Jun 13, 2002

Where Is Your Operation Headed Next?

Developing a Plan is Essential Before You Act

Recently, my company surveyed nearly 100 randomly selected
small to medium-sized firms across the country. What we learned about their
business planning techniques was startling. For example, eight out of 10 of
those surveyed had no idea whether or not their operation would grow during the
next year—let alone where they were headed for the next two to three
years. Less than half knew if they were profitable overall. More than 85
percent had no idea which areas of the firm were losing money.


Several people we talked to indicated they had created a
business plan, but that it had been compiled strictly for the investors or the
bank. It was not the one they were following in developing their business. In
short, it was an excellent story about the industry, marketplace and
firm’s “position” in the market, but that’s all. It had
no relation to reality.


Only a few organizations said they had done anything beyond
this cursory type of planning. Several people had said

•               “I
don’t need the written plan, because I know where we’re

•               “We’re
too busy making sales to bother.”

•               “Who
needs nonsense like that? We know what needs to be done and the kind of people
we need for the task.”

•               “We’re
going to do ours next month.”


These people are headed for real trouble, because business
today just isn’t that casual—it’s highly competitive. Now, a
sampling of slightly fewer than 100 officers in business isn’t a true
statistical sample. And perhaps the results shouldn’t be too surprising,
since most small businesses are young, vital, full of optimism and very lean.
Still, prudent business planning ought to be more evident than our survey
suggests because a corporate business plan is vital to the success of a


The Need for Plans

Why all this concern over a corporate plan? How else can you
determine your organization’s direction? How else can you identify your
market, predict your growth rate and anticipate your profit? A corporate plan
will provide direction in choosing the kind of people you’ll need, tasks
they’ll have to accomplish and timing for adding these people.

A sound corporate strategy plan should tell you who, what,
where, when and why.


Planning Stages

A corporate plan does require thinking and planning, but it
isn’t all that difficult to carry out. And, while it is no insurance
against failure, it can point out pitfalls as well as opportunities that will
more than pay for the effort required.


All businesses go through it one way or another, and it
takes only a few steps to start the process. Regardless of the type of
operation you have, you have to do more than simply say, “we’re in
business.” You have to set up guidelines for your future. And since
it’s necessary, why not make it effective at the same time?


First of all, spell out the mission of your organization.
Whether you’re providing a service or a product, you have a mission.
Given some time to think about it, you can probably crystallize your thinking
to define a very specific organizational image. The act of putting it down on
paper will help reinforce your direction. This corporate mission will determine
the market areas you are going after and the products or services you’re
going to develop or sell. Geography, areas of expertise and targets of opportunity
all will have a bearing on the organizational mission you establish.


Next, establish a general corporate philosophy. That could
mean you are going to develop and sell to businesses and, more specifically, to
service industries. Or perhaps you’re going to run a price-driven
operation with minimum after-sale service. Maybe you’re going to maintain
a strong inventory of quality product and provide considerable sales assistance
and service. Or you’re going to develop a new web portal that small service
firms can come together on to sell to large, global organizations.


Continue developing your plan by establishing exactly which
goals you want to achieve long-term—three, five or 10 years from now.
These goals can be in market share, services provided or product lines carried,
primary and secondary market areas or whatever specifics you select.


Now you’re finally in a position to be definitive.
List your specific objectives such as “we want to have 35 percent of the
municipal/private sector systems in the market in our area,” “we
want a 25 percent increase in business services each year for the next three
years in this portion of the state,” or “we want our 100 best
customers to increase purchases 35 percent in the coming year with us.”


All of these objectives can be measured. And the reason you
want to be able to measure them is to ensure that you’re able to track
how well you’ve done during any given period.


Once you’ve developed your objectives, you’re in
a position to make similar specific recommendations on how to meet those
objectives. To do so, develop a planning schedule, then a task plan and finally
a plan format. The task plan is where you put down ideas that will be discussed
and the plan format will include a detailed discussion of each business unit’s
strategies, duties and goals.


Next, generate a list of assumptions. These are the
assumptions under which you are going to operate, and a compilation of
strategic issues. One way to develop these issues is to look at your
organization’s history, the history of the market, the history of the
industry or trends from other areas.


The information you put down in this selection will help you
forecast trends more easily so you can capitalize on them when you are riding
the curl of the wave rather than the end of the wave.


Analyzing New Business Projects

Not even AT&T or GE can or will launch into a new
business area just because it looks like fun, looks profitable or looks like
something it would like to do.


Smaller organizations must be even more careful. They need
to analyze their new business projects. This means conducting an analysis of
the market and technology as well as the financial and profitability factors.
Only after this has been completed can you determine if the market even exists,
whether it can be developed and the availability and cost of labor and
services, as well as the overall costs.


We know of organizations that have gone through all of the
analysis with a very fine pencil, only to find out that the costs would be too
high to produce a reasonable return for the owners.


During the analysis process, you must first establish the
objectives that are to be achieved. This means determining the type of
product(s) or service(s) the market needs, and how successfully the
product(s)/service(s) can compete.


Next, you have to decide if it is worthwhile to even begin
to examine the feasibility of the project in detail. If you decide to take the
plunge, then you must determine the depth of the study, its time limit and


Once the study is completed, the results will give you a
description of the market, an outline of processes and people needed, the
investment and cost of the new operation, profit projections and a synthesis of
the major problems/risks you will be facing.


The analysis stage permits you to examine various options in
marketing, technology and finance. Market analysis involves searching and
analyzing information that can help identify, isolate, describe and quantify
the market.


The technical analysis helps determine whether or not the
project is even feasible, as well as the projected cost. The financial analysis
is the equivalent of preparing a financial statement for the project. This
helps you and your financial institution determine whether or not the project
is commercially profitable, and how much of an investment will be necessary.


Diversification, Divestment

Since today’s business climate is in constant turmoil
and changes dramatically—overnight sometimes—the most dangerous
thing you can have is a one product, one service, one segment command.
Likewise, it is almost as risky to move too far from your prime business.


An organization that develops and sells purification systems
for semiconductor equipment manufactures, for example, can use the same
expertise to develop similar systems for other firms requiring ultrapure
liquids. The needs—while not the same—are similar. However, just
because you have developed a program that works well for semiconductor firms,
it doesn’t mean you can sell a slightly modified program to biomedical
firms. Here is where your corporate strategy plan comes in, because you are
able to identify targets of opportunity, strengths and weaknesses of the
competition, market potential and trends.


Once you have that information spelled out, you will be in a
position to determine how much it will cost to get into a new market, what your
return on investment will be and when it will occur.


This examination also will allow you to see if the addition
of the new products/ markets will help level out sales cycles, thus producing a
more equitable and predictable cash flow.

If you’re going to diversify into new areas, you
should be certain that you are going to gain a significant market share. To
enter a totally new market with the objective of being able to penetrate only
1–2 percent of even a moderately sized market may not be worth the time,
money and effort.


There may be a possibility of doing a technology or
expertise transfer into a new market, thus keeping your research and
development costs low. This is fine if there is a strong market potential
available. If the market already has matured or is reaching its maturity, it
becomes extremely difficult to enter as the new kid on the block. Often the
“buy-in” costs are not worth the investment.


Finally, determine if new team members will be required. If
you are looking to add a new layer of people overhead, the cost of market entry
may be prohibitive.


At this stage you have all of the facts and figures at hand.
If the project can be financed with retained monies, then you must sit down and
evaluate the information. If you have to go outside for financing, then you
have a professional presentation ready and are equipped to move more quickly.


Regardless of whether you are trying to determine where you
are going tomorrow with your present company emphasis, or planning to enter
prospective new areas, a strategy plan is necessary. Such a plan helps ensure
that everyone in the organization is in agreement as to the posture and
direction of the company. Equally important is the fact that your financial
backers know where you are going and have the level of confidence necessary to
support you in the effort. Putting the information down on paper is far from
fun, but the rewards are well worth the effort.       

About the author

G.A. “Andy” Marken is president of Marken Communications, Inc. in Santa Clara, Calif. He may be reached at [email protected].