Newsletter: January 2016

Although the mission and vision of the company should be always top of mind, it is easy to lose sight of them in the fog of corporate war. The beginning of the year is a good time to remind ourselves of why we are doing what we are doing and what we hope to accomplish in the world at large.

The mission of the company is ideally a one-sentence statement describing the reason an organization exists. It is used to help guide decisions about priorities, actions, and responsibilities. The best mission statements are clear, memorable, and concise.

The mission statement is the first filter in deciding what to do and what not to do with the limited resources you have. It also enables the company to effectively communicate to the world why you are here and what difference in the world you hope to make. Therefore, unless it is clear, memorable and concise it will fail in its application.

In our experience, organizations have a much greater number of opportunities than resources. We like to say, “Ideas are cheap and implementation is everything.” Ideas flow from executives, employees, customers and even friends and family members. Without a guiding mission, it can be tempting to chase ideas that are ultimately unsuitable to the company’s core business model, culture, and strategy.

For example, employees at a pet insurance company with whom we were involved pitched many ideas on offering pet related products outside of health insurance. Certainly, the company could have entered the pet microchip chip business as one of its competitors did. However, the company’s mission was to “empower pet owners to make optimal health care decisions for their animal.” Its mission was to take the financial implications of veterinary care off the table through a transfer of risk mechanism. Although the company supported micro chipping pets, selling them was neither within its mission nor within the resources that were available to the company.

Having been involved in writing numerous mission statements, we know how difficult it is to get it just right. Although a good mission statement should not change year to year, it should be challenged in light of a changing environment. Reaffirming the mission at least once a year through rigorous debate will ensure continued alignment and commitment to the company’s reason for being. Of course, if the mission is losing relevance it is better to make a course correction than continue going on as if nothing has changed.

A vision statement, on the other hand, describes the impact the company hopes to make in the world. The best visions are inspirational, clear, memorable, and concise. Microsoft’s vision at one time was “a PC on every desk.” Google’s vision is “organizing the world’s information.”

Executives often articulate a vision in terms of the company’s aspirations such as how big they want to be in terms of revenue. One of our partners worked for a company whose vision was “to be a billion dollar company in 5 years” and they coupled it with an internal campaign called 1 by 5. This statement is clear, memorable, and concise but may lack inspiration for many.

It is better to put into context what the billion dollars of sales will mean. Assume a company has a new product that helps seniors be more independent. A more inspirational vision is “our vision is that all seniors will live independent lives.” The company can follow that up saying its goal is to achieve $1 billion in revenue within 5 years. The vision doesn’t have to be realistic to be inspirational; however, it should be reduced to achievable goals.

The mission and vision combined answer the core question of the purpose of the company. They provide employees a reason to give their best efforts, as a paycheck is not enough. Taking time at the beginning of the year to remind everyone what you do to improve the world is likely to give the organization a kick-start to a prosperous New Year!

The New Year is a good time to hold a strategic offsite to look out beyond the next twelve months in connection with this year’s objectives. The strategic offsite is one of the most critical meetings for any management team. The meeting should end with a clear understanding of the intended strategy over the next 2-3 years.

The word "intended" in the above paragraph was emphasized because it is the key word. As no one can predict the future, strategies are essentially intentions to do something. Any strategy must change as circumstances dictate. This is why a strategy offsite should be held at least once a year and probably twice depending on the rate of change affecting the business.

Strategy offsites are most effective by following these four steps:

Preparation

The CEO (or functional head) owns the strategy offsite and must spend time to ensure the meeting is well planned. Participants will normally include the CEO and his/her direct reports and any subject matter experts, if required. While some CEOs self-facilitate the meeting, many companies hire a consultant to plan and run the meeting. A consultant will bring an objective perspective and help ensure the CEO is not overly biasing the meeting with his or her views. Clearly, the facilitator must be well versed and respected by the CEO and the executive team so as not to derail the meeting.

The advantage of self-facilitating the meeting is the CEO is in the position of asking probing questions to gain insight while directing the meeting as it unfolds. Whether or not to use a consultant/facilitator depends on the CEO’s personality and skills, and team dynamics.

The CEO should think about what he/she needs to accomplish at the offsite and formally gather input from every attendee. One of our partners was involved in a company that used a questionnaire used in discussions with the executive team, customers, and lower level managers in the company. By using an unbiased facilitator/consultant, the company was able to get certain sensitive issues on the table in a safe way to the participants.

At a minimum, each participant should indicate in advance of the meeting what he or she thinks the key strategic issues are. It is likely each participant will talk about what needs to be done in his or her own area of responsibility. The CEO will need to organize the feedback and lay out an agenda that enables a focused and robust discussion.

The agenda and accompanying data should be sent out at least one week in advance to enable participants to prepare for the meeting. Each agenda item should include questions that provoke thought. The expectation should be that participants come to the meeting prepared.

The offsite should be offsite. This meeting is too important to save pennies. Having the meeting in the office will guarantee executives attend to day-to-day issues during breaks. The offsite should be held in a venue that at a minimum does not distract participants by its low quality (e.g., noise, poor equipment, crowded conference room, substandard service, etc.). The participants need to be able to focus 100% on the strategic issues at hand. In addition, time should be set aside for relaxing and building relationships such as sharing a nice dinner together.

Speak with data

The meeting planners should gather and distribute as much data as possible for each topic of discussion. Obviously, complete knowledge of everything concerning the future is unrealistic. However, even partial information is better than no information. For example, information about competitors will always be wanting but there is plenty of useful information to be gleaned from the sales team, competitor brochures, customers, public filings, etc.   

When planning the future, opinions and feelings matter. Participants have different values and perceptions and will therefore sometimes disagree on a common way forward. Although this is to be expected and actually is healthy, problems arise when opinions and feelings become stated as facts. For example, a participant might raise his voice and state “the competition is crushing us and the sales team needs to step it up!” This statement is clearly an emotional opinion that will likely cause the sales executive to become defensive. It is also something that should be verifiable. If the facts support the assertion, the team can have the debate on how to fix the problem. However, the data may indicate that although sales are down it has nothing to do with the sales team’s performance but that online sales have dipped.

Having the most current and relevant data available for each topic, handed out in advance, will help ensure the meeting is as productive as possible. Meeting time normally should not be used to present data. The data should be referenced in setting up the topic with the expectation that the participants are familiar with it.

Effective facilitation

Effectively facilitating the offsite is essential. Some of the challenges in facilitation include:

• Maintaining effective meeting management so that the meeting objectives are achieved. This requires cutting off conversations that become “swirls” and putting items in a “parking lot” if tangent to the conversation, while ensuring that everyone fully participates.
• With the CEO and his/her direct reports in the room, it will be impossible to avoid politics. Once the CEO has spoken on an issue, it tends to silence further discussion. He or she needs to be constantly aware of this and be careful not to kill a good debate that may bring forward fresh thinking on an issue. However, if the CEO has strong views on an issue and the team is headed down a different path this should be addressed. If the CEO does not facilitate the offsite, he/she should work with the facilitator to ensure the CEO does not inadvertently cut off discussion.
• The facilitator must be aware of team dynamics. The CEO will have a good feel for how well the various participants are engaged, as he/she knows them all well. The facilitator or the CEO must be willing to call a time-out if the meeting’s dynamics deteriorate to the point of distraction. This may require calling out “the elephant in the room.” For example, after a few back and forth snipes between the CFO and CMO it may appropriate to call a time-out and find out what’s going on.
• A note taker should be present to capture thoughts and decisions and write a meeting summary laying out who is going to do what by when. 

It is also a good idea at the end of the meeting to perform what the military calls an “after action review.” The team will answer the following questions:

• What did we intend?
• What went well?
• What would we do differently?
• What did we learn?
• By honestly answering these questions future offsites can be dramatically improved.

Follow up

Perhaps the most critical part of the strategic offsite is following up on what was discussed and decided. The most effective way to ensure action is to have detailed meeting minutes and a follow up meeting. It is difficult for participants to stay engaged in any meeting that lasts longer than two days. Therefore, a two-day strategy offsite seems to be the right balance between the broad range of issues needing to be discussed and the participants’ ability to stay productive. The meeting minutes should be distributed in draft form no more than two days after the offsite. Within a week, a final draft should be released after participant comments are incorporated.

The team should have a one-day follow-up meeting approximately six weeks after the strategic offsite. This meeting can be held in the office and is focused on the status of the follow up and action items. Subsequent to the follow-up meeting, action items should be monitored in CEO staff meetings and operations reviews.

Summary

The New Year is an ideal time for executive teams to gather and have a strategy offsite. The purpose of the offsite is to look out into the future and set the direction of the company. The meeting is geared toward alignment of action and therefore formal follow up is critical to success.

Ensuring Metrics Remain Relevant and Effective

The New Year is a good time to review the company’s metrics in connection with refreshing the mission, vision, and strategic plan. Management should challenge the metrics themselves and the targets. For example, a company shifting from a traditional sales force to a combination of traditional and online sales will need new metrics for the online business but also recalibrate its expectations for the sales team.

Most executives are good at developing strategy. Things can start to come apart as that strategy is boiled down to action items needing to be implemented by various middle managers. This is particularly true when it takes communication, cooperation, and coordination among middle managers to accomplish an initiative. Management is at the mercy of Lady Luck without a scorecard that captures the key metrics with the ability to drill down to see what’s happening deeper in the organization.

Each company needs to determine the right number of metrics that accurately assess its health. At the enterprise level, there should be general metrics that guide the company’s overall success. Each operational and functional area of the company should have metrics that are relevant to the people in that function.

To be meaningful, metrics must be relevant, timely, accurate, and consistently applied. Metrics are not a report card on which to reward or punish a student for schoolwork. Metrics measure the success of strategic intentions that indicate whether corrective action needs to be taken. Although each company must choose the right metrics for its purpose there are some common categories for which metrics should be developed.

Financial – the ultimate measure of success from the shareholders perspective as financial results drive valuation; examples include EBITDA and return on equity

Operations – measures the effectiveness of key processes that drive value to the customer; examples include time to deliver and customer loyalty rate

Productivity – measures efficiency of operations; examples include revenue per employee and manufacturing cost per unit

Employee Engagement – measures employee commitment to the company’s mission, vision and goals; examples include employee turnover and employee engagement survey scores

Dangers to Avoid in Applying Metrics

Peter Drucker famously wrote, “what gets measured gets done.” Accordingly, ensuring you are measuring the right things to support your strategy is critical to success. Metrics can be a powerful way to drive success but can also be dangerous if misused or misunderstood.

For example, the President of an insurance company for whom we worked focused on driving down costs. He concluded that people were the main driver of costs and therefore looked for ways to eliminate payroll. In so doing, he decided the key metric was revenue per employee. He focused almost exclusively on increasing this metric. 

Business unit leaders soon discovered they could please the President by shifting business from traditional Independent Insurance Agents who were paid a commission for placing business with the company to Managing General Agents (MGAs), who both sold the business and administered it. This allowed the business units to reduce payroll by outsourcing policy administration and claims handling to the MGAs.

Of course, the MGAs charged dramatically higher commissions than the Independent Insurance Agents since they provided much more service. As the business shifted to the MGAs, the revenue per employee metric skyrocketed and the President declared victory in his speeches inside and outside of the company. Unfortunately, the commission expense began to rise to the point where total costs actually increased! Soon after, the company had a new President.

In the above example there was much more wrong in that company than a misused metric. However, it demonstrates the power of metrics. It is simplistic to think getting one metric right will drive success.

A business is a complex organization with conflicting priorities and challenges. For example, there is typically a natural tension between the Chief Marketing Officer and the Chief Financial Officer. CMOs are typically focused on top line growth and have confidence that every dollar spent on marketing will result in more revenue. CFOs are concerned with controlling expenses and investments and struggle to see the benefit in some of the softer marketing investments such as building the brand. Metrics need to reflect a balance between the top and bottom lines.

A potential danger is the common practice of managing by exception. Often, when a metric is “green,” executives may gloss over the result. However, good news can sometimes hide bad news. For example, assume a call center’s average answer time is better than expected. The key question is why? Perhaps the staff is getting better at resolving customer complaints. Alternatively, calls may be down due to a lack of new customers and the call center is now overstaffed. This situation would remain hidden unless these seemingly good results are questioned. 

Summary

The New Year is a good time to review the key metrics and target values. The metrics should align to the vision, mission, strategic initiatives, and critical processes. Metrics should be relevant, timely, accurate, and consistently applied to ensure they are meaningful. The purpose of metrics is to indicate whether the company is on or off track. If the company is off track corrective action is required.