Strategic planning: How to make it work

by Pam Mitchell

What do the market leaders throughout the history of free enterprise systems have in common?

At conferences, the most common response to this question is “They sell more stuff!” How true.

But why? The market leaders in any free market economy become the leaders because the marketplace votes them in. But how do they garner so many popularity votes? The answer is the same regardless of industry, regardless of era.

The market leaders are always and have always been those companies that provide the most perceived value to their customers.

Think about why this is true. How do you make buying decisions? Why did you buy that particular lawn mower last summer, or why did you sell your lawn mower and hire a lawn service? You made the choice that offered you the most value. You may be so busy that you find the lawn service a good value. Or, you may enjoy cutting your grass. Or, you may just enjoy owning and operating power tools and lawn equipment. The bottom line is that you voted with your dollars.

Each of our customers and competitors’ customers votes the same way. Many strategic planning processes fail because they ignore the underlying voting with dollars process.

Many start with the objectives of the company and a statement of the company’s own values. This is backwards thinking. The successful organization starts with a statement of the customers’ values. Value planning, as opposed to strategic planning, means that all the companies’ plans are based on a solid knowledge of the constantly shifting customer value definitions in their market arena.

This is in stark contrast to the writings of consultants in the 80s and 90s who said that customer service was everything and that quality was free. Many market leaders proved that the value proposition is more complicated than that.

Consider Michael Dell’s success. Traditional wisdom in 1985 may have told him that he needed to build inventory and have the computers available for instant purchase. This was the success model of IBM and Compaq at the time. They pushed inventory through the pipeline and had it waiting on the shelves at computer stores so that data-hungry consumers could immediately satisfy their computing appetites.  

Dell Computer was a hungry, lean upstart. They lacked the capital to offer the same menu of inventory. They also lacked the reputation to attract distributors willing to invest in Dell inventory. So they decided to go directly to the consumers via catalogs. After the consumer called in their order, Dell built their computers and shipped them directly to customers.

Dell held their inventory as parts and components rather than as finished goods, reducing their carrying costs, risk of inventory obsolescence, and thus, total product costs. This strategy paid off handsomely as computing technology improved rapidly in the 90s and inventory became obsolete at an increasing rate.

Dell passed these savings on to their customers. Customers found that they could purchase more computing power for the dollar and order the exact features that they needed if they were willing to wait a few days for manufacture and a few more for transit.

Since a Dell representative spoke to each person who ordered, they quickly realized that all these new computer users needed reliable access to technical support. They built the best technical phone support in the industry at the time. Their well-targeted value proposition catapulted Dell from a rebuild operation in Michael Dell’s dorm room to the country’s number one personal computer maker in a decade and a half. If you had predicted this at an MBA class in 1985, you would have been laughed out of the program.

Do we truly know what the marketplace values? Are there any new ways of doing business that no one in our industry has tried? Value planners first seek to understand this customer value definition. Because customers often do not know what they value until it is offered to them, market leaders often ask themselves, “what is possible? What are the rules of business? Which ones might we change?”

Value planners first examine all the possibilities, and then choose a strategy based on their perception of customer value. Below is a summary of the seven-step value planning process.

Understand and communicate the customer value definition.

We have established the importance of accurately understanding the customer value definition. It is also important to accept that the customer value definition is constantly shifting. Suppliers can change the value definition in a market by offering something new. Did we as a computing public know that we valued made-to-order computers before they were offered to us? Probably not. It was only after the concept was presented and tried, that it caught on. Therefore, changing our value proposition may involve some risk. We may not always have focus group results on which to base a change.

How often does the customer value definition change? Look at the top 10 lists in just about any industry. Each decade they change.

Companies, who stay successful over the long term, stay out in front of the changing customer value definition. Knowing, reviewing and discussing the customer value definition become ingrained into their culture. Everyone in the organization understands that their purpose is to create value for customers, not to meet production schedules or to move paper from the in basket to the out basket. Understanding and delivering value becomes integrated in every fiber of the organizational fabric.

Develop a mission and vision
Your mission is a promise that you make to your customers. Many companies create a long, erudite mission statement that promises their shareholders they are going to become the preeminent global supplier of something. In short, it says to the customers, “we are going to try to coerce you into buying more stuff from us.”

The value approach tells your customers what value you plan to provide them. It is a specific promise. It tells your customers why they should allow you to be the market leader. It tells your workforce why you exist as an organization.

One example of this type of promise is from a job shop that promises to keep their customers from experiencing manufacturing downtime. It reads, “Uptime, we make it happen.” At the job shop, everyone knows that their job is to prevent manufacturing downtime at their customers’ plants. This is the reason they exist as an organization.

The vision statement is a promise you make to yourselves. It paints a picture of what you want your organization to look like two to five years in the future. It creates a target for everyone to aim at. This can be selfish, and is only for internal use. It might specify market share goals, revenue goals or profits. It might also refer to new business or markets that you plan to enter successfully. A good one will also talk about what kind of culture you plan to create in the company.

Share your vision with everyone responsible for helping you achieve it, in other words, the entire workforce. Establish two-way communication with your workforce. Ask them, “What policies and business process do we have that will impede our achieving the vision?"

Create specific objectives
A typical value plan has between five and nine objectives. Many are financial objectives such as revenue and profitability. They may also include some important marketing, customer service, fulfillment or production objectives that support the mission statement.

Create strategies to deliver more value than competitors
Once you establish your target market, and have a clear understanding of the customer value definition in that market, you can develop specific strategies and action items to supply that value.

For example, Skidmore Sales, a first-class ingredients supplier to the food industry knows that their customers want the best quality ingredients for the best price. They also know that their customer base maintains low inventory levels to assure that the foods they prepare are fresh. They value next day or same day shipments from their ingredients suppliers. Therefore, every decision at Skidmore Sales is based on sourcing the best ingredients and minimizing turnaround time of customer orders.

Create a company of owners
One of the biggest mistakes that executives and entrepreneurs make is that they expect people to care as much as they do for merely a salary. But we all know that people behave exactly according to their rewards system. If people are rewarded for being quiet and showing up for work each day that is exactly what they are going to do.

In contrast, a company of owners receives some benefit when the company prospers, and feels the pain when it does not. They understand the financial position of the company. They are encouraged to make decisions in the name of the company’s mission. They participate in decisions of the company and are trained to understand the implications of those decisions. Who is most likely to make the right decision for the company, a person who is informed, trained and rewarded or one who is not?

Get lean!
Lean companies are those that focus their efforts on improving their value stream and eliminating waste. The value stream is anything that they do to make their product or service more valuable to the customers. Everything else is overhead or waste. Lean companies involve the entire workforce in generating ideas to eliminate waste and streamline value-creation activities.

Employees who are owners are not afraid to eliminate wasted movements or even their own jobs. They know that they will not be eliminated themselves but rewarded. They do not seek to hide waste, but to expose it. This is how owners think and act.

Create accountabilities
The first reason why most strategic planning processes fail is because company plans do not reflect a dedication to the market’s customer value definition. The second reason is because the plans are not integrated into individual objectives. Each owner/employee’s objectives must support the value plan. Have you ever worked for a company where people met their performance objectives, but the company did not? In a company of owners, it makes sense to develop individual objectives based on the customer value definition and the objectives in the plan.

Is your company as successful as you would like it to be? Are you meeting your goals? The solution is to think about how you think about your business. Do you think in terms of how to coerce customers into buying more of your stuff, or do you think in terms of how much value you can give to your customers?

After becoming one of our country’s first billionaires, Henry Ford said it best, “The man who uses his skill and constructive imagination to see how much he can give for a dollar instead of how little he can give for a dollar, is bound to succeed.”

Pam Mitchell is a strategy coach and a speaker. She works with companies that want to improve their profitability by becoming more valuable to their customers. You can order copies of her audiotape, Deliver Value to Your Customers and Inherit the Market on the Web site www.strategicpathways.org. She can be reached at or .

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