Strategy: Who Needs It?

If you’ve ever been a part of reorganization, downsizing, rightsizing…or any cost cutting activity this post should interest you. Some cost cutting actions are successful, some are not. What defines the successful from the unsuccessful, and what is the application for a small growing business? I think the answer is found in a clearly articulated strategy.

Entire books have been written on this topic so I am not going to condense it into just a few paragraphs. That would be an insult to all of the excellent thinkers that have dedicated time, research and critical thought to it. I do however want to talk about the role of strategy in any cost cutting activity…..and while we all know its importance, we (I resemble that remark) don’t always practice it. After all, strategy is long term and cost cutting is short term.

Anyway we’ve all seen the cost cutting messages; “we need to tighten our belts” and “watch our expenses”. If you’ve spent any time in corporate America you probably were asked to serve on a committee that identified cost cutting measures, and while any number of good ideas can come from these committees, my experience was they often resulted in “fringe” solutions, and ignored the larger, sustainable issues.

Don’t get me wrong these activities raise awareness of the need for individual responsibility in controlling expenses, but often the fall short and in some cases result in misunderstandings that negatively impact productivity, slow future growth and often result in an internal focus that neglects the customer.

These results can be even more pronounced in a small business, where cash flow demands are the order of every day.

So how do you make the right decisions? Cash flow problems don’t just disappear. Oddly enough strategy is the answer. While it probably goes without saying strategy informs all of these decisions. Strategy tells the business and the team which resources and expenditures are necessary for profitable growth over the long term. Strategy provides the balance between cash flow concerns and the value of the business as measured by its equity.

In a former life I was fortunate enough to work for a business where Michael Porter served as a Director. During our downturn his constant questions were “What’s your strategy? What resources and assets are critical for future profit and growth”? He believed that a clearly articulated strategy was more important in a downturn than in good times. “After all” he argued, “When resources become scarce, determining what to invest in for the future is a tougher and riskier decision”.

In addition, a clearly articulated strategy provides your team with a better picture of what changes are necessary, what is off limits and why?

So if we know this, why isn’t it practiced more often? A quick answer is the pressure for short term results is so strong that it overrides long term objectives…but I don’t think it is that simple. My experience tells me that more often than not it’s because a clearly articulated strategy doesn’t exist, and it is very tough to create one when cash flow demands are beating the door down. It is kind of like going to the grocery store when you are hungry.

So what is the application to a small business?

1. Work with your team to create a “workable” strategy. A strategy that tells you and your team what future customers look like, where margins will come from, what distribution channels will be used, compelling need and competitive advantage, what products and services will be offered, a clear picture of how the organization will need to change and the details of what resources and people will be required to get there.

2. Remain flexible. Strategies often change a bit but the critical resources and people seldom do.

3. Provide the details of your strategy to a close group of advisors. People who are committed to making sure you stay the course.

So the next time cost cutting is the “order of the day”, ask yourself, “What is our strategy and what is off limits to the long term equity value of our business”. You might just be surprised at what is possible in the short run.

Steve MacGill

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Steve is the co-founder of PeerSight is the pioneer in virtual Peer Advisory Boards. We provide the platform business advisors use to deliver virtual peer advisory boards to their clients

Comments

[Zane Safrit]

Steve! Great post. You worked with Michael Porter? That's excellent.

I saw your quote for Gary Harpst's new book. Nice.