Here is a quick question for you: how fast does your business to do anything? But as readers of this series of articles know, this series is about what causes a for-profit firm’s value to increase. So while we will focus on how long it takes your business to complete new strategic initiatives that have been derived from strategic planning, competitive intelligence, innovation or from other sources, this discussion will cover the speed in general of your business as well.
I define a strategic initiative as any piece of work that can directly impact the market value of your firm. Examples include major new products and services, new geographies to be developed, acquisitions and the like. Recent examples include Amazon’s new automatic checkout capability in their new to-be-developed stores, maybe their Alexa, Tesla’s SolarCity solar panels, and many more.
We will get to “market rhythm” listed in the title of this article but let’s first consider what “dynamic cycle time” is. Dynamic cycle time is the speed of your firm’s operating and strategic processes. We will create a simple numerator and denominator as a fraction. For the numerator, how many strategic initiatives are in play in the typical year? Let’s say your answer is 10. For the denominator, how many strategic initiatives are completed in the typical year as per the original business case for each initiative? Maybe you say 3. Now divide the denominator into the numerator. In our example here the answer would be 10/3 = 3.3. What does this number mean? It is the number of years it takes to complete any one strategic or key initiative. This number usually surprises executives and managers as they almost always think they do things faster than they really do. In one lighting manufacturing company, the cycle time to complete any one strategic lighting initiative was a whopping 7 years! In another client in the oil field tubing business, there were 17 initiatives in play in the typical year. And no initiatives were completed in the typical year as per the original business case for each initiative. Indeed, the business case was not a formal business case; it was an informal agreement to move forward. The dynamic cycle time, in this case, is technically undefined because you cannot divide anything by zero. But the cycle time was approaching infinity! Not good.
The definitions for the numerator and denominator in the dynamic cycle time number must be applied precisely. The phrase “in the typical year” is key. And so is “completed as per the original business case for the initiative”. Completion times that are slipped from the original business case, even if approved by the external or internal customer, are not counted in this formula. It is the number of initiatives completed in the time frame set out in the original business case for the initiative.
As I have reported in several of my articles in this series, this knowledge comes from my time spent at Thomas Group in the late 1990s to give credit where it is due. Then Thomas Group was one of the two leading Operations Excellence consulting firms. There the formula was used for operations excellence “AIPs” or Actions in Progress. However, the formula and the implications of the formula work for strategic initiatives as well.
How do we make sense then of dynamic cycle time and the real pace of your business, what I call market rhythm? Your firm’s market rhythm is a pace that is about four to five times as fast as how often your best customers buy your products or services. I first presented this notion in an article in the journal Strategy and Leadership in 2000 and then in my 2004 book, The New Science of Strategy Execution: How Established Firms Become Fast, Sleek Wealth Creators. But I began testing this notion with clients in 1998. Why are we discussing market rhythm in 2018? It is because I find the reality still exists for most of today’s for-profit businesses. Also, my book in 2004 was written as an advanced book for senior strategy professionals – so it did not have a wide readership. I am re-introducing this notion and reality in 2018 to try to help businesses in today’s very dynamic world. It is beyond the scope of this short piece to discuss where and how I “divined’ market rhythm. But suffice to say here that while it is based on some academic research, it mostly comes from observing businesses and their speed over thirty-five years in the field. I was curious why with all of our project management tools and disciplines, the execution of strategic initiatives could still get very stalled. The reality of market rhythm solved this dilemma for me and my clients better than any other frame of reference and set of tools. Or look at this very practically: market rhythm simply sets a very high bar for speed for your firm. Aligning what your firm does to your market rhythm (discussed below) almost assures it will not get blindsided by unforeseen occurrences.
In 1998 we called on the then CEO of Neiman Marcus, the upscale retailer, Gerald Sampson. We discussed this notion and then he called his head of marketing and CFO into his office. He asked them how often their best customers bought from them. They went off for about an hour and came back and said, “About once a month”. So applying the formula, their market rhythm was about every 4 or 5 days. “Wow he said”, “what does this mean?”
This was the real pace of their business. This is the frequency of Saks trying to pick off those best customers, their customers being bombarded with marketing messages from all sorts of retailers, the rate of momentary dissatisfaction experienced by Nieman’s best customers until the issues were resolved, the rate of issues in the supply chain to get products on Neiman’s shelves and the like. So there is a lot churning in a business at a faster rate than many times is noticed.
What are the implications for the reality of market rhythm? All of your firm’s key processes and strategic and operating activities must be made to be PALS with the market rhythm. PALS stands for Prioritized, Aligned, Linked and Synchronized. What we found in 1998 and still find now is that many firms are still out of PALS with the customer buying cycle, much less something that is four to five times faster than the buying cycle of their firm’s best customers. Now those of you who are trained in mapping your firm’s processes and trying to make them faster know that the cycle time of every process is not going to be as fast as the market rhythm in most cases. For example, the sales process in Business-to-Business settings normally is an 18 month-cycle time. The sales process for a firm like Neiman Marcus has a usual cycle time of about three months to land a new prized customer. So what does PALS with market rhythm really mean?
I need to introduce one last tool from my 2004 book to make sense of how this should work for your firm. It is the Initiative Management Process (IMP). This is a four-phase/three-gate process that tracks strategic initiatives from idea to commitment to execution to finally realization of the planned performance of the initiative. Initiatives are measured as to how fast they traverse through the IMP process. Also, the barriers are identified and removed to help the initiatives hit the intended performance at world-class speed. For a firm to be PALS with its market rhythm, something must come out of the IMP at the market rhythm pace. This is a completed initiative, a critical piece of information about competitors, and an early warning of an impending issue like a critical worker shortage and the like. Also what I call “disconfirming evidence” needs to be monitored out of the IMP as well. This reveals any early evidence that an initiative is not what the original business case thought it would be.
Remember the firm above that had an infinite dynamic cycle time? We worked with this client in 2005. I then said to our team that unless their processes were made to be PALS with their market rhythm, which was about every four months, and unless they tightened up their approval processes for new initiatives (via a robust business case format) and used something like an IMP process, they were headed for serious trouble. This firm filed for bankruptcy in 2015.
Dynamic cycle time, market rhythm and an Initiative Management Process are key concepts and realities that encompass speed for your firm with respect to implementing strategic initiatives and growing the value of your firm. At your next senior staff meeting, discuss these three aspects and measure them for your firm, even as back-of-envelope measures. I bet you will be surprised at how much potential for improvement you have.
This article is part of a series on what causes a firm’s value to increase.
Dr. William Bigler is the founder and CEO of Bill Bigler Associates. He is a former Associate Professor of Strategy and the former MBA Program Director at Louisiana State University at Shreveport. He was the President of the Board of the Association for Strategic Planning in 2012 and served on the Board of Advisors for Nitro Security Inc. from 2003-2005. He has worked in the strategy departments of PricewaterhouseCoopers, the Hay Group, Ernst & Young and the Thomas Group. He can be reached at bill@billbigler.com or www.billbigler.com.