Companies in Transition

                                                                                                April 2008

Dear Friend,

     The theme of this issue of Companies in transition is planning for profitable growth. In the midst of a credit crunch and potential recession, owner/CEOs often ask, "what do I do now?" "How can I ensure that my business will survive and thrive?" Sea changes in the larger economy frequently require owners and managers to re-assess their market opportunities and how their businesses make money. A structured business planning process can help to ensure that market assumptions are realistic and plans are reasonable. With a good plan in hand, the hard work begins - executing the new plan.   

      We hope you enjoy this issue of Companies in Transition.

Wayne Wilson

7 Keys to Planning for Profitable Growth

By Wayne Wilson

      Most owner/CEOs started businesses and became successful by doing something that they already knew how to do, and were good at, be it designing products or selling them. When the momentum of that initial success slows and the business plateaus, other business techniques must be brought to bear. One of those techniques is business planning.

      Trying to get entrepreneurial owner/CEOs to adopt business planning processes is sometimes like wrestling a swordfish off the coast of Florida – they will fight you until they can’t fight you any more. But it should not be that hard.

      The business planning process is really about clearly defining who you are, what you want to do or accomplish, how you’re going to do it and by when, and with what result. It’s a process of asking yourself and your management team a few simple questions; thinking about, researching and agreeing on a set of answers; and then getting on with whatever those answers suggest you should do. Remember the old saying, “If you fail to plan, you are planning to fail.”

      Here then are my seven keys to planning for profitable growth.

Do you have too many good ideas?

      In the rush to create new products and services, solve problems, and improve operations, companies sometimes create too many good ideas. How can that be?! Rather than have too many ideas, companies often try to implement too many ideas at the same time. They spread their resources thinly and risk accomplishing nothing.

      On the other hand, if a company is generating too few new ideas, the pressure to “do something” may cause you to implement ideas with high costs or poor paybacks. For example, many companies have implemented so-called CRM (customer relationship management) software in the hope that the software would improve sales force productivity. Rarely does this happen.

      The goal should be to develop a steady, robust flow of new ideas from which you can carefully select only the very best ideas for implementation. Rationalize your innovation processes by developing an “idea pipeline” much as you would a sales pipeline.

• Make idea generation everyone’s job using customer surveys, brainstorming sessions, work team competitions, and management by walking around.

• Select the most promising ideas for detailed analysis

• Create an idea implementation budget (may be part of your capital budget)

• Implement only those ideas which likely will generate a high return on investment and can be funded with available resources (people and money).

 

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Crafting Effective Manager Compensation Plans

      Many owner/CEOs struggle to develop effective managerial employee compensation programs that don’t also break the bank. While a compensation plan is no substitute for targeted coaching and mentoring, executive compensation specialist Don Delves [i]suggests that a well designed compensation plan should address six key business imperatives.

      Here are some thoughts on Don’s list:

1. Motivate for the upside – Sales commission accelerators are frequently used to maintain sales managers’ motivation. Stock options or other equity incentives can serve the same purpose for line managers.
2. Protect the downside – Incentive plans should not pay managers for just showing up or riding along. No performance; no or less pay.
3. Create an ownership stake – Equity or other ownership incentives align everyone’s interests. For private companies, consider phantom stock or other types of deferred compensation.
4. Reward real performance – Real performance means building the business for the long term. Incentives must balance short-term goals and the need to invest for future success.
5. Retain top talent – In the information economy, talent is the critical raw material for business      success. Your incentive plans should seek to tie key employees to the business for the long term.
6. Compete effectively – The components and overall value of your incentive plans must be competitive in the marketplace or none of this will matter for very long.
   

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[i] TheDelvesGroup, http://www.delvesgroup.com

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