Article | Strategic Planning and Execution

By Denise Harrison; President & CEO

GE is spinning off its Major Appliance division, highlighting the importance of making choices in strategic planning. In this case, Jeff Immelt, GE’s CEO, is making the choice to focus on the higher margin energy, power, aviation, and health care businesses. This decision exemplifies the purpose of strategic planning:

Identify sound and appropriate course and direction that will truly optimize your company’s future potential
Sharply focus resources in support of that course and direction.

Some comments on GE: Everyone remembers Jack Welch’s focus on being number one or two in an industry or get out. However, this is just a simplistic version of what the analysis looked like. To simply try to be number 1 or 2 in an industry could lead to poor financial performance, as we saw when GM tried to hold on to its number one position by buying market share, which, instead of generating success, led to poor financial performance and bankruptcy.

Choosing Where to Play

In choosing where to play, there are a number of aspects to consider:

Assess where you have a competitive advantage – what do you have that has high value to your customers and differentiates you from the competition?
What are the growth opportunities for the business? In general, growing markets provide more opportunities to profit than markets that are shrinking. This is, of course, dependent on the uniqueness of your position.
What is the profitability of the industry? What is your ability to charge a premium for your products and/or services? Are you charging for the value that you are providing to your customers or are you pricing on a cost plus model?
What other choices do you have? Do you have a greater differential advantage in other areas? Is there more profit in other segments?

Let’s look at another GE example – this time, GE Plastics. With its plastics business, GE chose to maintain its market leadership in the engineering plastics niche of the plastics market. This is important – GE did not try to become the market leader in plastics; instead, GE selected a specific segment of the industry where it had differentiated products. Additionally, GE believed that the industry had significant growth potential and due to the uniqueness of its products, GE predicted that it could sustain a competitive advantage.

However, over time its competitive advantage eroded and engineering plastics became a niche where there was less differentiation and lower margins. At that point, GE chose to sell its business to SABIC even though it was still a market leader. GE focused instead on other businesses where its differentiation, profitability and growth were more attractive than in engineered plastics. Note: GE did not wait until its business was in trouble; it made the decision based on optimizing its future success by allocating its resources in areas where it has a higher return.

We see this scenario playing out again with its Major Appliance division. The appliance division is not in trouble, but GE decided that there were other businesses that would achieve higher returns, and thus chose to focus on these businesses. It did not wait until the business was in trouble or losing money, instead it made the decision to re-allocate its resources. By selling a healthy business it was able to achieve a high price and use the proceeds in areas where there was more potential. Being a market leader is not the only criteria for staying in a business; critically, you must also assess whether or not this business provides the highest and best use for your scarce resources.

Lessons Learned:

Being big or the market leader in a segment is not necessarily a reason to remain in a particular industry segment – it is only one aspect to consider
Selecting a niche where you can be a market leader by having a differential advantage that has high value to the customers and is sustainable, is also important
Understanding your choices and focusing on the few, rather than trying to spread resources around, allows you to gain traction faster

Fundamentally it is all about choices. Teams that are able to gather good information about their markets, truly understand market niches and make choices concerning the highest and best use of their resources will achieve higher margins and optimize their future potential than those who stay in businesses where differentiation is eroding.

If you have questions about how to better focus your resources and make right choices during your strategic planning process please email me (Denise Harrison) at: harrison@thestratplan.com .

by Denise Harrison, President and CEO, Strategic Planning and Execution, Spex, Inc.

“What do I do now?” a question from a perplexed and saddened CEO. His chosen successor had recently been diagnosed with a terminal illness; the CEO had to face the question of succession planning again.

Many businesses struggle with succession planning:

some have leaders who do not want to turn over the reins’
some chose successors due to filial relationships or political reasons,
some believe that business ownership and leadership are synonyms.

Others have a succession plan and then find the chosen successor is no longer available, and some think succession planning is just for leadership positions. What should you consider when developing a succession plan?

Solutions

Succession planning often gets visibility at the top of the organization; however, you also need to assess the vulnerabilities that exist beyond leadership roles. Often disruption in critical positions can create a short-term crisis. In addition, it is important to have a pool of candidates rather putting all of your eggs in one basket.

Know what is required now:

A first step is to understand the current job requirements – sounds simple? Do you have current job descriptions for each position, not just for the leaders? Recently I sat down with an associate to review her job description. I found that it had not been updated since she joined the company and did not reflect her current responsibilities. In fact, it had little resemblance of what was actually being accomplished.

When we discussed the changes that had to be made to update the job description, we had an excellent discussion of priorities and additional responsibilities that needed to be added as we moved forward as an organization. These changes enabled us to have a good discussion concerning reasonable candidates for succession planning in this critical, but non-leadership position.

Still, it is not enough to identify current and near-term requirements, it is also important to understand the requirements of the future. This is where strategic planning becomes important to the succession planning discussion.

Strategic Planning and Succession Planning

In order to develop an actionable strategic plan, you must have a clear vision of the future course and direction of the organization. Your succession planning will support your strategy and your succession planning candidates should be able to fulfill the current and future job requirements. For example, will your successor need to understand how to do business in international markets? Will he/she need to have an understanding of how social media can raise your company’s visibility? (Think how President Obama used social media to raise significant amounts of funding, leaving some of his competition in the dust.) A robust strategic plan enables you to identify the key skills sets that will be required of future leaders.

Execution

For each position you need:

An accurate current job description
An accurate vision of how the job requirements will change in the future

Once you have these, then you should identify:

Internal candidate(s) who can be groomed for each key position
External candidate(s) who might be considered for each key position
A “blue sky” candidate who would be perfect for the position, if he or she could be hired

Next, you should:

Identify the perceived pluses and minuses of each candidate

o Where gaps have been identified

o Ways to fill the gaps (training, mentoring)

Have an honest discussion of the aspirations/expectations of the incumbent in each key position and/or the potential candidate(s).

These discussions will enable robust thinking around succession planning and allow the employees to explore their own aspirations and career goals. Through these discussions you will be able to evaluate your employees understanding of the strategy and whether or not they are positioned to take it to the next level.

What about the CEO?

The CEO should go through the same process and review his thinking with the senior management team. Sometimes it is not appropriate to share ideas on internal candidates, but reviewing current and future job requirements with the team will enable team members to provide input as to what the CEO is not be doing that he/she should be doing (or what he/she re doing that he/she should not be doing). Team members will also be able to input additional requirements for the future.

The CEO must be open to suggestions as to the current and future role of the CEO. Yes, the CEO may even find some attributes or capabilities that he/she is lacking. (You can’t be great at everything!)

You should run your thoughts by your Board to see if your thinking is consistent with where they see the company going. If you do not have a Board, consult your outside advisors – accountants, consultants, legal team – to see if they have additional insight into job requirements and/or people who might fit into the succession plan.

Once you have identified potential candidates, you should begin to mentor the candidates so that he/she is ready when the time comes. That said, you should have more than one candidate so that you have a plan B in case your top pick is not available to move into the slot when the time is right.

Next Steps

During this process you will develop:

Training requirements for current and future leaders
Job descriptions
Hiring needs
Finally a good succession plan

The succession plan should give alternatives so that each position has more than one successor in mind.

Moving forward, you should answer these questions:

Do you have an actionable succession plan?
Is the succession plan consistent with your strategy?
Do you have plans to shore up your succession candidates through training, mentoring, and experience?
Are you better positioned for succession than you were one year ago?

Many of you have already developed succession plans for your company. What have you done that has worked? What will you be doing differently as you move forward? What are some barriers to developing a succession plan at your company?

Denise Harrison is President and CEO of Spex, Inc.; Strategic Planning and Execution. She has extensive executive experience and consulting experience working with clients in a wide variety of industries and company sizes. She can be reached at harrison@thestratplan.com or 910-763-5194.

Category Archives: Article

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