The Opinion Page
News and comments about the issues facing today's SCM and Inventory Management professionals.
The following article, authored by "yours truly" was published in the Durham Business Times, February 2011 edition. I hope that you will enjoy:
As the senior manager or proprietor of a small or medium-sized enterprise (SME), does the prospect of developing a strategic plan frighten the daylights out of you? Do you view strategic planning as the exclusive domain of intellectuals, expensive consultants, or even mystical practitioners in the Dark Arts?
Perhaps the overwhelming volume of literature and teaching regarding strategic planning has contributed to its becoming an intimidating activity. It does not have to be so. One thing is certain: those SME’s who effectively utilize a strategic plan enjoy a much greater chance of long-term success, whether measured in key financial performance indicators, longevity, or cultural stability. Professor Sydney Finkelstein of Dartmouth College provides a concise working definition of “Strategy.” It is: “what a company does, or does not do to fulfil its vision in a competitive marketplace”.
The high-impact strategic plan can be presented effectively on one page. Its elements can be expressed in a few well-chosen words, clauses or sentences. The strategic plan should not be confused with an operations or business plan: the latter two are subservient to the strategic plan, shorter in timeframe, and far more detailed. A strategic plan well done is the manifestation of elegant simplicity. Yet it is powerful enough to guide the daily activities of dozens, hundreds, and even thousands of employees.
Within the strategic plan, senior management sets the dominant logic and the moral compass of the organization. It is an opportunity to unambiguously document ethics for leadership continuity. It forces introspection and situational analysis. And, primarily through articulation of core values, it provides a directional beacon especially in hard times.
Fundamentally, the creation of a strategic plan is a five-step process:
The Vision is an inspirational call to action. In a few short words, the CEO or senior manager uses the Vision to point the way to the company’s future. It should engage our emotions. It should be designed to last for many years. For example, Google’s vision statement is world-class: “To develop a perfect search engine.”
With ethical problems causing the downfall of countless corporations each year, preparing a statement of Core Values becomes vitally important. Choose five or six words or short phrases that define the values that must be intrinsic to your culture. Examples of such words might include “integrity”, “transparency”, or “honesty”. Core Values will guide your firm in making hard choices in very difficult times. They must not be compromised. They will state how you will treat others as well as yourself. Hire people who personify your Core Values.
An effective mission statement should be able to tell your company story and ideals in less than 30 seconds. Comprised of three or four short sentences, it is more detailed than the Vision, and is often written in the present tense. It defines your company’s customers, products, and how your company contributes unique value for its customers.
Strategic objectives should be specific, measurable, attainable, relevant, and time-framed (SMART). Three to five objectives should suffice, and they should be attainable within one to three years. For reasons of confidentiality, strategic objectives are rarely published outside the company, but they must be effectively communicated to all employees.
This acronym stands for Strengths, Weaknesses, Opportunities, and Threats. An honest, fact-based discussion between senior management and key advisors needs to take place. Documenting strengths and weaknesses tends to involve serious introspection, while opportunity and threat analyses tend to require external environmental scanning.
Since it establishes the firm’s current position relative to its competitive environment, the SWOT can be very useful in establishing objectives and even the mission. It is therefore frequently performed early in the planning process.
The strategic plan is a living document. It must be communicated effectively and constantly to employees. Successful businesses frequently incorporate the plan into the annual employee performance review process, ensuring that individual and departmental goals and objectives are aligned with the strategic plan. The strategic plan should be reviewed at least annually, noting any SWOT changes that might require modifying strategic objectives. A comprehensive renewal of the strategic plan should be undertaken every three years.
While helping to prevent tactical conflicts between operational departments, a good plan will also discourage spending on projects that are not aligned with strategic goals.
For a wealth of information, simply search key words such as “vision statement” on the internet.
On December 15, 2010, www.bloomberg.com reported the following:
"Goldman Sachs Group Inc.’s top executives will get about $111.3 million in stock next month in a delayed payout from last year and their record-setting 2007 awards, even as Wall Street prepares for lower bonuses.
Chief Executive Officer Lloyd C. Blankfein, 56, is poised to receive about $24.3 million in January, based on the closing share price on Dec. 14, while President Gary D. Cohn, 50, will get about $24 million, company filings show. The payouts, just a portion of the $67.9 million bonus awarded to Blankfein for 2007 and the $66.9 million paid to Cohn, reflect a 24 percent decline in the stock’s value since it was granted at $218.86.
Within a year after the bonuses were approved, Goldman Sachs took $10 billion of U.S. bailout funds, converted to a bank and was borrowing as much as $35.4 billion a day from Federal Reserve emergency programs. This year the New York-based firm paid $550 million to settle U.S. regulators’ fraud charges related to a mortgage security the company sold in 2007.
“Clearly we now look back and say, ‘Were things fine? Should they have paid? Maybe not,’” said Jeanne Branthover, a managing director at recruitment firm Boyden Global Executive Search in New York. “There’s nothing you can do about it. The payouts were in stone. But hopefully, in the future, they won’t be.”
In the weeks following the report in Bloomberg, it has become clear that Golman Sachs, and other large investment banks are charging full steam ahead, awarding billions in bonuses to their executives and staff. One report put the amount at an average payout of roughly $500,000 per employee. It is clear that the receptioist isn't going to enjoy a $500,000 bonus check. Executives will get the lion's share.
So, as the US government (translateion: "taxpayer") bails out the braintrust at Goldman Sachs et. al, the extremely rich get even richer.
During Mr. Obama's State of the Union speech tonight, perhaps he ought to bring out his Louisville Slugger, and drag some of these banking mandarins out to the woodshed, giving them the arse-whuppin' of their lives. Simply put, the investment bank eecutives have been big catalysts in one of the greatest financial crises in a century, even while they feather their beds of largesse with taxpayer money. ,
One has to question the judgement (or motive) of the Obama Administration as well, however. After all, as Bill Waddell of Evolving Excellence pointed out on January 25, 2011, Mr. Obama has just appointed GE's Jeff Immelt to head up the government's commission to create jobs. Immell appears tp have achieved good results during his tenure at GE from 2000 to 2010. The problem is, however, that 96% of the 81,000 new jobs created within GE between 2000 and 2010 were in countries OTHER THAN the USA!
On Saturday, January 8, 2011, the Toronto Star published a report which revealed the annual earnings of the highest paid CEO's in Canada. The data were stunning.
The highest-paid CEO in Canada for the year 2009 was Aaron Regent of Barrick Gold. He "earned" $24,217,020 in that year. In second place was Hunter Harrison of the Canadian National Railway, who was paid a stipend of $17,343,160 for his toil. Ranking #100 was Michael Waites of Finning International - his paycheck was $2,967,207 in 2009. The average salary among the 100 was $6.6 million, down slightly from 2008 at $7.3 million.
Compare this to the annual wage salary for the average Canadian worker in 2009, which was $42,988 and one can easily calculate that the average CEO in the Top 100 is paid 155 times the wage of the average Canadian worker.
The Star interviewed Roger Martin, dean of the U of T's Rotman School of Management, who believes that the way executives are paid was a key ingredient in the economic crash of 2008/2009. Executives like Jack Wash of General Electric can retire when stock prices are at or close to their peak. Wash owned $900 million of GE stock at the time of his retirement at time.
Even subperforming CEO's make out like bandits. Bob Nardelli of Home Depot, who Martin argues "did a terrible job", resigned with a severance package worth $240 million. "Calling it quits can be a lucrative business" says The Star.
Remember that 2009 was the year in which we were enduring an economic downturn that was generally acknowledged as being the worst since the Great Depression. Billions of dollars in bailout cash were being delivered by the Canadian government to the private sector. Workforces were being slashed left, right, and centre. Employment Insurance payouts soared. Unemployment figures continue to be high ion spite of the modest recovery that we are now enjoying. But the CEO's, and I will wager their senior executives, were doing very well indeed.
Would someone please convince me that these CEO's have 155 times the talent that the average Canadian worker? Do they work 155 times as hard as the average Canadian worker? Are they 155 times smarter than the average Canadian worker? Are they 155 times more ethical, more honest, more motivated than the average worker?
We are told that big money is needed to attract big talent. Balderdash. There are just too many examples of very bright young people growing concepts into successful enterprizes (ever heard of Facebook or Google?) that fly in the face of the Big Money Theory. Intelligence, talent, and work ethic are not the exclusive domain of the rich. In fact, given some of the collossal disasters seen in recent years in Big American and Canadian Business, one has to wonder whether there is an inverse relationship: is it possible that the more we pay our senior executives, the more stupid they become? Do they become more reckless? Do they become less trustworthy? Do they become less altruistic? Do they become more concerned with their own lot in life than the welfare and happiness of their employees and their customers? Do they become more short-sighted, looking toward tomorrow's stock price rather than the long-term stability of the organization? Do they become egomaniacal at the expense of society as a whole?
Demographic data seems to be indicating a growing gap between the very rich and the working poor. The middle class appears to be eroding. Wealth, it seems, is being withdrawn from the middle class into both the public sector (through Big Taxation) and the private sector (into the hands of the very wealthy).
This cannot be a sustainable trend.
John Skelton is the Principal Consultant and founder of Strategic Inventory Management.