Survival of the Fittest

Those of you following the markets - stop!  Those of you concentrating on your business - continue.  One of the core precepts of Strategy Execution is to focus on those things you can impact directly.  I won't say ignore those items you cannot affect, but you certainly shouldn't do anything more than monitor them from a distance.  

I tried to take my own advice this week - No shoemaker's child here!  (Ask me if you don't know that reference....).  I have always talked about two kinds of strategic changes - those a company chooses to undertake, and those forced upon it.  Over the last ten years, most companies have had the luxury of focusing on the former.  Today, almost everyone is dealing with the latter.

If you take a look at the RedZone Consulting web site (www.RedZoneConsulting.com), you'll see some pretty significant changes.   RedZone has always focused on helping companies successfully execute major change.  And we still do.  Historically, most companies we worked with were those that chose to undertake a new direction.  Not now.  Today, I'm seeing that most companies are being forced to change their strategy and operations to reflect an entire new economic reality, one that had not even been considered. 

There are few, if any, companies that today's economy isn't impacting. As a result, every company has one primary focus:  Cash.  With credit tight, customer behavior's unpredictable, business assumptions and projections thrown out the window, the first place every business must focus is survival.  

It's a pretty simple question:  Do we have enough cash?  It's one of the "let's pretend" scenarios that we walk clients through:  Let's pretend you have absolutely zero sales over the next six or twelve months.  How much cash will you burn?  What are the levers that allow you to save (or gain) cash if needed?  This exercise has very little to do with what the business is trying to accomplish, and more with a foundational issue:  If the company has no cash, it cannot survive.  If it doesn't survive, successfully executing its strategy is both impossible and meaningless.

Survival of the fittest today is all about cash.  Do you have the cash to deal with the unexpected twists and turns driven by this new, unpredictable economy?   If you can use discipline, clarity, focus to monitor and maintain your cash position, you'll give your company the opportunity to succeed in the future.  

The Game Plan - and Adjustments for Success

I'm surprised by how much I learn about Strategy Execution by watching football.  (No, that's not just something I tell my wife....).  

Let's start with the key concept that, to successfully execute a strategy, you need both clarity of vision (a clear understanding of what you want to accomplish - more on this topic at a later date) and a plan of how to get there.  Right now, let's focus on the plan. 

For a football team, the week prior to a game is spent understanding the competitive environment - which, in football, means the next opponent.  Coaches and players study film of past games, both your own team's and the oppositions, learning strengths and weaknesses, analyzing past performance in excrutiating detail.  The purpose is not to place blame for past problems, but to learn and improve.  

As this work progresses,  the coaches begin to develop the game plan.  What is the game plan? It's the specific plays - actions, activities, strategies, tactics - that the team intends to use to win the next game, based on their analysis of their opponent.  

Coaches build the game plan by making assumptions about what the opponent is going to do, through careful, in-depth study of what it has done in the past in similar situations and the results of those actions.  The game plan includes those plays that a team is best at executing.  The game plan also includes plays designed specifically to exploit the opponents' weaknesses.   The plan is then broken down, player by player, position by position, so that each person on the team knows exactly what he needs to do in order for the team to execute its game plan successfully.   

If the plan is executed as designed, the team expects success and, in the end, to win the game. Sound familiar?

Here's the key lesson:  The plan, however, is exactly that - it's a plan.   No matter how much time and effort the team spends preparing the plan for Saturday's or Sunday's game, the best are willing to throw the plan away if they get into the game and find out the plan isn't working.  

Sometimes, the plan doesn't work because the opponent doesn't do what was expected.  Sometimes, the designed plays aren't working the way they were designed, either from poor design, lack of execution, or unexpected responses from the opposition.  Whatever the reason, a team can't stick with a game plan that isn't working.  That's a recipe for failure. 

If you're a fan, you know about "half-time adjustments"  - the changes that coaches make to their game plans at half-time, based on the results of the first half of play. My (completely unscientific) observation is that the teams that win the most games, and are the most successful overall, are those teams that do the best job of adjusting their game plan in the midst of the game.   These adjustments can be of any type, but they have one thing in common:  An assumption that the coaches made when preparing the game plan turned out false  - so the game plan has to be adjusted based on new information.

This is where I'm going to stop for today - but only after making this point crystal clear.   A plan is great as a starting point, but success in strategy execution requires much more than a good plan.  It means being willing to adjust the plan in the heat of the battle, to recognize when the plan isn't working, or when key assumptions are no longer true.  It means measuring performance against clear metrics, and changing when performance is not meeting the desired goals.  And it means recognizing that the plan is only a means to an end - the end being winning the game.  

It may have been a great plan, but if it's not working - change it.  The goal is not to stay true to the plan.  The goal is to win the game.

Obama: Socialist or Savior?

It is amazing how many people I know who are scared to death of what President-elect Obama is going to do to the economy and their individual businesses. So, here's my view:

1) Our economy is driven by consumer spending. Right now, consumers aren't spending because they don't have any money. They've used up credit cards and home equity lines.

2) If consumers don't have jobs, the problem gets even worse.

3) Without consumer spending, the economy goes into (excuse the hyperbole) a death spiral, where loss of jobs and no spending puts other businesses out - which in turn leads to more job losses and less spending which, in turn, leads to... well, you get the (ugly) picture.

4) So, President-elect Obama's first responsibility is to shore up the jobs market and assure that consumer spending doesn't get worse. How does he do that? (Hint: It ain't through a one-time stimulus package or cutting the capital gains tax.) We need:

• A jobs program, whether it be in alternative energy, infrastructure repair, some other area, or a combination;
• Tax cuts, allowing consumers to retain a larger percentage of the money they make;
• A moratorium on foreclosures, to avoid even greater disruptions (and downward price pressure) in the housing market;
• Selective investments (see: investments - we buy stock, bonds, preferred shares - it ain't a give-away) in existing industries and specific companies within those industries to reduce further job losses;
• The willingness to let other companies fail, as our markets require, for failing to successfully define or execute an appropriate strategy (you knew it would get back to Successful Strategy Execution, didn't you?)

This cannot be a bail-out, but a temporary investment program intended to avoid economic catastrophe. As a result, we need the smartest people available to make decisions - and a president willing to make some very hard choices.

No, this is not the complete program. There are other elements needed to support these primary steps - but it's a good start.

And the last question: What does this have to do with Strategy Execution? It's simple: This is a lesson in metrics, risk monitoring, and risk mitigation.

We never know, when starting down the path of executing a strategy, if our key assumptions are going to hold. We must identify those assumptions clearly, note how we will know if those assumptions are no longer valid - and actively monitor trends. When the assumptions aren't holding, we need to send up a red flag - if the assumptions are no longer valid, there is a good chance the strategy is no longer valid either. And if the strategy is no longer valid, it no longer makes sense to execute that strategy. We need a new strategy.

We have gotten our economy into the shape it is by ignoring the red flags and refusing to recognize when key assumptions were no longer valid. As such, businesses (particularly financial institutions) continued to pursue strategies that were no longer appropriate for the situation - and you see where we are now.

I am optimistic about our long-term future and quite concerned about the short-term. As for President Obama, he is neither savior nor socialist. I am encouraged by the fact that he does not seem to be an ideologue, who believes he holds a hammer and that every problem is a nail. No, to the contrary, he strikes me as calm, considerate, and careful, one who takes input from the very best people from all points of view, and then makes the best possible decision. That's exactly the kind of leader we need during these challenging, uncharted times.