I Know It When I See It

In the 1964 U. S. Supreme Court case of Jacobellis vs. Ohio, Justice Potter Stewart described his threshold for obscenity and pornography declaring, “I know it when I see it.” 

Business strategy is a little like that.  Well, not like pornography, exactly.  But it is important to know it when you see it. 

One of my TEC members had been struggling for several years with sales growth.  He created any number of sales plans.  He hired and fired numerous sales people.  He brought in a consultant.  He read books on sales management.  He increased advertising.  Devised a social media campaign.  Went to every “networking” event imaginable.  He bounced his ideas off his TEC group.  He worked hard.  Sales, however, did not grow. 

Then one day my member met the CEO of a firm that could have been considered a competitor, but was significantly larger is size.  The CEO of the larger competitor lamented the fact that his firm had “outgrown” several smaller customers.  The smaller customers demanded an inordinate amount of time.  They were more of a distraction to his organization.  He wanted to fire some of them, but feared the mess the process could leave behind. 

These messy little customers were right in my member’s wheel house.  He worked with his larger competitor to assume responsibility for these unwanted “C” customers and transitioned a few with little or no selling effort at all. 

It was then he recognized the potential shift in sales strategy.  He developed a simple ABC customer analysis and an elegant transition process that resonated with larger firms in his industry that had similarly “outgrown” some customers.  He promoted the process locally.  Then, rolled it out nationally.  Sales grew.  Dramatically. 

As a TEC chair, I would like to say my member developed this strategy through a formal and effective strategic planning process…like the one we talk about a lot in TEC.  On the other hand, this member recognized strategy when he saw it.  It didn’t fall out of a SWOT analysis, but it did beat working harder.  To paraphrase TEC Resource Specialist Chuck Reaves, “Strategy trumps hard work.”  Be prepared to know it when you see it.   

Ready, Aim....Follow Through

My fiancée and I recently completed a hand gun training and safety course. Our instructor, Craig Turner, is a police officer. Mr. Turner also teaches other police officers how to shoot hand guns.

Mr. Turner taught us the basics of hand gun safety. Important concepts, such as, the gun is always loaded. Know what is in back of your target. Your finger doesn’t go on the trigger until you are going to shoot. And know, when you pull the trigger, you are going to do some serious damage.

From a technical standpoint, Mr. Turner taught us the concept of “ready, aim, fire and follow through.” In business, we have heard of “ready, aim, fire” or, if you prefer or you’re Ross Perot, “ready, fire, aim.” Even though the trigger had already been pulled and the bullet was in the process of exiting the barrel of the gun, it was follow through that made all the difference in the accuracy of the shot.

The similarities in business are striking. Business leaders spend countless hours on planning. They might bring in a facilitator, hold off-site planning sessions, and come back with something akin to a leather bound business plan….that never gets implemented. Like with hand guns, it is the “follow through” that differentiates companies that get things done from those that simply dither along through another useless planning cycle.

So why is getting things done so difficult in a typical organization. B. Chuck Ames, president of Reliance Electric Company described one of the problems of failed execution this way in the article Basic Management Concepts.

“No one should ever be pressured (or allow themselves to be pressured) into making unrealistic commitments. But once commitments are made, they should always be fulfilled. The good manager knows that most commitments are broken because of a sloppy attitude that always manages to find a rationale for failure. For this reason, good managers insist that all commitments be met. It makes no difference whether the commitment seems trivial, e.g. to return a phone call or pass on certain information by a certain time – or crucial, e.g. to meet a project completion date or achieve planned sales or earnings results. It must be met once it has been made.”

To shoot better or get things done in business, follow through is omnipotent. If you would like a copy of the complete B. Chuck Ames article or Mr. Turner’s phone number, please contact me. I will be sure to follow though on your request.

Are CEOs Idiots?

Kodak’s CEO tells 17,000 employees the only option for the 131 year-old company is to file for Chapter 11 bankruptcy protection. The company had 64,000 employees in 2003. Research In Motion fires its co-CEOs after the maker of BlackBerry loses $30 billion in market cap. Sony, Panasonic and Sharp, the trifecta of the Japanese consumer electronic industry, lost a combined $17 billion in 2011. Are the CEOs of these once great companies total idiots?

Before going too far, let’s add some local flavor to the stew. What the heck happened to the likes of some of these local boys?

- Joseph Schlitz Brewing Company

- Allis-Chalmers Manufacturing Company

- Schuster’s Department Stores

- Strong Funds

- Midwest Express Airlines

- M&I Marshall & Ilsley Bank

- Please insert your favorite corporate debacle here.

Were the CEOs idiots? How did these fabulous business blunders occur? We may never know exactly. But here are a few suggestions.

- Bad Strategy. In the end, what was Midwest Express anyway? A high-end, “best care in the air” corporate travel airline or a no frills, discount alternative to a bus? Customers were confused. Employees were confused. Vendors confused. Shareholders? Confused and left holding the lost luggage.

- Rotten Execution. In an effort to cost cut its way to prosperity, “the beer that made Milwaukee famous” changed the brewing process and started using cheaper ingredients. Not only did the reformulation change the flavor and consistency of the beer, the new Schlitz had a shelf life of about a day and half. Customers noticed. Can you say Budweiser?

- Blame Game. “We were making so much money, we just couldn’t quit.” Those pesky housing bubbles in Arizona and Florida were the problem. What a nice, conservative mid-western company from Milwaukee was doing in high risk, high reward ventures way outside its market area is another question. But for crying out loud, the M&I was a bank!

- Trends…Unforeseen, Denied, Misunderstood and Delusional. Kodak is an easy target here. An electrical engineer at Kodak literally invented digital image capture technology in the mid-1970s. How did the six Kodak CEOs since the ‘70s screw it up so badly?

The four bullet points listed above are certainly not all encompassing. And there is almost always more than one reason for the failure of the CEO to respond appropriately to the challenges of running a business successfully over a long period of time. How to improve the odds? Some suggestions.

- The Reality Check. My guess is the CEOs of some of these failed companies would have been better served with a strong board of directors that knew when and how to challenge the strategic thinking of the CEO. Absent a board, some CEO peer groups, like TEC, are designed to “question the answers” of the CEO. One of my TEC members employs a designated “BS Detector,” from outside the company during the strategic planning process to help the group avoid delusional thinking.

- People. People get things done. Weak management teams don’t. Failure to put the right people in the right jobs is bad. Failure to deal with people problems – fast - is worse. Jim Collins’ bus analogy of the right people in the right seats is well known. It should be pointed out, however, that CEOs need to get the wrong people out of the seats and off the bus before the new folks can get on. CEOs usually have an inner sense about weak people on their teams. They sometimes refuse to see it and deal with it in a timely fashion.

- An Intentional Culture. There is a real nice company down in Racine, Wisconsin that does not allow its people to say stuff like “I didn’t make plan because of (fill in the blank).” Or “I failed to fulfill my commitment due to (some circumstance beyond my control).” Realistic commitments that are made, are kept. No excuses. One TEC member CEO eliminated the words “hope” and “luck” from his company’s corporate lexicon, as well.

- Apply The Trends to Your Business. TEC Resource Specialist Adam Hartung suggests analyzing the mega trends eight years out. He recommends the intentional creation of “white space” disconnected from the business for innovative thinking. Get people outside the box. Then, have them think.

Truth be told, even the CEOs who really mess up aren’t idiots. CEOs are people. They make mistakes. They fail sometimes. Some learn and get better. Some don’t. But as long as we have human beings running corporations, there will be room for improvement.

Williston

Several TEC members have been making money in Williston. Some are participating as subcontract suppliers to tier one vendors who are already there. Other TEC member firms are (literally) on the ground, building roads and providing staffing services. Still others are working on waste water treatment alternatives for the process known as "fracking."

An impressive example of a TEC member firm who anticipated the boom in Williston, is an old line, made in America, metal fabricating and manufacturing company located in a suburb of Milwaukee. Through a rigorous strategic planning process, the company identified specific energy related markets as opportunities that took advantage of their strengths. They calculated they could shore up their identified weaknesses, apply some resources in terms of people and money and enter a new market. This piece of the strategic planning process was initiated in 2007. It was tweaked every year along the way.

In hindsight, it looks easy. Identify your strengths and weaknesses. See the opportunities and threats. Apply some resource. Voila. Williston.

Not exactly. It took the commitment of the CEO to spend real money on the planning process, when everyone else in the company was "too busy to plan." A recession was looming. Time to hunker down. Well, yes and no.

By definition, the strategic planning process is taking the organization "out there" somewhere. When management is doing strategic work, there are no immediate results to give the leadership team feedback relative to the intended course of direction. It is, a leap of faith. A belief that the process will save the day. It requires courage. It requires leadership.

The alternatives? Most organizations end up slogging it out with a plethora of competitors...known and unknown. They fight for market share. They offer lower and lower prices to compete. They commoditize their products and services. They don't make much money.

Call it a Blue Ocean or Williston. "Out there," there are new markets. "Out there," there is more than enough to go around.

This Feeling Ain't Right

Something happened in June. Then, it happened again in July. As the months are closed and the financial statements printed, almost all of my TEC members are reporting that something weird is going on. And, it isn't good.

Some members say orders softened unexpectedly. Some noted a decrease in their backlogs. Some saw raw material costs increase to unforeseen levels, eroding relatively healthy profit margins. Others told me they felt uncomfortable with what was going on "out there." They were suddenly queasy. Even the TEC members who were able to maintain margins said things just didn't feel right. It was hard to explain.

Most of these CEOs began contemplating corrective action. Put a hold on that equipment purchase for a while. Want to hire two people? Get by with one for now. This is also about the time most TEC chairs start asking TEC members about Plan B. That is, a business plan that allows the company to make money with 20% less revenue. After the last recession, numerous TEC members reported that having a Plan B saved them from decision making in crisis. They knew what to cut, who to lay off and what to stop doing...in advance.

The current uncertainty feels somehow different than the financial meltdown of 2008. This uncertainty has led a few members to construct a Plan B1. That is, what do we need to do to take advantage of a 20% premium, above plan, in revenue. Competitors may be paralyzed into non-action. Market share may be there for the taking. The Balance Sheet gets particularly important here.

This is no esoteric exercise. It is a highly desirable time to create Plan B, at least until that ugly feeling goes away. It is also, however, an opportune time to create Plan B1. Others may miss the opportunity created by the uncertainty.

Civil Unrest

Most TEC groups have participated in a process we call The New Normal. The New Normal exercise is a facilitated brainstorming process where TEC members identify things we know now that will be different in the future. Some of the bullet points typically include:

- Inflation

- Higher interest rates

- Higher taxes

- Smaller cars, houses and buildings

- Social media increasing role

- Globalization

- Energy costs more

- Health care costs more

- Green is good

Only a partial list, but you get the idea. The intent of the exercise is to give TEC members a little better visibility of the future. And, then, allow them the opportunity to prepare contingency plans in anticipation of "the new normal."

The most unusual item that makes the list of most of the TEC groups that run the exercise is "civil/social unrest." We started doing this exercise in June of 2009. Well in advance of the protests in Greece, Tunisia, Egypt, Libya and Madison, Wisconsin.

As a result of The New Normal exercise, most members prepared plans for higher raw material costs. Some members locked in low, long term interest rates. A few members actually paid taxes in advance rather than following the deferral strategy that has been in vogue for years. A handful heeded the civil unrest warning and prepared contingency plans - both professionally and personally.

We have now seen several businesses targeted with boycotts, union intimidation and previously unimaginable threats against some of the most respected companies in Wisconsin. Did they have a contingency plan for "civil/social unrest?" Does your firm have a plan for The New Normal?

If you would like a summary list of the bullet points that turned up on TEC's The New Normal list, please contact me.

Retreat or Attack?

At a recent TEC meeting, a Resource Specialist from California suggested members dial back on their BHAGs to reflect the poor economic environment. Our speaker reasoned that scaling back the Big Hairy Audacious Goal was a first step to a more realistic assessment of vision, mission and strategy to account for certain “new economy” realities. He figured people in the organization needed to be reassured with sometime more "doable."

The TEC group pushed back. Pushed back on our West Coast friend rather hard, actually. Our members had scaled back in advance of the downturn in the business cycle – some as far back as 2007. They cleaned up their balance sheets, reducing debt and accumulating cash. Most members were making more money with less revenue, thanks to aggressive cost reduction programs that were in place heading into 2008 and reaping benefits through 2010.

Now, the TEC group reasoned, was the time to recalibrate on the upside, taking advantage of their relative strength vis-à-vis competition and potential new market and product opportunities. Now was the time to attack.

Let’s just let the poor schlemiel who had just limped through the downturn and exhausted his cash resources play defense now – or just go away, they agreed. This TEC group knew it was time to re-emphasize the strategic planning process. They had become “operationally excellence” oriented over the past few years. It was now time to shift to a higher gear with new strategy in light of the new playing field. It was time to attack.

Moreover, the members of this TEC group agreed that the people in the organization needed to know that the leadership of the company had a plan…to grow. It was time for leaders to lead.

SWOT Wisconsin

One of my TEC members – a manufacturing company headquartered in a suburb north of Milwaukee – initiated their annual business planning process recently. The eventual expected outcomes of the planning process will be the establishment of a new annual operating plan for 2011, with a significant recalibration of their longer term strategic plan.

As a long time TEC member, the CEO typically engages his management team in a no-nonsense version of SWOT analysis during the initial phases of the process. Classic SWOT analysis generally includes an evaluation of 1) Strengths – internal, company oriented; 2) Weaknesses – internal again, unique to the organization; 3) Opportunities – external, “out there” someplace usually focusing on changes or the new normal; 4) Threats – external, “out there,” change orientation.

A new item surfaced on the opportunities list and survived the culling process. The team determined that known competitors in California and Michigan would be at a distinct, long term disadvantage due to overzealous regulations and out of proportion tax increases on businesses and owners. More money spent on compliance and more money paid to state and local governments begets less money for capital expenditures, less cash for growth and less profit for owners. Subsequent phases of the planning process will determine how to attack their relatively wounded competitors.

Unfortunately, when the team considered threats, the same people were forced to include Wisconsin’s gratuitous regulatory environment and high tax climate as significant external “new normal” problems. They reasoned that known competitors in Indiana and Texas were probably targeting them just as they were targeting market share advances against companies in California and Michigan. Phase two for this managment team will be to identify alternatives for mitigating this emerging external threat.

This type of planning is going on now in companies around the world. One can only wonder how many competitors will be targeting Wisconsin companies because it is increasingly more difficult to do business, make money and keep it here.

ABOUT Dennis J. Ellmaurer

ABOUT Dennis J. Ellmaurer

Dennis Ellmaurer is a management consultant working primarily as a TEC chairman, leading three CEO mastermind groups in southeastern Wisconsin. In addition to his work with TEC – The Executive Committee, Dennis does executive coaching and is president of Globe National Corporation, an advisory and consulting firm assisting owners of small businesses with Exit Strategies and Succession Planning.

Dennis has over 25 years of management experience. He started his career in business-to-business marketing and sales with a division of the $1.5 billion Reliance Electric Company. He moved to Valuation Research Corporation - an appraisal firm specializing in Mergers and Acquisitions, becoming Vice President of Business Development. In 1982, Dennis became president of a small manufacturing firm with a proprietary product line and strong distribution channel. The company evolved into a marketing and new product development concern. The firm grew aggressively, eventually selling the assets of the business to a division of Mattel Inc.

Dennis majored in Marketing and Finance, earning a Bachelor of Business Administration from the University of Wisconsin – Milwaukee. He is a past Chairman of the Legislative Committee of the Metropolitan Milwaukee Association of Commerce. Dennis serves on the advisory board of Central File, Inc.

Dennis is a member of the Vintage Sports Car Drivers Association and enjoys driving a ‘69 Corvette on sunny weekends. His direct telephone number is 414-271-5780. He may also be contacted through TEC – The Executive Committee at 800-236-9832 or via e-mail at dennis@globenational.com.