures like Joe DiMaggio, Jackie Robinson, Mickey Mantle, and Green Bay Packers Coach Vince Lombardi. We looked up to Presidents like Franklin Roosevelt, General Dwight Eisenhower, and John Fitzgerald Kennedy. 

Even business and congressional leaders commanded respect in days past--people like Thomas Watson of IBM, Alfred Sloan of General Motors, and Sen. Everett Dirksen.

Music and the movies created stars--not as role models for their own personal lives, but for those they portrayed.  What man hasn't at times admired "The Duke"--John Wayne--or at least the characters he brought to life on screen?

Today's young business people--the so-called "Generation X"--grew up in an era when their heroes inevitably were proven to be not only human, but fallibly so. With the assassinations of John Kennedy and Martin Luther King, our heroes began to die--although more often at the hands of the media than from an assassin's bullet.

Sports heroes fell victim to the excesses of their youth and riches. Meanwhile, business and government leaders lost their luster as inspiring figures. Often they were painted as the "Ugly American," "The Man in the Grey Flannel Suit," or "Barbarians at the Gate."

In the wake of all this disillusionment maybe--just maybe--things are about to turn around again. Perhaps a revival of the age of heroes can be built on the legacy of such people as the late Sam Walton, who was a hero to those who worked for him; or Michael Eisner, whose main asset is a big-eared mouse named Mickey; or even a wunderkind billionaire named Bill Gates.

Walton believed in his Wal*Mart "associates" and he treated them well. He also believed in giving Americans the best value for their money, and treating them like friends. While Michael Eisner is not as revered as Sam Walton was, he is respected by many for what he has done with the Disney legacy. With only a few exceptions (in the movies) Disney has done it with largely wholesome products.

Young people are incredibly computer literate today--and getting more so. They know Bill Gates, who recently was named by IW readers as America's most-respected CEO. Gates is young enough to be a real role model for the next generation. So far he has only been "exposed" as being brilliant, tough, visionary, and hugely successful.

I know who my heroes were. They are all gone now, but I really got to know three of the four--my mom and dad and "Mr. Sam" (Walton). The fourth was Coach Vince Lombardi. I could do worse than to measure up to them.

My dad was a talented professional musician who died when I was eighteen. My mom was my real mentor--a successful businesswoman in an era when that was very uncommon.

Lombardi was well known for his work ethic, his insistence on flawless execution, and his relentless pursuit of excellence (and winning). So was Sam Walton. I admired these traits. And I can think of literally hundreds of instances in my business career where hard work, superb execution, and high standards led to success.

What is it about heroes or maybe I should call them role models that make them worthy of respect? 

First and foremost, these role models have integrity, character, and principles. They invariably have a fire within them based on deep-seated beliefs and values. There is an almost-visible "aura" about them that makes people want to believe in them and follow their lead. And, finally, they have energy and enthusiasm for what they do and believe in.

We all need role models, a mentor, and some heroes. They don't have to be famous people--just someone we can aspire to emulate. It provides a foundation upon which to build the success of our country, our businesses, our careers, and our lives.

Who are your heroes? 

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Corporate Executives--Villains or Heroes—Can you really tell how compensation much anyone in "worth"

© John L. Mariotti 2002

Headlines lately have been vilifying corporate CEOs for their downsizing actions and large compensation gains. Is this right or wrong? I have been considering this dilemma and decided to share my thoughts here. Business leaders are not (categorically) villains. They are not ogres or mindless, heartless, evil people. They are usually hard working, God-fearing people trying to do the right thing. Only a small minority of business leaders deserves such criticism.

Businesses exist for the purpose of creating and delivering value, for which customers and consumers will pay money. This money goes to pay the employees and suppliers (and their employees) of those businesses and create wealth for those who have invested their money (at a risk) in the businesses. In free enterprise systems such as ours, the private sector--companies--are the only real source of wealth creation and employment. 

The government can create jobs. They certainly have proven that as employment in the public sector--U.S. government now exceeds the private sector.   Those jobs and the paychecks of those employees can only be paid from the revenue created by taxes. These revenues come from taxes on profits of companies and earnings of employees.

Raj Aggarwal, the Mellen Chair professor of Finance at John Carroll University reminds me that a business, which cannot earn a return on invested capital that exceeds their cost of capital, will eventually cease to exist. Some of the cuts in employment are made to reduce costs and generate a sufficient return to stay in business.  If competitors, particularly foreign competitors whose countries enjoy a much lower pay level and standard of living (such as China) choose to compete with U.S. companies, the jobs held by employees of those companies come under attack in a different way.  The result is the same.  Compete or cease to exist.

I am not a fan of downsizing. It hurts, often more than it helps. I just helped a corporate client go through it. They had to do it or go out of business.  In the U.S. alone, millions of lives have been disrupted, and whole communities damaged. The way it is done often seems heartless and even cruel. But is it so terribly wrong--or just painfully necessary? In nature, trees and shrubs require pruning. Dead wood must be cut out. 

The words from Star Trek ring very true. In these shows, Captain Kirk and First Officer Spock remind us "...the needs of the many outweigh the needs of the few or the one..." Many of the corporate layoffs are done to save the jobs of the many people by the layoff of "few." (While ATT's well-publicized 40,000-employee cutback was devastating, those cuts represented only a small percentage of their total employment.)

Productivity gains, which are critical to improving our standard of living, have another side to them. When population grows at 1-2% and industrial productivity grows at over 2% the total increase in output is 3-4%. If our economy is only growing at a 2.5%, then1% must be added to the rolls of unemployment (or underemployment--working for less pay). This is why the growth side of the equation needs attention. Controlling inflation by restrictive monetary policy (instead of fiscal responsibility--spending less than income) limits growth and adds to the dilemma. High taxes (especially on capital gains) consume investment capital that could be used for growth and channel it to one of our least productive sectors--government.

Corporate management usually does their best to make such painful cuts in the most humane manner possible. They will also continue unless or until we can grow our way into using our improved productivity.  Stephen Covey's research confirmed that as a country, we have created a generation or two of managers and executives who sometimes are misguided. They fail to create new value and growth, and thus must reduce costs (and people which are usually one of the highest "cost" items in the budgets of companies). This is wrong and can lead to what is called corporate anorexia.

What is the manager, executive and professional to do? First, understand that the market is the relentless predator of the weak. If corporate management doesn't do the necessary pruning, either the plant will die, or it will happen due to competitive pressures "clearing the dead wood." William Safire says it this way in his New York Times column; "You can't make a prosperity omelet without breaking some eggs." When this happens, many more who are undeserving will likely suffer.  Second, productivity gains must be made or the jobs will just as certainly be lost in even larger numbers. 

 Competitiveness is driven by constantly improving productivity.  Third, <i>don't let yourself or your department/function/team become technically obsolete--continue learning to be competitive.

Victims often choose to be just that. Be proactive about continuous learning.  Most companies encourage it and pay for it.

What about the conflict between the rights of shareholders to profits and the rights of employees, customers, suppliers, and communities. I contend they are not in conflict in the long run--just in the short run. Corporate executives are paid to look out for  all of their several constituencies:  Shareholders, Employees, Customers, Suppliers, and Communities. If they do not look out for the shareholders interests adequately, they are fired and replaced. If they do this well, they are rewarded, sometimes handsomely (or even excessively). But what about these exorbitant compensation packages received by CEOs.   Most of the "really big ones" are due to performance bonuses or appreciated stock options. This means they did what the shareholders wanted, and helped cause the stock value to rise. 

Why shouldn't they share in the rewards?  Think about some of our society. Mike Tyson gets millions of dollars for a few minutes in the ring.  Madonna and Rush Limbaugh make more in a year than a hundred working people make in their lifetime.  Stallone or Schwarzenegger make millions for mediocre, violent movies.  Twenty-two year olds receive multi-million dollar contracts in many professional sports.  Who complains about these as injustices.  How many jobs do they help secure?  Should we indict them if their teams lose, movies fail or attendance falls?  Or are they just being paid "competitively?'  The same could be said of CEO pay levels!

The solution to this dilemma is not simple.  What most of us can do is simpler--provide superior customer value and do it in partnership with suppliers, employees and intermediate customers.  This is the foundation on which to provide excellent rewards to shareholders and communities.  This is what the majority of these corporate executives are trying to do--not to be "villains, killers or hit men."  

They may not all be heroes.  A minority are selfish, and misguided, but don't let the few reflect on the many who are trying to do the right thing.  Do your share to help by understanding the competitive pressures of the marketplace, improving productivity, and staying personally competitive through continuous learning.   That is the best "job security policy" there is.   These companies and their leaders (with the exception of the misguided minority mentioned earlier) are the only source of jobs and wealth.  Let's start looking at the good they do instead of the harm.  We might be surprised.

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UNSUNG HEROES

©John Mariotti 1999

Every successful company has these “unsung heroes” – and no company can survive without them.They are seldom recognized, appreciated or properly compensated. They are not listed among the assets, or even itemized in the “goodwill” on the balance sheet. One hardly even notices that they are there, but without them the wheels of business slowly grind to a stop. Who are they?  They are the unsung heroes who make a business hum. 

• They are dedicated line employees who come to work every day, do boring and repetitive jobs over and over, and take pride in the quality and quantity of work they produce. 
• They are group leaders who risk ridicule and resentment from their peers and take the heat for decisions in which they had no input. 
• They are supervisors whose cars are the first in the parking lot and the last to leave, because they feel the responsibility for the company’s and the employees’ well being. 
• They are the maintenance people who work weekends and holidays so the plant can function at the optimum level during normal running hours.  
• They are the line engineers who labor long and hard to design and build increasingly efficient and profitable equipment. 
• They are customer service representatives who handle each customer’s concerns courteously and effectively, even though no one seems to notice or care. 
• They are truck drivers who leave their families on Sundays, drive on increasingly crowded highways to get product to ever-more-demanding customers, and try, by their example to sell the customer on the fact that theirs is the best company in the industry. 
• They are the accountants, clerks, middle managers, janitors, buyers, computer technicians, and ordinary people who do their level best to do a good job every day in spite of the fact that they are seldom asked for their input or given credit for their dedication and intelligence. 

God bless them all!

Without these unsung heroes, America’s unprecedented run of prosperity in the last couple of decades would not have been possible.  People who are visible and in the spotlight in their companies should make an effort to seek out these folks and, once in a while, give them a sincere face-to-face “Thank You.”  It costs nothing and means so much to the individual who contributes every day.  In our experience, executives who do this are seen as heroes themselves, because it is so rare for someone in the “visible” organization to recognize the people who make them successful. 

If you are one of the unsung heroes, give yourself a pat on the back, and accept a sincere “thank you” from one fellow American to another for your contribution.  You have made and are making this a better world.  If you are a “visible” person in your company, remember the efforts of all the people behind you who are making you and the entire economy look good.

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NOW TAKE SOME TIME TO THINK ABOUT WHO YOU THINK DESERVES THE NAME “HEROES!”

JOHN

THE ENTERPRISE--ON THE IMPORTANCE OF CONFIDENCE & EXPERIENCE--KNOWING WHAT YOU KNOW & HAVING BEEN THERE BEFORE

THE ENTERPRISE--ON THE IMPORTANCE OF CONFIDENCE & EXPERIENCE--KNOWING WHAT YOU KNOW & HAVING BEEN THERE BEFORE

 

I’m a big fan of Ralph Waldo Emerson’s brilliant essay “On Self Reliance.”  You must find it and read it several times to get the full impact of what Emerson was saying. I’ll let you do that, but for those who want to be led to the conclusions, read on. Believing in yourself is an important realization that can grow with time and experience—as long as you first become convinced that you have “the right stuff” to begin with. There’s no faking it. Once you "get it,” you’ll see that.

 

I also hope most of you are familiar with the story of the Wizard of Oz. With all the media hype about heroic management, who somehow become less heroic when they must deal with adversity, I am reminded about the Wizard, and the illusion he had created, and the lessons learned by the characters in The Wizard of Oz. The moral of this timeless classic story is worth recalling whenever you (or others) go searching for those critical attributes of character and leadership you fear you might be lacking. Fear not—just look inward—you will be surprised what you’ll discover.

 

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On Self Reliance and The Wizard Of Oz—Often what we need is already inside us.

© John L. Mariotti 1996, 2001

One of the recurring themes of conversations with consulting clients and the people in those organizations who I am coaching or mentoring led to the title of this column.  Ralph Waldo Emerson is considered by many to be the first great philosophic mind created by the American Republic.  From his birth in Boston, one of the centers of the new republic, he seemed to strike chords in the hearts and minds of Americans with his writing.  One could almost say his ideas were at the root of the principles upon which this great nation was founded.

On the other hand, L. Frank Baum's story "The Wizard of Oz" (actually a series of stories) written in 1900 and made into a movie in 1939, has captivated the hearts and minds of children and adults for almost 60 years. The message of this heart-warming tale is not so different from Emerson's.  It is a message that every manager, professional, indeed, every person should take to heart.

Frequently, in the world of business we are like the characters in the Wizard of Oz, searching for the Emerald City and the magical, mystical Wizard who will solve all of our problems and bestow upon us all of the characteristics we fear we are missing.  The tin woodsman needed a heart; the scarecrow needed a brain, and the cowardly lion needed courage.  No doubt you can think of many companies with people who could use all three of these characteristics.  The truth, revealed in the end of the movie (I hope I'm not spoiling it for those who haven't seen it)--is that the journey to find the Wizard and the Emerald City showed each of the characters that what they were seeking was already inside each of them, and simply needed to be recognized, acknowledged and used.  Thus it is with all of us.

I could quote much of Emerson's wisdom from Self Reliance, but I have chosen just these four.  I think they will give you the essence of his timeless message:

"To believe your own thought, to believe that what is true for you in your private heart is true for all men, -- that is genius."

How often have you been guilty of saying (often only to yourself and closest confidants), "I knew that was what should be done," but I lacked the courage to stand up and say so publicly."

"What I must do is all that concerns me, not what people think.  This rule, equally arduous in actual and in intellectual life, may serve for the whole distinction between greatness and meanness."

"We pass for what we are.  Character teaches above our wills.  Men imagine that they communicate their virtue or vice only by overt actions, and do not see that virtue or vice emit a breath every moment."

A simple phrase I first heard from Stephen Covey and oft-repeated comes to mind here.  "Your actions speak so loudly, I cannot hear what your words are saying."  What I am saying, as "loudly" as the written word can convey, is this:  People will judge you by what you do and believe, not by what you say.  The truth will be conveyed by your actions.  Great leaders have an innate sense of this;  they have an aura about them that others perceive, even though they often cannot identify it in words.  Whether it is the brains, the heart, or the courage, you have it inside you, if you will only bring it out to be fully developed, appreciated, and used

"Nothing can bring you peace but yourself.  Nothing can bring you peace but the triumph of principles."

My first column this year was on "The Death of Ethics” and brought an encouraging response from readers.  Just as Dorothy in the Wizard of Oz only wanted to go home to Kansas, many of you only want to find a place where principles still rule over convenient, dishonest or unethical behavior. 

There are always a few people who will take the easy route, and blame their intransigence on others—or on circumstances.  Most people want to manage the right way, lead the right way and live by Emerson's "Self-Reliance."  You have the brains, the heart, and the courage inside you to make a difference in your place of work and in the world.  Go do it.  Life is too short to search for your own Wizard of Oz.

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“I’ve been there before, & I know the way out”

© John Mariotti 2001, 2021

I heard a story the other night on the popular TV show “The West Wing”, and it struck me as a good theme for a column.  The story goes like this: 

“A man was walking along the street and as he passed a construction zone, he fell in a deep hole, and he could not figure out how to get out.  He yelled for help and the first passerby was a doctor, who asked if he was injured.  After he answered that nothing was broken but he hurt all over, he saw a prescription come floating down into the hole and the doctor was gone. The next passerby was a minister.  After the minister asked if the man was alright, a prayer on a piece of paper came floating down into the hole.  The third passerby was a friend—and the man in the hole was jubilant—until the friend jumped into the hole with him.  The man asked his friend, ‘Why did you do that?  Now we’re both in the hole."  The friend answered ‘yes, but I’ve been down here before and I know the way out!”

Here we are facing the first big slowdown in the longest economic recovery ever, and the tone in many people’s voices is one of panic.  Like the man in the hole, they have never been down here before. I have!  And I know the way out!  And the next few columns will be all about “the way out” and what to do while we are “down here”.

First let’s consider what happened.  The Fed was concerned about the economy and the stock market getting overheated, and triggering a round of serious inflation, so the Fed tightened monetary policy and raised interest rates—not once, but several times.  This increased everyone’s cost of money, and cut into earnings.

Next, the administration and leading experts were not paying close attention to oil prices, and they shot up. Fuel costs more.  Petroleum byproducts cost more.  That made transportation and chemicals both cost a lot more.  Another hit to profitability.

There is latent over-capacity on a global basis for nearly all products—especially big-ticket ones like autos—thus prices of autos could not be increased to cover higher costs.  The consolidation of retailing made the big retailers very good at resisting price increases, so consumer prices couldn’t be increased either.  Mergers have made “mega-buyers” the rulers in most industries—and you guessed it—prices couldn’t be increased much of anywhere.  Another hit to profits.

Then there is the strong dollar, which hurt the profits of multi-national companies, and they lost money on exchange rates/currency translations.  The baby boomers are retiring, and the ‘baby bust”—a population shortage in the key employment ages of 25-44—is here and will remain for the next 7-8 years.  This made employees scarce and more expensive, thus another hit to profits.

Add all of these profit hits, include the collapse of several industrial behemoths—AT&T, Lucent, Xerox, Kodak, etc.—and you get a stock market that finds earnings missing estimates regularly.  Now top that off with the fall back to earth of the dot-coms and the irrational valuation of technology stocks, and consumers’ newfound wealth has evaporated.  So, consumers stop spending—which ripples through the economy another time.

So here we are, in the hole.  What do we do to get out? The answer is not simple, but many of the key elements of it are.  I’ll list the ten key elements of what to do here, and then follow up for the next few weeks with more details about how to do those things.

1. Don’t panic, you’ll only make it worse.Make your plans before “doing stuff”!  Flailing around wastes time, money & energy, and demoralizes the organization.
2. Don’t hack and slash blindly trying to prop up the next quarter, because this won’t get fixed in a quarter or two.  Look at taking your lumps now, and making things better next year.
3. Do study where you have added fat in the good times, and get rid of it.  Consolidate jobs, functions, eliminate the “nice but not necessary” things, and use the power of technology to streamline processes—don’t just cut people and expect fewer folks to do all the same work.
4. Do understand where you make your profit and where you don’t—and then get rid of the losers—that goes for products AND customers.  Consider the long-term competitive implications of these moves too. What you sell, to whom, and how is a critical decision.
5. Do know your costs—which are fixed and which are variable—then reduce the fixed costs to get your breakeven down where you can make money even in a down market.
6. Do watch your cash flow and your asset utilization.  Lack of profits will eventually kill you, but running out of cash kills you right away! (Ask any dot-com.)
7. Evaluate people with the thought that fewer, better quality are better than more, lesser quality. Cut fat, not muscle.  And don’t just use more early retirement programs.  Remember that the older workers are more expensive for good reasons—they know more, have more experience, and are usually more versatile.
8. Get closer than ever to your customers (and to your suppliers and employees, too!), because they are essential to getting out of the hole.  Get inside the mind of your customer, and serve them superbly.
9. Do plan to attack the competition and take share from them while they are in denial, saying “woe is me, the market is down and that’s why my sales are down.”  It’s a great time to gain share without giving up profit margin to do it.
10. Finally, above all remember the old saying, “united we stand, divided we fall”.  Pull together and eliminate any internal competition.  Focus on the outside competition and beating them—by serving the customers needs and wants better than ever.

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See, that hole wasn’t so deep after all.  It always looks deeper when you are down in it than when you are out of it looking down there. Having been there before and knowing the way out makes all the difference.

NOW, GO OUT THERE AND ACT LIKE YOU “GET THAT."

JOHN

 

THE ENTERPRISE--FAILING TO PLAN IS PLANNING TO FAIL, (COMMUNICATING THE PLAN IS AS CRITICAL AS HAVING ONE)

THE ENTERPRISE--FAILING TO PLAN IS PLANNING TO FAIL, (COMMUNICATING THE PLAN IS AS CRITICAL AS HAVING ONE)

START AT THE BEGINNING—WITH A PLAN—AND DON’T FORGET WORKING CAPITAL NEEDS

This sounds so obvious, you might wonder why I’m just raising this issue now. I’m raising this issue because many people, many organizations, and far too many companies “start in the middle.” Someone has a good idea, translates it into a product or service, and discovers that idea “will sell.” Off they go, to sell it to whoever seems inclined to buy it. 

This idea grows and expands into related similar ideas. Before they know it, they have built a company around a single idea and all of its off-shoots. Inevitably, things get complicated, and finally, (you hope) someone decides to figure out what it was that made that product or idea attractive to which kind of customers. During this time, no one actually sat down and prepared a plan for the company: What is its purpose, and how can it be "most successful" (remember, it was “successful" to start with, but usually no one thought hard enough to figure out why!

This is the point where lacking a plan can become a very big problem. Theodore Levitt, in his great book The Marketing Imagination  wrote, “The purpose of a business is to create and keep a customer…”  Many companies did that but stopped reading the rest of what he said. To paraphrase in the interest of brevity, Levitt pointed out the necessity of financial viability—selling the product for more than it cost to acquiire or produce and deliver it—and doing that over and over. At that point financing rears its ugly head. 

The bigger a company gets, the more it needs working capital to bridge the time gap from ideation and creation, through procurement/production, marketing/sales and then delivery—until the time comes to get paid (collect from those who bought). Until then, all the money goes out and none comes in! That time can span months. Unless the company has made a plan to determine how much financing it will need to bridge that gap, it will predictably underestimate its working capital needs.

If or when a plan is made, then communicating it to the people who must execute it is essential. (How can anyone execute a plan if they have no idea what it contains, consists of or contemplates?) By now, I think you get it. Pasted below is a very simple article that was first written 20+ years ago, then evolved for decades (note ©dates).  On the subject of financing and working capital needs, the next column explains the “ins & outs” of capital...

Failing to plan is planning to fail.

Sharing the plan is as critical as having it.

©john Mariotti 1998, 2002, 2007 

Most people agree that a company should have a strategic plan.  After all, as Satchel Paige the famous baseball pitcher said, "If you don't know where you're going, any road will take you there."  Yet, amazingly, many large, sophisticated companies have complex, incomprehensible plans that fill binders and are never shared with the people who are responsible for implementing those plans.  (After all, this stuff is "sensitive, and confidential information.”)

The key to a good strategic plan is not bulk--it is clarity and focus.  The best plans are short, concise, and written in simple language.  Some plans are not "plans" at all; they are compilations of industry or competitive background information.  Sure, it is necessary to understand the history, market analyses, demographics, etc.  But having all of that does not assure either a good, clear, concise, or a well-communicated plan.  In fact, just the opposite often occurs.  The real essence of the plan is buried in reams of data, often self-serving in nature, usually far too internally focused, and frequently tucked away on a shelf of a locked cabinet (remember--it is "confidential stuff”).  There it resides, untouched, from the time one plan is done until another must be started.

Business changes too fast these days for that archaic approach.  If the plan can't be shared with those who must execute it, how do they know what to do?  If the plan document is so thick, detailed and complex that only the most tenacious reader can wade thorough it, what good is it?  Only a short, well-focused, and clearly understood plan, which is revised regularly, can keep up with the constantly shifting business environment.  The "shape" of the business situation is constantly shifting like a ship in a stormy sea. The plan is the chart that tells us whether we are on the course we have chosen.

Nobody has enough time these days.  Broad, effective communications of a strategic plan that fills an inch thick binder (or larger) is impossible.  It can't be done.  But a really focused strategic plan can be communicated clearly on about 5-6 pages, and understood by everyone from hourly workers to the board of directors.

The plan must contain:

1. What business are you in? How big is the market, how fast is it growing, and where; what is the scope of the part you hope to carve out for yourselves?
2. What is the competitive situation? In those target markets, who owns how much of them now, and what do they do that permits them to hold that share--and where are they most vulnerable (or strongest)?
3. What is your strategy?  List 5-6 one or two line, specific strategy statements that tell what you plan to do--and what you plan to get done.
4. How are you going to do that? For each of the 5-6 strategic points above, list 1-2 terse one liners about how you are going to do that, by when.
5. What are the critical assumptions? Invariably you made assumptions that underlie this plan, and which, if wrong, blow the whole plan to pieces.  What are they?
6. What are the critical unresolved issues? Certain events, some beyond your control, can make this plan sink or swim, and can only be identified now--list them!
7. What are the next five years high level financial projections? Only 5-6 lines: Sales, Operating Profit, ($ and %), Return on assets, capital required, and cash flow are the essential ones.  1-2 others may be uniquely needed for each business.

If written concisely, this will all fit on 5-6 pages.  If the language is not understandable by a tenth grader, it is too jargon filled or stilted.  Making a brief, concise plan like this will take the senior management of a company as long to do as the binder sized one. That's because this one requires real thought, clear focus and careful wording. 

Little of the actual development of the plan can be "delegated," but it must be a product of extensive listening to input from all levels of the company.  Then the final outcome must be shared with all levels, in varying detail according to their responsibilities.  Without these two steps, there will be insufficient "buy-in" by large groups of people in the company.  No buy-in, no success.  It's that simple.

As the old saying goes, "failing to plan may be planning to fail."

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Watch the “goesintos” and the “goesoutas”.

© John Mariotti 1990, 2005

One of my former associates was a financial executive and his favorite phrases was the title of this column. Watch the “goesintos” and the “goesoutas”.  The “goesintos” are where money “goes into” the company—revenue and profits—from customers mostly.  The “goesoutas” are the many places where money “goes out of” the company—expense items, payroll, materials purchases, interest costs, etc.

During tough times, it is critically important to monitor the flow of money in and out of the company.  When lenders get tight and interest rates go up, just getting the necessary funding is hard enough, but using it poorly is doubly wasteful.  There is the waste of squandering valuable financing on things with poor returns, and the lost opportunity of good returning uses going unfunded.

At times like this, it is essential to understand where you make your profit and where you don’t—and then get rid of the losers—that goes for products AND customers. What you sell, to whom, and how is a critical decision.   You know that there are those low profit items that consume a lot of time and money, and go to a customer that is slow to pay, but fast to take a deduction for the slightest slip-up—real or imagined. 

Now is the time to streamline the product line.  Trim the marginal items and the loss leaders.  Sort the sales by product; list in descending order of annual volume and trim the bottom 1/3 of it.  Do the same thing with the gross margin by product.  Of course you must consider the long-term competitive implications of these moves too, but many of those products “we need to fill out the line” are losers.

Sort your customer-sales and margin lists in descending order of annual volume too.  Then find some other way to serve the bottom 1/4 of the customers without necessarily handing all that volume to a competitor.  Maybe you divert them to a “master distributor” or service them via the Internet.  For the few with the absolute worst profitability, the best thing you might do is to pass them on to the competitor.

In tough times, more than ever, you must know your costs and where they come from.  Old-fashioned direct-labor based cost systems will lead you down the wrong decision path more often than not.  It is also critical to know your breakeven point—the level of volume at a given customer and profit mix where you do not lost money at the bottom line. 

It is also critical to know which expenses are “fixed” and which are “variable”.  Fixed costs are usually incurred because of some management decision at a higher level or in a longer time frame.  Thus, the top management must review these fixed costs carefully and reverse or undo some of those decisions.  Only if you reduce the fixed costs can you get your breakeven down where you will make money even in a down market.

Finally, watching the “goesintos” and the “goesoutas” is really about watching your cash flow.  In many cases this is also about watching asset utilization—are you collecting Accounts Receivable effectively; is there bad debt exposure (downturns usually worsen this problem); is your inventory in line, or is it loaded with “slow movers?” 

Lack of profits will eventually kill you, but running out of cash kills you right away! (Ask any dot-com.)  That is why you MUST make cash flow projections for the next few quarters and monitor cash flow very carefully.  Cash is like oxygen, without it you die.  Profit is like food and water—necessary, but useless if there is no cash!

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IF YOU GOT ALL OF THIS, YOU WILL BE AHEAD OF MOST COMPETITORS… “FOLLOW THE MONEY” AND PLAN WHERE IT NEEDS TO BE MOVING…

JOHN 

 

PS: A colleague recently pointed out the competitive back and forth over technology capability, between China & the USA. China is gaining fast on the USA. Why? China has a plan. The USA, not so much/\. It just has a bunch of political proclamations with nothing much behind them. The same could be said if comparing thte USA to Russia (include Ukraine) or even the USA to the middle East (Iran & Syria are the biggies.) We both suspect that the US is so fractured, divided and polarized that any plan it has is now broken apart. I spoke with him about Technology, but we could as easily have been discussing Energy policy/plan—or several others. No plan yields no success. The plan alone is not the secret sauce. It’s the thought that went into the plan—the planning process. Now re-read the first article. Failing to plan is indeed, planning to fail.