WHERE IS YOUR OPERATION GOING NEXT?
WHERE IS YOUR OPERATION GOING NEXT?
We've recently surveyed nearly one hundred randomly selected
small to medium-sized firms across the country. What we learned
about their business planning techniques was startling.
For example, eight out of 10 of those surveyed had no idea
whether or not their operation would grow during the next
year--let alone where they were headed for the next two to three
years. Less than half knew if they were profitable overall. More than
specifically 85% had no idea which areas of the firm were losing money.
Several people we talked to indicated they had created a
business plan, but that it had been compiled strictly for the
investors or the bank. It was not the one they were following in
developing their business. In short, it was an excellent story
about the industry, the marketplace and the firm's "position" in
the market, but that's all.
It had no relation to reality!
Only a few organizations said they had done anything beyond
this cursory type of planning.
Several people we talked with said:
1) "I don't need the written plan because I know where we're going."
2) "We're too busy making sales to bother."
3) "Who needs nonsense like that? We know what needs to be done and the kind of people we need for the task."
4) "We're going to do ours next month."
These people are headed for real trouble because business
today just isn't that casual; it's highly competitive.
Now a sampling of slightly less than 100 officers in
business isn't a true statistical sample. And perhaps the
results shouldn't be too surprising since most small businesses
are young, vital, full of optimism and very lean. Still, prudent business planning
ought to be more evident than our survey suggests because a
corporate business plan is vital to the success of a business.
The Need for Plans
Why all this concern over a corporate plan?
How else can you determine you organization's direction?
How else can you identify your market, predict your growth rate,
anticipate your profit? A corporate plan will provide direction
in choosing the kind of people you'll need, the tasks they'll
have to accomplish and the timing for adding these people.
A sound corporate strategy plan should tell you who,
what, where, when, and why.
Planning Stages
A corporate plan does require thinking and planning, but it
isn't all that difficult to carry out. And, while it is no
insurance against failure, it can point out pitfalls as well as
opportunities that will more than pay for the effort required.
All businesses go through it, one way or another, and it takes
only a few steps to start the process.
Regardless of the type of operation you have, you have to do
more than simply say "we're in business." You have to set up
guidelines for your future. And since it's necessary, why not
make it effective at the same time?
First of all, spell out the mission of your organization.
Whether you're providing a service or a product, you have a
mission. Given some time to think about it, you can probably
crystallize your thinking to define a very specific
organizational image. The act of putting it down on paper will
help reinforce your direction.
This corporate mission will determine the market areas you
are going after and the products or services you're going to
develop or sell. Geography, areas of expertise, and targets of
opportunity will all have a bearing on the organizational mission
you establish.
Next, establish a general corporate philosophy. That could
mean you are going to develop and sell to businesses, and most
specifically to service industries. Or perhaps you're going to
run a price-driven operation with minimum after-sale service. Or
maybe you're going to maintain a strong inventory of quality
product and provide considerable sales assistance and service.
Or you’re going to develop a new web portal that small service firms can
come together on to sell to large, global organizations.
Continue developing your plan by establishing exactly what
goals you want to achieve long-term--3, 5, 10 years from now.
These goals can be in market share, services provided or product
lines carried, primary and secondary market areas, or whatever
specifics you select.
Now you're finally in a position to be definitive. List
your specific objectives such as: "we want to have 35% of the
manufacturing systems in the market in our area," "we want a 25%
increase in business services each year for the next 3 years n
this portion of the state," or "we want our 100 best customers to
increase purchases 35% in the coming year with us.”
All of these objectives can be measured. And the
reason you want to be able to measure them is to ensure that
you're able to track how well you've done during any given
period.
Once you've developed your objectives, you're in a position
to make similar specific recommendations on how to meet those
objectives. To do so, develop a planning schedule, then a task
plan, and finally a plan format. The task plan is where you put
down ideas that will be discussed and the plan format will
include a detailed discussion of each business unit's strategies,
duties and goals.
Next, generate a list of assumptions. These are the
assumptions under which you are going to operate, and a
compilation of strategic issues. One way to develop these issues
is to look at your organization's history, the history of the
market, the history of the industry or trends from other areas.
The information you put down in this selection will help
you forecast trends more easily so you can capitalize on them
when you are riding the curl of the wave rather than the end of
the wave.
Analyzing New Business Projects
No one, not even AT&T’s Mike Armstrong, can or will launch into
a new business area just because it looks like fun, looks
profitable, or looks like something they would like to do.
Smaller organizations must be even more careful. They need
to analyze their new business projects. This means conducting an
analysis of the market and technology as well as the financial
and profitability factors. Only after this has been completed
can you determine if the market even exists, whether it can be
developed, the availability and cost of labor and services, as
well as the overall costs.
We know of organizations that have gone through all of the
the analysis with a very fine pencil, only to find out that the
costs would be too high to produce a reasonable return for the
owners.
During the analysis process, you must first establish the
objectives that are to be achieved. This means determining the
type of product(s) or service(s) the market needs, and how
successfully the product(s)/service(s) can compete.
Next, you have to decide if it is worthwhile to even begin
to examine the feasibility of the project in detail. If you
decide to take the plunge, then you must determine the depth of
the study, its time limit and its cost.
Once the study is completed, the results will give you a
description of the market, an outline of processes and people
needed, the investment and cost of the new operation, its profit
projections, and a synthesis of the major problems/risks you will
be facing.
The analysis stage permits you to examine various options
in marketing, technology and finance. Market analysis involves
searching and analyzing information that can help identify,
isolate, describe and quantify the market.
The technical analysis helps determine whether or not the
project is even feasible, as well as the projected cost. The
financial analysis is the equivalent of preparing a financial
statement for the project. This helps you and your financial
institution determine whether or not the project is commercially
profitable, and how much of an investment will be necessary.
Diversification, Divestment
Since today's business climate is in constant turmoil and changes
dramatically--overnight sometimes--the most dangerous thing you
can have is a one-product, one service, one segment command.
Likewise, it is almost as risky to move too far from your prime
business.
An organization that develops and sells computer systems
for doctors, for example, can use the same expertise to develop
similar systems for dentists, optometrists, even chiropractors.
The needs--while not the same--are similar.
However, just because you have developed a program that
works well for lawyers, it doesn't mean you can sell a slightly
modified program to accountants.
Here is where your corporate strategy plan comes in because
you are able to identify targets of opportunity, strengths and
weaknesses of the competition, market potential and trends.
Once you have that information spelled out, you will be in
a position to determine how much it will cost to get into a new
market, what your return on investment will be, and when it will
occur.
This examination will also allow you to see if the
addition of the new products/markets will help level out sales
cycles, thus producing a more equitable and predictable cash
flow.
If you're going to diversify into new areas, you should be
certain that you are going to gain a significant market share.
To enter a totally new market with the objective of being able to
penetrate only 1-2% of even a moderately sized market may not be
worth the time, money and effort.
There may be a possibility of doing a technology or
expertise transfer into a new market, thus keeping your R&D costs
low. This is fine if there is a strong market potential
available.
If the market has already matured or is reaching its
maturity it becomes extremely difficult to enter as the new kid
on the block. Often the "buy-in" costs are not worth the
investment.
Finally, determine if new team members will be required.
If you are looking to at adding a totally new layer of people
overhead, the cost of market entry may be prohibitive.
At this stage you have all of the facts and figures at hand.
If the project can be financed with retained monies, then you
must sit down and evaluate the information. If you have to go
outside for financing, then you have a professional presentation
ready and are equipped to move more quickly.
Regardless of whether you are trying to determine where you are going
tomorrow with your present company emphasis, or planning to enter
prospective new areas, a strategy plan is necessary.
Such a plan helps ensure that everyone in the organization
is in agreement as to the posture and direction of the company.
Equally important is the fact that your financial backers know
where you are going and have the level of confidence necessary to
support you in the effort.
Putting the information down on paper is far from fun, but
the rewards are well worth the effort.
# # #
WHERE IS YOUR OPERATION GOING NEXT - To learn more about this author, visit Andy Marken's Website.
Like this article? Share it with your friends
Background
We've recently surveyed nearly one hundred randomly selected
small to medium-sized firms across the country. What we learned
about their business planning techniques was startling.
For example, eight out of 10 of those surveyed had no idea
whether or not their operation would grow during the next
year--let alone where they were headed for the next two to three
years. Less than half knew if they were profitable overall. More than
specifically 85% had no idea which areas of the firm were losing money.
Several people we talked to indicated they had created a
business plan, but that it had been compiled strictly for the
investors or the bank. It was not the one they were following in
developing their business. In short, it was an excellent story
about the industry, the marketplace and the firm's "position" in
the market, but that's all.
It had no relation to reality!
Only a few organizations said they had done anything beyond
this cursory type of planning.
Several people we talked with said:
1) "I don't need the written plan because I know where we're going."
2) "We're too busy making sales to bother."
3) "Who needs nonsense like that? We know what needs to be done and the kind of people we need for the task."
4) "We're going to do ours next month."
These people are headed for real trouble because business
today just isn't that casual; it's highly competitive.
Now a sampling of slightly less than 100 officers in
business isn't a true statistical sample. And perhaps the
results shouldn't be too surprising since most small businesses
are young, vital, full of optimism and very lean. Still, prudent business planning
ought to be more evident than our survey suggests because a
corporate business plan is vital to the success of a business.
The Need for Plans
Why all this concern over a corporate plan?
How else can you determine you organization's direction?
How else can you identify your market, predict your growth rate,
anticipate your profit? A corporate plan will provide direction
in choosing the kind of people you'll need, the tasks they'll
have to accomplish and the timing for adding these people.
A sound corporate strategy plan should tell you who,
what, where, when, and why.
Planning Stages
A corporate plan does require thinking and planning, but it
isn't all that difficult to carry out. And, while it is no
insurance against failure, it can point out pitfalls as well as
opportunities that will more than pay for the effort required.
All businesses go through it, one way or another, and it takes
only a few steps to start the process.
Regardless of the type of operation you have, you have to do
more than simply say "we're in business." You have to set up
guidelines for your future. And since it's necessary, why not
make it effective at the same time?
First of all, spell out the mission of your organization.
Whether you're providing a service or a product, you have a
mission. Given some time to think about it, you can probably
crystallize your thinking to define a very specific
organizational image. The act of putting it down on paper will
help reinforce your direction.
This corporate mission will determine the market areas you
are going after and the products or services you're going to
develop or sell. Geography, areas of expertise, and targets of
opportunity will all have a bearing on the organizational mission
you establish.
Next, establish a general corporate philosophy. That could
mean you are going to develop and sell to businesses, and most
specifically to service industries. Or perhaps you're going to
run a price-driven operation with minimum after-sale service. Or
maybe you're going to maintain a strong inventory of quality
product and provide considerable sales assistance and service.
Or you’re going to develop a new web portal that small service firms can
come together on to sell to large, global organizations.
Continue developing your plan by establishing exactly what
goals you want to achieve long-term--3, 5, 10 years from now.
These goals can be in market share, services provided or product
lines carried, primary and secondary market areas, or whatever
specifics you select.
Now you're finally in a position to be definitive. List
your specific objectives such as: "we want to have 35% of the
manufacturing systems in the market in our area," "we want a 25%
increase in business services each year for the next 3 years n
this portion of the state," or "we want our 100 best customers to
increase purchases 35% in the coming year with us.”
All of these objectives can be measured. And the
reason you want to be able to measure them is to ensure that
you're able to track how well you've done during any given
period.
Once you've developed your objectives, you're in a position
to make similar specific recommendations on how to meet those
objectives. To do so, develop a planning schedule, then a task
plan, and finally a plan format. The task plan is where you put
down ideas that will be discussed and the plan format will
include a detailed discussion of each business unit's strategies,
duties and goals.
Next, generate a list of assumptions. These are the
assumptions under which you are going to operate, and a
compilation of strategic issues. One way to develop these issues
is to look at your organization's history, the history of the
market, the history of the industry or trends from other areas.
The information you put down in this selection will help
you forecast trends more easily so you can capitalize on them
when you are riding the curl of the wave rather than the end of
the wave.
Analyzing New Business Projects
No one, not even AT&T’s Mike Armstrong, can or will launch into
a new business area just because it looks like fun, looks
profitable, or looks like something they would like to do.
Smaller organizations must be even more careful. They need
to analyze their new business projects. This means conducting an
analysis of the market and technology as well as the financial
and profitability factors. Only after this has been completed
can you determine if the market even exists, whether it can be
developed, the availability and cost of labor and services, as
well as the overall costs.
We know of organizations that have gone through all of the
the analysis with a very fine pencil, only to find out that the
costs would be too high to produce a reasonable return for the
owners.
During the analysis process, you must first establish the
objectives that are to be achieved. This means determining the
type of product(s) or service(s) the market needs, and how
successfully the product(s)/service(s) can compete.
Next, you have to decide if it is worthwhile to even begin
to examine the feasibility of the project in detail. If you
decide to take the plunge, then you must determine the depth of
the study, its time limit and its cost.
Once the study is completed, the results will give you a
description of the market, an outline of processes and people
needed, the investment and cost of the new operation, its profit
projections, and a synthesis of the major problems/risks you will
be facing.
The analysis stage permits you to examine various options
in marketing, technology and finance. Market analysis involves
searching and analyzing information that can help identify,
isolate, describe and quantify the market.
The technical analysis helps determine whether or not the
project is even feasible, as well as the projected cost. The
financial analysis is the equivalent of preparing a financial
statement for the project. This helps you and your financial
institution determine whether or not the project is commercially
profitable, and how much of an investment will be necessary.
Diversification, Divestment
Since today's business climate is in constant turmoil and changes
dramatically--overnight sometimes--the most dangerous thing you
can have is a one-product, one service, one segment command.
Likewise, it is almost as risky to move too far from your prime
business.
An organization that develops and sells computer systems
for doctors, for example, can use the same expertise to develop
similar systems for dentists, optometrists, even chiropractors.
The needs--while not the same--are similar.
However, just because you have developed a program that
works well for lawyers, it doesn't mean you can sell a slightly
modified program to accountants.
Here is where your corporate strategy plan comes in because
you are able to identify targets of opportunity, strengths and
weaknesses of the competition, market potential and trends.
Once you have that information spelled out, you will be in
a position to determine how much it will cost to get into a new
market, what your return on investment will be, and when it will
occur.
This examination will also allow you to see if the
addition of the new products/markets will help level out sales
cycles, thus producing a more equitable and predictable cash
flow.
If you're going to diversify into new areas, you should be
certain that you are going to gain a significant market share.
To enter a totally new market with the objective of being able to
penetrate only 1-2% of even a moderately sized market may not be
worth the time, money and effort.
There may be a possibility of doing a technology or
expertise transfer into a new market, thus keeping your R&D costs
low. This is fine if there is a strong market potential
available.
If the market has already matured or is reaching its
maturity it becomes extremely difficult to enter as the new kid
on the block. Often the "buy-in" costs are not worth the
investment.
Finally, determine if new team members will be required.
If you are looking to at adding a totally new layer of people
overhead, the cost of market entry may be prohibitive.
At this stage you have all of the facts and figures at hand.
If the project can be financed with retained monies, then you
must sit down and evaluate the information. If you have to go
outside for financing, then you have a professional presentation
ready and are equipped to move more quickly.
Regardless of whether you are trying to determine where you are going
tomorrow with your present company emphasis, or planning to enter
prospective new areas, a strategy plan is necessary.
Such a plan helps ensure that everyone in the organization
is in agreement as to the posture and direction of the company.
Equally important is the fact that your financial backers know
where you are going and have the level of confidence necessary to
support you in the effort.
Putting the information down on paper is far from fun, but
the rewards are well worth the effort.
# # #
WHERE IS YOUR OPERATION GOING NEXT - To learn more about this author, visit Andy Marken's Website.
Like this article? Share it with your friends
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