My third post in this series described deadly sins Nos. 4 and 5: no leadership of innovation, and tolerating poor people performance. Today’s “sin” needs a post all to itself.
Deadly sin No. 6: Choosing abdication over navigation
A business needs to be actively “steered” at all times. A good leader will make good use of a number of navigation tools.
Draw up a clear and visionary strategy
Keep the end in mind, by stating it on a regular basis.
Choose an effective business model
Adopt a business model that works and produces profit. Too often the limited resources available for marketing are insufficient to meet targets.
Use the right kind of KPIs
The best key performance indicators are predictive. Most measures of business performance are results (or “outcomes”). The really important measures that need to be highlighted are the “drivers” – the actions that implement the factors critical for success.
If you are not sure what your organisation’s critical success factors are, look back at performance over the past 12 or 13 months and work out what activities have contributed to today’s results. Once you have identified these factors, link your KPIs to them.
For example, if a company introduces monthly sales training sessions for staff and soon afterwards sees an increase in sales volume, these training sessions can be set up and monitored as a KPI. If one is missed, it will immediately be noticed and corrective action can be taken.
Constantly check the strategic position
Are you continually reviewing and adjusting the risk/return ratio? Factors such as changing market conditions may mean that you need to revise your strategy to maintain an acceptable relationship between risk and return.
In extreme cases, a company may decide to move into a completely different business area in order to obtain the desired return – as when IBM switched from computer manufacture to consultancy.
Use targets, not budgets, for navigation
- Disassociate management and statutory accounts. They are different and serve different purposes.
- If possible, avoid budgets and concentrate on targets and plans. Budgets seriously constrain or delay good business decisions.
- Targets are intermediary goals on the strategic journey.
- Plans are only as good as the revenue forecasting horizon. Beyond that, it is all speculation.
- Separate fixed and variable costs. The latter are a vital component of cost of sales, gross margin and break-even calculations. Where judgement is needed to define a cost as fixed or variable, use common sense.
- Avoid allocation of costs as they usually give business managers costs and pressures that they don’t control.
- Group all marketing costs together and treat them as a strategic block. This is the section of the profit and loss account where the “fuel” is injected to make the business grow.
Conduct market research
Deleting market research as a budget item means that the business flies blind.
Look for financial capacity to grow
Why wait until next year’s budget to move forward along the growth path? Do it as soon as the tools indicate that the capacity is available.
My final post in this series will deal with deadly sin No. 7, lack of visibility, plus a “bonus” sin No. 8. Until then, for advice on how to choose navigation over abdication, email me or call me on 020 7099 2621.