Back from the Future
Strategy is the path that takes your company to the ideal future. Strategic planning starts with knowing where you are now, envisioning your ideal future, then focusing on what needs to change in the present to create the future.
What Is Your Business?
Before you can decide where you want to go, you have to know with complete clarity where you are today.
Start by asking: What is your business today? Describe it clearly. Describe it in terms of what your product or service actually does to change or improve the life of your customers.
Many people are not quite sure what their business actually is. A good example comes from the history of the railroads. The railroad companies used to think that their business was running railroads when their business was really transporting goods and services.
Most of the railroads in the United States eventually went bankrupt or nearly bankrupt because most of the shipping of people, goods, and services was taken over by trucking, airplanes, and ships.
As a counterexample, in Canada there is a company called Canadian Pacific Railway. It recognized early on that its business was transportation of all kinds. With this insight, the company expanded into Canadian Pacific Airlines, Canadian Pacific Trucking, Canadian Pacific Shipping, and other modes of transportation. Whatever you want to send (including yourself) by any mode of transportation, Canadian Pacific has a solution for you.
Look at the Numbers
Conduct a current analysis of yourself and your business. Where are you now? What are your sales and profit margins? What are your prices and costs?
What about your financial results? What are your sales and profit margins? What are your prices and costs? Look at your sales figures and break them down by product, product line, service, market, and distribution channel. What are your financial strengths and weaknesses? What are the resources that you have available?
Next, look at your sales targets and compare them with your results. Are sales meeting your expectations? Are your sales trending upward or downward? If downward, what can you do to turn them around? If upward, are you convinced that they will continue to increase? What are your prices and costs?
Now focus on your profits and your profit margins. Ask the same questions. Are they meeting expectations? Are they trending upward or downward?
What’s Your Return?
Analyze your products and services. Which are selling well? Which are the most profitable? Which are selling poorly? On which products are you losing money? One of the traps that many companies fall into is to continue to sell popular products or services on which they’re losing money. The goal of your business is not to sell lots of products, but to make money. If you’re losing money on every product you sell, selling more products only means you’re losing more money.
Look at your return on sales. Also look at your return on investment and return on equity. Are they increasing or decreasing? Are you making the right decisions?
The Customer Is King
What is your return on customer? Just as you can lose money on every product, you can lose money on every customer. These are not the customers that you want to sell to. Who are your least profitable and most profitable customers today? You want to eliminate your least profitable customers and keep your best customers.
What makes your customers happy? Why do your best customers keep coming back? What do they like most about what you do for them? Understanding your number one area of customer satisfaction is key.
Be brutally honest and also look at what your customers don’t like. What’s the number one reason for customer complaints? What are you not offering that sends customers and potential customers to your competitors?
Your Market Position
Understanding your position in the market means recognizing your own strengths and weaknesses. What does your company do very well? What are your vulnerabilities? What is your position in the market? Who are your main competitors? How do you rank in comparison with your competitors? Who are your secondary competitors?
What are your competitors doing right? What are their strengths and weaknesses? What are you doing better or worse than them?
Go through every detail and again be brutally honest. Harold Geneen of the conglomerate ITT said, “Get the facts. Get the real facts. Not the apparent facts, the hoped-for facts, or the obvious facts. Get the real facts based on analysis. Facts don’t lie.”
Where Do You Want to Go?
Once you fully understand where you are now, the next question to examine is where you want to be in the future.
Looking at current trends, where is your business going? Where will it be in two or three years? Will it grow, decline, or continue on its present path? Knowing that the future will always be different from the present, where is your business heading on its current trajectory?
Consider the Possibilities
Ask yourself: What could this business be tomorrow?
What are the possibilities for your business? What could you do differently, or what new areas could you go into that would change your business? What new products and services could you develop and sell, and in what different ways and places?
Imagine No Limitations
Then ask: What should it be? What should your business be three to five years from now? If you could wave a magic wand and create an absolutely wonderful business, and if you had no limitations, what could or should your business be like at some time in the future?
I once conducted a strategy session for a multibillion-dollar company that was in trouble. New competition and new government regulations had plunged the company into a state of chaos, leading to layoffs, downsizings, and divestments. I started the session with a process that I call “idealization.” The goal was to get the company’s executives to stop focusing on the present and instead focus on an ideal future. I told the top managers around the table to create a “five-year fantasy.”
A five-year fantasy is an exercise that will help you imagine an ideal future. To create this fantasy in detail, ask yourself a series of questions: How big would your company be? What kind of reputation would it have? What products and services would you be offering that enabled you to dominate your market? What kind of people would work for your company, and what kind of leadership would you have? What level of profitability would you be achieving? How high would your stock price be?
When I went through the exercise with the managers of the company in trouble, we ended up with twenty-seven different descriptions of the ideal company, which we then converted into clear goals. These goals included, among others, highly profitable, great market reputation, high stock price, high growth rate, top leadership, fabulous customer service, and a great place to work. Every one of the managers present said they believed that all of the goals could be achieved within five years.
Back-from-the-Future Thinking
Once you have clearly described your ideal future, go back to your present situation and decide what you have to do, starting today, to turn your vision of the ideal future into reality. This is called “back from the future” thinking. Make a list of everything that needs to happen to realize the five-year fantasy. This is the beginning of creating your strategic plan.