The concrete production business is a tough one, as producers face several uncertainties as they begin planning for 2008. Will material prices be stable? Will supplies be adequate? How will the housing market affect business? Should we expand?
These questions and others are hard to answer. But in the course of helping a number of concrete producers review their business operations, we have found one key element of success. Producers who have developed a strategic plan are more successful than those without one.
A strategic plan establishes long-term direction and goals. The challenge is to produce and then execute a high-quality plan that really contributes to the success of the company.
To prepare you for 2008, we are offering a two-part article on this important topic. This month we have tried to summarize the steps to create a strategic plan. In December, we will more fully identify challenges that concrete producers commonly encounter in planning, and provide suggestions for overcoming these.
The basic elements
Strategic planning consists of three major activities:
- Current situation assessment: Analyze where ownership thinks they are, the current state of the business, and markets.
- Future state definition: Determine where ownership wants to go. What are their goals and vision?
- Select strategies: With the help of key managers, ownership should identify, compare, and then choose strategies to achieve the goals.
- Financial history;
- Sales trends (revenue and margin) by market segment;
- Competitor and customer analysis;
- Market size and share;
- Strengths, weaknesses, and competitive advantages;
- Core values; and
- Capability assessment (people, competitiveness, innovation, facilities)
- Mission statement;
- Future vision;
- Opportunities (markets, trends, new products, expansion);
- Positioning (points of differentiation); and
- Shareholder return and risk expectations
There is key information the management team must consider as they analyze the business:
To define the future state, think about:
With a thorough understanding of the current situation and a picture of the future, identify, assess, and prioritize strategy options. Ultimately, strategy is about choices: How and where will we compete? Where do we have (or can we create) a sustainable advantage? How will we grow? Where should we/must we change? How aggressively should we pursue our objectives?
Include reality checks. Many producers use a simple financial model (sales revenue, gross margin, overhead, and net profit) to project the impact of various strategic choices. The financial model clarifies goals such as financial measures and helps managers evaluate and compare strategic options.
Who should work on the plan?
A key responsibility of the president or general manager is defining and implementing a strategy that increases shareholder value. The president usually works with a core team of direct reports to prepare this. Some suggestions:
- Seeking input from a cross-section of employees on the vision and opportunities generates fresh and innovative ideas.
- Include strategic thinkers from outside the executive ranks.
Things to watch for
- Don't rush. A well-crafted strategy can drive a business to much higher performance levels and deserves a reasonable commitment of resources. A two-day planning retreat can be adequate for updating an existing plan but usually doesn't allow sufficient time for the level of thinking and analysis needed to create a superior plan.
- Don't shortcut the importance of understanding current and potential markets (market size, margin opportunities, competitors and market share). This information usually isn't readily available, so management must conduct basic research and then make intelligent guesstimates.
- Avoid concentrating too much on tactics and too little on a true strategy. This can be a challenge given the heavy operational orientation of concrete producers.
- Focus on identifying real competitive advantages.
- Watch for creating a strategic plan that is beyond the organization's capabilities.
While each organization will choose different priorities, most strategic plans usually include strategies to grow, to improve execution (productivity, service, quality), to build a strong organization, and to innovate.
Implementing the strategy is a major challenge. Be sure to:
- Incorporate measurable goals and milestones to achieve objectives set out in the strategic plan.
- Use an annual business planning mechanism to translate the longer-term strategic goals into measurable results.
- Enforce accountability by conducting regular progress reviews.
— Mike Strain is president of MJS Management Services, a management consulting firm that assists concrete producers achieving higher performance and profitability. Visitwww.mjsmanagement.net, telephone 206-388-5209, or e-mail[email protected]
Read the sidebar "Wells Concrete Looks Ahead".