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I had a lunch with a distribution executive once and he explained that they didn’t conduct strategic planning because, “Who really knows what a strategic plan is, anyway?”
I’ve also heard – many times – “What’s the point of doing a strategic plan? It just turns into a three-ring binder that gathers dust on a shelf.”
Those are dumb reasons not to have a strategic plan for your business. I don’t understand how companies like this formulate effective budgets. It’s like hoping you will have a fantastic summer vacation and then laying out a detailed route even though you have no idea where you’re going.
Some companies succeed despite the lack of a strategic plan thanks to an inspired, visionary (and usually quirky) owner. Even these companies would be better with everyone aligned around a widely understood strategy.
If your company has no plan or yours is gathering dust, then here’s a strategic planning outline you can use that has worked for some distributors I’ve worked with over the years:
A valid business strategy has five components:
- Your company's current or desired core competencies
- The industry or industries in which you intend to compete
- A description of how you will differentiate versus competitors
- The annual initiatives you plan to implement in the areas of sales & marketing, operations, information technology, finance and organizational development (HR) and M&A if applicable
- Dashboards to track your progress and a financial forecast that shows how your plans will meet stakeholder requirements over the next three to five years
Let's look at each of these components.
1. The first component of a valid business strategy is a clear definition of your company's current or desired core competencies.
Wikipedia defines core competencies this way: "A core competency is something that a firm can do well and that meets the following three conditions:
- It provides consumer [“customers” and “accounts in B2B] benefits
- It is not easy for competitors to imitate
- It can be leveraged widely to many products and markets.”
Distributors often have core competencies related to assortment, product availability and technical expertise. You need to determine (preferably through quality research) what benefits your customers crave and then build the competencies you need to provide them. The market is changing rapidly, however. If you don’t have great core competencies in digital capabilities, you’re falling behind. Is this a key part of your strategy?
2. The second component of a valid business strategy is a description of the industry or industries in which you intend to compete.
You need to be able to define just what kind of distributor you are: for example, do you define yourself by products (i.e., power transmission) or a customer segment (i.e., the education market)? These are related, of course but not the same.
This step sounds easy, but I find that distributors are often so concerned about getting too narrow in their focus that they fail to become really clear about what they want to do. Here’s a tip: start with a focused market. Once people understand you, you can broaden your target over time. But if customers do not “get” what you’re trying to be, you never gain traction.
3. The third component of a valid business strategy is a description of how you differentiate versus competitors.
Differentiation is about being the best at something. How are you going to beat the competition? No matter what core competencies you decide to build, other distributors in your market will have similar capabilities. In the strategic planning process, you need to decide how you will be different.
It takes a lot of hard work to come up with a great answer to this question and even more work to make that differentiation real. It's easy for us to say that we will have superior technical expertise (for example), but it's extraordinarily difficult to build it and maintain it.
4. The fourth component of a business strategy is the set of initiatives you plan to implement in the areas of sales & marketing, operations, information technology, finance, organizational development and M&A.
This is where your strategy connects to your tactical plans. When I hear a distribution executive complain that their strategy “gathers dust on a shelf,” it’s typically because their planning process ended at a very high level – they didn’t continue the process with specific individuals and teams assigned to develop tactics in each of these areas.
The most common reason the strategy stops at a high level is because this is when various leaders on the planning team start competing for resources. It’s just easier to let the old company politics and power struggles decide who gets what budget and headcount than it is to surface the disagreements and fight over resource allocation in public. Unfortunately, this often results in the company pursuing too many initiatives that haven’t really been vetted and prioritized. It’s better to clarify the alternatives and make hard choices.
5. The fifth component of a business strategy is a set of dashboards and a financial plan that forecasts the results you expect to get from your strategy and illustrates how they will meet stakeholder requirements over the next three to five years.
Your strategic planning process cannot be separated from your annual budget process. In the vast majority of companies, if it's not in the budget, it doesn't exist. That's why you must have your CFO on your strategic planning team. During the planning process, your team must compile a financial plan that estimates the results of implementing your strategy.
Developing a detailed strategic plan is very difficult work. It’s frustrating to gain alignment between a group of strong-willed leaders. But that hard work and pain during planning will generate much better results for the rest of the year.
As always, I’d love to hear your comments. You can email me at firstname.lastname@example.org.