- 16th April 2018
- Posted by: Manolis
Here are five thoughts on business strategy and execution. These involve setting business direction, knowing where your profits and margins are coming from, understanding your goals, people issues and more.
1. Setting business strategy. In setting business strategy, a first core concept is to decide what your firm wants to win in. For example, a firm can decide it wants to be the best or most dominant in its niche, i.e., niche-centric. For a health system, this may mean, for example, that the system wants to have the best oncology program or orthopedic program or be premier in some other area. Alternatively, a business can decide it wants to profit by offering the very best customer service. A hotel, for example, may decide it will differentiate itself by offering exceptional customer services. Think the Four Seasons. Or in retail, think of a company like ABT.
Another strategy is to be the low-cost provider. Here, for example, a buyer knows if they go online to certain sites they can find the absolutely lowest price. Or in retail, at one time many chains had the concept to be the lowest cost provider.
Another strategy engaged in more and more often is to be so big and offer so many choices that it’s hard for a customer to not use you. In health systems, think of a system that is so large in its area that it is or has been hard for payers or customers to not use them. Here, the phrase “market essential” or “dominant” is often used. In retail, think of Amazon.
Another core discussion on strategy relates to assessing the owners’ or founders’ goals. In a business, one needs to consider whether, for example, they are building a multi-generational business to survive for a long time, building a business to sell, or trying to make a living and cash flow for the foreseeable future. These are not mutually exclusive. In a larger or long-term sustainable type of business, the founder or leadership team has to look at systems and scale issues more fully and assess how they grow a next-level team and keep developing new concepts and markets. In other situations, a business still has to be great, but it can thrive with a smaller team and a different set of plans and objectives and resources.
2. Understand where profits and revenues are coming from. Every business must understand where its profits and revenues come from. This drives many choices and efforts internally and externally. It should force a discipline of constantly rededicating energy and resources to places where profits and revenues come from. It helps avoid what has been called SKU (“stock keeping unit”) creep. I.e., where a business spreads resources to so many products or areas that it is hard to be great and really win and profit in certain areas.
3. Retain and recruit great people. It’s impossible to accomplish very much without a terrific motivated team. Here a business must establish a core team, constantly recruit people, and expect attrition and turnover of, for example, 10 to 20 percent per year. It must also stay rationally lean but not so lean that people can’t grow, pay fairly to rationally overpay, and provide opportunities for people to grow. Not everyone has to be a superstar, but a team needs a mix of solid performers and superstars.
As to people issues, we also try and follow three more concepts. First, don’t evaluate and categorize people too early in their career or job. Second, when you have terrific people that are leaders, don’t be afraid to place big bets on them and substantially promote them. Third, always seek to add in redundancy so as to limit risk if or when a key person departs or loses energy.
4. Pay close attention to business changes. The business world is very fluid. This means businesses have the tough chore of constantly doubling down on core areas of profits and revenues while at the same time constantly looking at where they must pivot and develop new areas of profit and revenues. A business making tremendous margins in an area must look at whether they will continue and what new areas or adjacent areas they should consider. Like digging wells before one is out of water, businesses must look at and test new areas while the business is still thriving.
5. Focus on core competencies and outsource everything else. A business must decide which functional areas it wants to be amazing at and should largely, unless cost prohibitive, outsource everything else. Here a business may decide it has to be great in sales or in customer service or in orthopedics or editorial or in digital media or finance or any number of areas. Then it must make hard core choices to over-invest in those areas and outsource as much as it can outside of those areas. The old business model included having all business functions under the company umbrella. This is a very expensive undertaking and also leads to a huge diffusion in focus. I.e., the more areas one needs to focus on, the harder it is to be truly great in any area. Thus we believe in outsourcing anything you can outsource where you can find the service you need at a rational cost. We also believe that internal complexity in business erodes profit.