The Garrison Report #2005-10

Why Strategic Planning Will
Increase Your Profits

Rosabeth Moss Kanter wrote a very interesting article in "Harvard Business Review" on the psychology of a business turnaround. Kanter identified several traits of a company in need of a turnaround; including secrecy, blame, isolation, avoidance, passivity and a general feeling of helplessness. These same traits are prevalent throughout the construction industry, which indicates the need for a turnaround. For example, clients and contractors are usually afraid to expose their actual budgets and costs to each other because both are afraid the information will be used against them. Everyone is blaming everyone else for the problems facing our industry. This causes a feeling of helplessness and a begrudging acceptance of the way things are.

Focusing on individual issues will not solve the problems facing the industry, because as business management expert Edwards Deming has argued for decades sub-optimization is ineffective. Instead, to fix the problems facing the construction industry, we must look at the entire system. We mustthinking strategically in order to create an effective strategic plan.

Since no strategic plan can be created in a vacuum, we first must understand our current environment and how our actions influence the future. The information management theory provides insight into this condition.

Dr. Dean Kashiwagi's Best Project Management illustration (Figure 1) illustrates this concept. There are three critical elements in this process: the initial conditions, the event as it takes place over time, and the final conditions or results. Simply, if we knew all the initial conditions before an event took place, we could accurately predict the final conditions or result. This is true because there are no random occurrences that affect the event. The challenge is that the more complicated an event or the longer it lasts; the more difficult it usually is to determine all the initial conditions. Further, the less information we have about the initial conditions the more difficult it is to predict the result. This doesn't mean the surprises that occur during the event are random.

Figure 1 -- Best Project Management
Reproduced from Seminar by Dean Kashiwagi, Ph.D.

All the initial conditions exist regardless if you are aware of them. For example, if an individual isn't aware gravity, would that effect a falling object? It's the same for all initial conditions. When we are surprised by the results of our event, it doesn't mean that random actions occurred; instead it means we were simply unaware of all the initial conditions. Therefore, it is in our best interest to do the best possible job of determining the initial conditions in order to more accurately predict the final results.

While it's true that in most situations we can't uncover all the initial conditions, however it's possible to develop a process that uncovers the golden nuggets or opportunities that will improve results and uncovers the landmines that could derail the effort. Strategic planning concentrates on the initial conditions in order to take advantage of opportunities while minimizing the threats. When people ignore the evidence on the initial conditions they end up getting blindsided by unanticipated impacts. This is true whether you are working on project or a company's strategic plan. This is why strategic planningis the first building block to reaching your full potential.

Ignoring the evidence that low bidders are often low performing contractors would be shortsighted. This is ignoring a potential landmine. Instead, before awarding the low bidder the project, the contractor's performance should be examined or in essence a mine sweep to avoid being blown away. After all, would you willing walk through a minefield before someone cleared a safe path?

At the company level, ignoring the fact that currently there is a problem finding a sufficient number of qualified mechanics that problem is further complicated by the prediction that the situation is going to get worse would be the equivalent of charging through a minefield blindly. While no company can fix the overall economy that created this situation, a company can change its procedures and compensation practices to minimize the impact of these conditions on the company. Those companies that sit back and allow events to overtake them will get broadsided and end up in serious trouble. In contrast, a company that starts planning for ways to increase its productivity has an advantage. As productivity increases the company can afford to pay more, because the productivity gains would offset the increased wages. Another benefit of increased productivity would be a reduced need for mechanics. Increased productivity will not happen by accident, it takes planning. In this case strategic planningbecause we must look at the big picture.

However, the challenge for many people is to even think strategically. Michael Gerber in his book the E-Myth describes the problem. The "E" stands for Entrepreneurial, so it's really the "Entrepreneurial Myth". Gerber says that while most people think that those who start their own business are entrepreneurs, he declares this isn't true. Instead, he says, they are usually technicians who have experienced an "entrepreneurial seizure".

The result is that electricians start electrical contracting companies. Plumbers start plumbing companies. Carpenters start framing or contracting companies. The problem is they usually end up focusing on doing the work, or the tactical aspects of the business. Since no one acts strategically the company tends to struggle. However, it's not only the business owner, we all tend to get caught up in our little world which is usually tactical--in other words, getting the work done. This isn't surprising since most people have very focused responsibility and so they tend to focus on their specific area.

It's not about the person's level within an organization. For example, a CFO focuses on financial issues, but how many of them really step back to understand how the financial decisions impact the operations or people issues within the company. If they are asked many will say that is someone else's problem. This compartmentalization is further reinforced by that fact that most companies may only have a weekend a year where key employees sit down and discuss strategic issues. Unfortunately, strategyisn't a one-day a year problem--it's a full time issue. This is especially true today because of the rapidly changing business environment.

A strategic plan has five main components; vision statement, mission statement, objectives, strategies, and prioritized action steps. I don't have time to discuss the first four this month, but I will discuss them next month. However, the prioritized action steps are critical to this month's discussion. By establishing ninety-day priorities for the strategic plan it forces everyone to think strategically. This is critical for many reasons.

First, strategic thinking gets companies to focus on the golden nuggets of success and the elimination of the landmines, instead of just working harder trying to do the same old thing better. Two, it forces everyone to step back and look at the big picture. Too many companies are so mired down in the details they can't see the real problems. The result is time and money is wasted fixing the wrong problems.

But maybe the most important benefit is strategic thinking gets people to focus on the important things. One of my favorite questions to ask in my seminars is: Is it better to do the right thing or to do things right? Of course, the technician respond to do things right, because that's what they have been taught. However, does it matter how well you do something if it didn't need to be done? As Peter Drucker has stated, "There is nothing more wasteful than becoming highly efficient at doing the wrong thing." Therefore, strategic thinking is about focusing on the right thing.

Until people or a company decides what is the right thing, there is no point in trying to improve your tactical operations. The ninety-day priorities get everyone to spend part of their day on strategic thinking. This is important because unless people spend time on the strategic plan it will not move forward. The reality is that people respond better to urgency than importance. So when a strategic planis a long-term project, people will always find excuses to put it off until another day. However, by creating the ninety-day short-term goals and holding people accountable for the results, you will shift progress on your strategic plan to urgent. In other words, you and your people will focus on what is important!

When your company focuses on what is important you will begin to see its performance and profits increase. In essence, your strategic plan is the path to your company's financial success. How can you afford not to get started now!


 

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