Back to Basics

I was thinking about my business partners this morning and what they do when not coaching business executives, implementing successful and sustainable change, and improving company communications by getting people on the same page.

You see, my partners live out in Blackfoot Idaho, where Lee owns a small ranch with a few head of cattle.  He has some friends who own very large ranches.  Last week Lee and Nick were out with the other ranchers driving cattle on horseback, cutting out cows and calves to wean the calves, and moving them to different pastures.  As a perk, they got to see some incredible sunsets and a lot of big sky country.  When you think about getting back to basics, life can’t get much more basic than tending herd from on top of a horse.

Has herding cattle changed over the last three hundred years?  The process; probably not.  The technology; maybe for some who use ATVs, helicopters, and scientifically formulated feed to manage very large herds.  The boundaries; the amount of open range land; you bet.  Cattlemen and women have had to adapt to radically changing conditions and a new market, but they still have to wean calves from their mothers, and make sure the herd is fed and cared for until ready for market.  If they tend to the basics well, and adapt to the new market situation, they may profit from the sale of healthy cattle to provide food for the rest of us.

Some recent business stories focused on the substantial loss of manufacturing jobs over the last decade.  The prognosis for recovering those jobs is not good.  Many writers predict that we have experienced a major shift much as the move from the agricultural to the industrial era more than a century ago.

Should your business be getting back to basics?  Have you weathered the economic storms of the past couple of years?  How did your business survive?  How will it survive?  How will you adapt to changing economic times?  Does the move from a manufacturing to a service economy affect your business model?  Are you ready to meet a freshening economy head on?  Have you tended to the basics of running a successful business?  Or have business activities and processes gotten away from you during the turbulence we’ve experienced lately?

Maybe it’s time for you to climb back in the saddle and take a good look over your business.  Are your mission, vision, and values sound?  Are the business plan and strategy complete, current and targeted at a new marketplace?  Are your processes and systems lean and well tuned?  Is your organization structure appropriate for the task at hand?  Are your people prepared for the challenges ahead and are their efforts in harmony with your business objectives?

Lee and the other ranchers work together to manage their herds.  Would you like some company while surveying yours?  Maybe a little help with the assessment, just to keep you focused on the basics?  If so, give me a call.

Peace my friends,

Terry

Organizing Your Organization: The Legal Stuff

A few quick comments on the legal aspects of organizing your business…  There are several forms your business can take for legal and tax purposes.  Those forms include, but may not be limited to:

• Sole Proprietorship
• Partnership
• Limited Liability Company (LLC)
• Sole Proprietorship LLC
• Professional LLC
• Professional Corporation
• Subchapter S Corporation
• Subchapter C Corporation
• For Profit Corporation
• Not For Profit Corporation
• Non-profit Corporation
• Charitable Corporation

I’m only going to give you one piece of advice on the best legal structure for your company.  Talk to your family attorney if you’re a small or home-based business or to an attorney specializing in business and tax law if yours is a mid-sized or large organization.

My partners and I are organized as a subchapter S corporation that provides professional consulting services, and we each own stock representing our investment in money and intellectual property.  This form limits our liability and passes tax reporting responsibility to us individually.  I also have a sole proprietorship LLC which offers consulting and technical services.  It too limits personal liability and is disregarded for tax purposes.  Suffice it to say we had the advice of a very experienced family and estate planning attorney and certified public accountant when legally forming our businesses.

However, my purpose with this blog is to deal with structuring your organization for performance.  So here’s a very important “Better Business Basic” for you, leave the legal stuff to the experts!

Organizing Your Organization

Sorry about the time away from the blog folks, but I’m happy to be back and ready to shift gears.  We’re going to focus more on the people side of your business before getting back to processes; starting with structuring your business.

The right structure will help your business do the right things right.  It will free up your people to achieve their full potential, and your business to achieve its full potential.  It will provide for performance, management, and direction.  It will provide for effective communication and motivation.  It will directly link your team members to your purpose and strategy.

Much discussion in administrative theory and organizational behavior revolves around the idea of vertical or flat organizations and the “chain of command”; in other words, many or few management layers, and what is the “right” number of people reporting to one person.  There are other important ideas like self-directed work teams and quality circles which may affect the successful achievement of your purpose.

Keeping this simple, the answer to the question, “What is the right organization structure for my business?” is; it’s the one that best suits the nature of your organization’s purpose and the activities necessary to fulfill that purpose.  In other words, it’s a “form follows function” approach.  You’ve defined your conceptual foundation, developed your strategy, and identified the systems and processes necessary to carry out your purpose.  Now you’ll create a form for your organization that supports the essential functions (systems and processes) you’ve identified.

Think of your organization’s structure much as you would the other systems and processes necessary to achieve your goals.  There should be no self-justifying element of the structure; no extra layers of management; no staff members searching for a purpose.  There should only be a sufficient number of competent people in the right positions such that through effective interaction, they get the job done without wasted time, effort, and re-work.  Seems like common business sense to me.

From the largest multi-national corporation to the sole proprietorship working out of a home office; all have the same need for structure.  The organization needs direction in the form of a mission, vision, values, purpose, strategy, culture and policies; all of which guide people in performing their jobs.  The organization needs management of its resources, systems, processes, and risks to keep everyone focused on objectives within the constraints imposed by the established direction.  And the organization needs performance of tasks and activities using appropriate behaviors and competencies to accomplish the purpose it is intended to serve.

The key words are direction, management, and performance.  In a small business the sole proprietor may be responsible for all three elements of structure.  In large organizations direction is handled by a board of directors, management by a leadership team, and performance by the rest of the team.  In many organizations using a participative approach there is a large amount of crossover between these structure elements, much less so in the autocratic organization.  Regardless, these are the essential elements of an organization’s structure; as described by the late Peter Osterio in his seminar on “practical governance and risk management”.

So be thinking about your organization’s structure in terms of: “Form Follows Function”, Direction (Governance), Management, and Performance until next time, when we’ll fill in some details.

Business Systems, Part 1: Relevance

Some common business sense: every system and process in your organization should exist to support your business purpose and keep you in business.  Common sense says that there should be no self justifying system or process.  Every product, service, division, department, function, team, position, activity, task, and report, should exist for a reason found within your philosophy, purpose, or strategy and described in your business plan.

Business systems and processes, taken collectively, are one of five key drivers of performance in any organization, along with your people, structure, strategy, and foundation.  Any extraneous process takes valuable time and resources away from your primary purpose and negatively impacts performance.  If you want to run your organization on LEAN principles, even if you know nothing about LEAN, start here and eliminate any process that doesn’t support your purpose.

Use your business plan as your guide; if the plan doesn’t mention it, maybe you shouldn’t be doing it.  If it still seems like you need it, refer back to your business philosophy.  If it doesn’t relate to being purpose driven, people centered, values focused, servant led, community friendly, or environmentally responsible, maybe you shouldn’t be doing it.  If it still seems like you need it, you’re probably grasping at straws or you’re a bit of a packrat; get over it and get rid of it!

Those of you who are just starting your own business are blessed with a clean slate so resist the temptation to clutter it up with personal preferences, likes and dislikes. Stick with the basics we’ve been talking about since day one: build your foundation, define your strategy, then define, build and resource your systems and processes to deliver on your strategy.

Are there exceptions to this rule?  One; and it may not be truly an exception.  Depending on your industry there may be international, federal, state, or local laws and regulations you must comply with or suffer consequences.  Or you may have agreed to some local requirements to gain certain benefits such as tax abatement, requirements which often have consequences for failure to uphold the agreement. 

Consequences usually take the form of loss of desired benefit, fines, legal fees, or jail time.  A business basics tip: invest in whatever process is necessary to comply with the law or the agreement; it’s not worth the alternative.  Consider it a cost of being “community friendly” or “environmentally responsible”, and make it a marketing advantage or selling point if you can.  You’ll build credibility and your business reputation as a principled organization.

Remember, design your organization to be lean and focused on results.  Purge those self justifying extraneous processes and systems.  You’ll save resources and time, improving your performance and your probability of success!

More on Strategic Alignment

One of our business partners raised a good question about reaching potential users of alignment services.  His observation was that several potential clients had suggested they could handle the challenge of strategic alignment on their own and didn’t see the need for a consultant since it’s “just” a matter of communication.  His question was, “How can we help them see the value of using our software and consulting services to solve alignment challenges?”

There are several answers to the question, but there are a couple of critical responses that need to work into the conversation.  First, given that over the last fifteen years two major studies confirmed that two thirds of strategic change initiatives in North American businesses fail, why does the potential client believe they’re different?  What experience does the client have regarding successful change?  Second, given that successful change involves clear and concise communication, clarity of expectations and elimination of assumptions and ambiguity, what technology does the potential client have available to ensure that expectations are accurately captured, communicated, and tracked to completion?

What experience does PDS Group LTD have? We present on our resources page, www.pdsgrp.net/resources.html, more than ten case studies describing the application of our expectations approach to successful strategic change; and we have more than ten thousand documented expectations in our client databases.  Our various clients have experienced an increase of $51MM in sales revenue over 19 weeks, improvement in client satisfaction from 4^th place to 1^st place in one year, successful management transition of a family owned business, and completion of a major construction project on time, within budget and with no legal challenges (first time in fifteen years for the building owner).  Our web-based alignment software to which clients may subscribe can not only track individual expectations, but also identify for each expectation the:

• Strategy element or component to which it applies
• Tension or risk associated with each
• Amount of coaching needed for successful execution
• Specific success objectives such as deliverables, timing and budget
• Achievement levels and projected financial impacts
• Start, stop, and coach dates for each

We definitely have experience with successful strategic change, misalignment and conflict resolution.  Does the client?

Strategic alignment is not just clear communication; it’s the process of communicating clearly and completely, delegating effectively, tracking communications and related results, and maintaining accountability.  It needs to be viewed as a core business competency essential to the success of any organization.  However, it’s the rare business school that even mentions it, much less teaches it. 

Think about it a moment; when you were building your firm foundation following my early posts on this blog, did you include strategic alignment as a core competency?  Were you aware of the need for or even the definition of strategic alignment?

I’m still working on some answers for our business partner, but I hope I’ve given you some essential tips about strategic alignment that cause you to learn more about it and know when to ask for help.  As we like to say at PDS, “Change is hard, real change is real hard!”  But you’re not in it alone; we have some resources and the bench strength to help.  So if you’re struggling to get your team aligned with new strategies or major changes, give us a call.

Get Your People Aligned!

We’ve been developing your organization’s strategy and now we need to get your people on the same page.  It’s called strategic alignment.

An essential part of success in any activity involving more than one person is clarity regarding objectives, and understanding of each person’s role.  People centered organizations know that performance is personal before it is organizational.  Getting your people aligned is the process of making your strategy and plans personal for everyone in your organization, no matter how large or small that organization is.

So how do you do that?  Use the expectations approach to eliminate assumptions and ambiguity.  Here are the key success factors:

• Communicate openly with your people.
• Involve them in development of the strategy.
• Tell them what you expect of them and what resources you will make available.
• Ask them what they expect of you and of each other.
• Gain agreement on those expectations.
• Jointly decide the success objectives for each expectation (deliverables, timing, and budget).
• Jointly define rewards and consequences.
• Delegate responsibility, authority, and accountability.
• Hold each other accountable.
• Communicate and celebrate results.

If your people know what is expected of them, and if you do everything in your power to clear away obstacles to their success, you enable them to perform up to their full potential.

What I’ve described sounds simple; in fact, I consider it one of those better business basics, and a matter of common business sense.  But it gets complex because of the amount of information involved.  In effect, you’re going way beyond the classic job description or position profile, and writing a detailed performance contract between each pair of people who need to establish and maintain a productive working relationship.  That includes superiors and subordinates, team mates and, in many cases your people and their clients, customers, and vendors.  The more complex the relationship, the more important each set of expectations becomes.

On the positive side though is that when these performance contracts are established and maintained, when they become a part of each person’s normal work routine, they become a great tracking tool.  They are the source of task lists, tickler files, and performance appraisals.  They are the tools for recruiting and hiring people who are a good match for your organization.  They are the supporting documentation for incentive pay programs and improved position profiles.  They are the fuel that sustains effective processes.  They become essential to the success of critical strategic and tactical change initiatives.

When employed during the development and implementation of your business plan, long range plan, and annual operating plans, the expectations approach helps you build a people centered, servant led, purpose driven organization.  For more on this approach to successful change, visit www.pdsgrp.net/alex.html and contact alex@pdsgrp.net.

Business Plans: The Annual Operating Plan

The next step in drilling down to the actual tasks that people perform is developing the Annual Operating Plan or AOP.  If you have done a good job on the Long Range Plan and the remainder of your Business Plan, you should have several solid objectives ready to be divided into more detailed short term team and individual objectives that can be completed in less than one year.  Now your planning process will shift to subdividing those LRP objectives.

Think of the AOP as scaling down the LRP into what can be accomplished in the next year.  The LRP was an opportunity to evaluate the big picture and focus on risks with some attention given to what might serve as measures.  Conversely, the AOP is an opportunity to detail near term elements of the LRP and focus on detailed measures of performance and results with some attention given to monitoring risks.

In the process of developing your AOP, you will also be developing key components of your annual capital and operating budgets.  It is important to let your long range and operational goals drive your budget and not let the budget drive your goals.  Remember, money is a resource and a measure of success.  Profit is your reward for achieving your annual and long range objectives; it is not the purpose for your organization’s existence.

The detailed objectives in your AOP may consist of sales goals, marketing plans, production goals, new buildings and equipment, revenue and expense targets, employee counts, new and changed processes, or particular activities in your start up process if yours is a new venture.  They may include implementation of new processes or specific annual projects that produce results and align with your business philosophy including community relations and environmental stewardship.  All of them should relate to a specific LRP objective, and to the business plan components we defined earlier.  Again, these objectives must be SMART; Specific, Measurable, Achievable, Realistic and Time-bound, like the LRP objectives discussed in the last post, but even more specific and short term; less than one year.

All of your AOP objectives should include clearly defined measures both of process and results, as well as methods for reporting.  The measures associated with these goals may be lagging measures reporting the results of your operations.  However, as these AOP objectives are further clarified by enterprise, department, branch, team, and individual goals; remember that goals at this level are very process oriented and must include leading measures or indicators.  Without integrating leading measures within processes you will not have advance warning of processes drifting off target that could end in failure to achieve the desired results.

When you have worked through all of the objectives in the LRP and committed them to your AOP, you still have to address the ongoing activities that keep your business running.  There are always things your organization does every year that must be done to keep the doors open and the customers served.  Those activities may not have been directly addressed this year by long range objectives; that doesn’t mean you stop doing them!  To steal a quote from John F. Kennedy, “we choose to go to the moon in this decade, and do the other things…”  We didn’t put the rest of government on hold while we went to the moon.

Landing a man on the moon in this decade (1960’s) was one whopper of a long range plan; parts of going to the moon were inserted into the AOP each year, along with “the other things”, and we landed two men on the moon on July 20, 1969.  When Kennedy established that goal it had only been four years since the Russians orbited Sputnik; by 1961 all we had in orbit were a few communications satellites.  But we had a robust government going (some would argue a little too robust) that still needed attention!  The “management team” took on all those details.

The point; plan and budget for all the day to day activities of your organization, but highlight in the AOP those that relate to the LRP and make sure they get special handling to avoid losing them in the shuffle of your daily work.  When your annual operating plan is complete you will have a roadmap of your entire route from January 1 to December 31.  You’ll know the mile posts you need to pass, and you’ll have that dashboard telling you everything you need to know to gauge progress and results through the year.

Now your management team will need to put that plan into action.  Every Division, Department, Branch, and Work Team will need to figure out all of the tasks and activities needed to achieve the AOP goals.  They’ll need to sit down with their teams and figure out the deliverables, timing and budget objectives and the incentives and consequences needed to keep everyone on track.  While they’re doing all that work they’ll need to keep in sight the key components driving all of their activities, the objectives of the LRP and AOP.

I’ve tried not to get too detailed but to give you just enough about this particular business basic, this piece of common business sense: plan your work and work your plan.  Larry Linville’s character, Major Frank Burns (M*A*S*H, CBS, 1972-1983) put it better than anyone else while digging foxholes all over the camp in preparation for the potential air raid when he said, “prior planning prevents poor performance!” 

Of course, even the best laid plans can be co-opted or sabotaged when people are not all on the same page; as Frank found out the instant he dove into his foxhole outside the “Swamp”; the one Captain B.J. Hunnicutt had conveniently filled with water just before hollering “AIR RAID!”  And that sets up the subject of my next post, get your people aligned!