This article is a follow on to the one I wrote two months ago on your firm’s Vision, Mission, Values, and Purpose.
When we plan a car trip we know where we want to go – to Chicago and not to Atlanta. We call up Google Maps and listen to the voice in our cars navigate us to Chicago. From Shreveport, Louisiana, where I now live, the direction is north and not Northeast or West or South. Cities, unlike our businesses, have a fixed destination.
Have you ever heard this from some of the people in your organization: “I do not know the direction we are headed and I am worried. We seem to chase every new opportunity”.
In my view, CEOs have been offered confusing advice over the years on how to set a direction for their businesses. They are told to develop Vision and Mission statements, which can give a sense of direction. Or they are told to set out Product/Service extensions the business will evolve to over a defined time period, say five years. These extensions can be depicted on a “Migration Path” visually. The observer can sense the direction in the planned evolution of products and services and the customers who will be targeted. Whirlpool uses this approach to set a direction for its business units at a pretty granular level. Done well, the people in the firm or business unit can readily see the direction and what aspects need R&D or some other fundamental development to actually launch the products and services. And a good migration path map clearly depicts what and where the firm will not go. But if the migration turns out to be wrong?
Clarifying Your Direction Statement
A clear direction statement will give everyone in your firm some sense of confidence that the firm is on a firm road to success and that it will last a long time providing meaningful employment for the firm’s people.
Part of the confusion in the phrase “direction for your business” is that the business world today is not like our analogy of wanting to go to Chicago and not Atlanta from above. In today’s world, there is no fixed end point that we can say we are headed to with clarity. Proponents of a tool called Scenario Analysis say it can do this, but in my view, all it offers are probabilities of a story of some end state. A lot of uncertainty still exists.
The business world is so dynamic that we may have to settle analogously for something like “we are heading north and not east or west or south and we will sort of know when we get there. And oh by the way when we do get there we will set off on a new direction if need be”. Whew this is not very comforting. How can we improve setting a direction for your business?
We proved two easy steps for business direction:
Describe very clearly what your firm is very good or excellent at doing. What are the key skills, capabilities, and competencies your firm uses to create and launch your products and services customers will pay for? An example from a supplier of parts to Boeing in the aerospace industry might read: “We are very good at manufacturing mission critical parts for airplanes to close tolerances and high quality that will not fail”. Or an information consulting firm might say: “We are very good at software development for governments to organize, search for and display all of their legal documents within one minute”.
Next list your current products and services in rank order of high to low in terms of revenue and gross and net profit margin. Focus on the products and services that score high.
A statement of the direction of your firm might then be: “Over the next five years we will continue to exploit all current and new products and services that are consistent with our skills, capabilities, and competencies”. You supply the particulars for your firm and industry.
What is the fly in the ointment with this approach?
Without picking on them, it is typically the sales force. Being compensated usually mostly on commissions, they have the impetus to sell just about anything. And we want them primed this way. But how many times have you heard a key sales person come in from the road and say: “I just spent two hours with customer X. If we can make Y they will buy it”. Many times this is good if the added change is consistent with the agreed to direction. But many times following through on this special order can split the direction of your firm. If this happens often, your firm ends up going in several directions.
The trade off is sticking to a previously agreed to five-year direction as we have laid it out or chase every potentially profitable new opportunity. But research and my experience shows firms who grow their value usually stick with a previously agreed to direction until it must change. How about your firm?
This article is part of a series on what causes a for-profit firm’s value to increase