New Year, New Strategy?

With the start of the new calendar year many companies are reviewing and refreshing their strategy and strategic goals, both for their near-term business plan and for the longer term.
 
With trustee meetings in full swing with our clients, it’s an opportune time to look at company strategy with an eye in EO companies.
 
Why a strategy
Why is a strategy needed if more of the same works?

Too frequently we hear that the strategic goal is to do more of the same.
In many circumstances this may be enough, as long as it can cover current and future costs, and their inevitable increases.

Plus, it also needs to be able to accommodate headwinds. Will revenue be maintained if your sector is hit by unavoidable challenges? What if your competition starts to take your market share? What if more of the same doesn’t engage your employees sufficiently to make them want to develop their career with you, so you start to have high levels of attrition and can’t deliver?
 
Having a strategy won’t avoid the risks, but it can identify opportunities to grow away from these risks or identify actions to take if they do appear.
 
Recognising that having a strategy is beneficial, here are a few themes that we’ve seen arising with our EO clients that are worth a bit of thought.
 
Business Plan vs Strategy
Is your strategy actually your short term business plan and budget dressed up as a long-term strategy?
 
Nothing wrong with this, but be honest with yourself, and those in the business, that the current focus is on delivering in the short-term..

If you’re identifying and delivering against near-term headwinds and/or opportunities, that’s fine. Just don’t assume that you can keep rolling this over each year and believe you have a long-term strategy to underpin your future sustainability.

Operational strategy
Is your strategy more than 50% focused on internal foundations? Your internal processes, procedures and operations.
If so, are you deluding yourselves, and those around you, that having good systems, clear organisational structure, up to date perfect policies and procedures will be game changing for your long-term growth.
 
Having a robust foundation is critical. But it doesn’t deliver the growth that is needed to deliver against rising costs. And in too many cases it exacerbates the rising costs by introducing higher or new costs, such as new systems, use of consultants, or focusing customer facing people away from revenue generation and into system and process reviews.
 
Whose job is strategy?
Don’t believe that being EO and getting employee participation means delegating setting strategy to employees.
Boards are responsible for setting strategy then communicating it in a way that is understandable. Identifying and delegating the initiatives and actions needed to deliver it become the actions encompassing the wider team.
 
Having input into, and using employee insights in, strategic discussions is invaluable and all boards should seek this, not just EO boards. But this doesn’t mean the delegation of setting the strategy itself.
 
Equally don’t push it to trustees. The trust is the shareholder. They’ll want to see and understand your strategy.
They’ll challenge the decision making behind it. They’ll seek reassurances that other ideas have been considered, that there is a plan behind it to deliver, and that metrics and oversight is in place to oversee its delivery. They may also have additional insights that may help to further evolve the strategy but they don’t set it in the first place.

If you have a non-executive director on your board they should definitely be part of setting the strategy. Assuming they are appointed for the external perspective they can bring to your board discussions, they can also bring a different, often sector knowledgeable, perspective and knowledge that is invaluable.

But, if the board doesn’t set the strategy, nobody else will, and the whole business will lack direction and purpose, with no aligned goals to deliver against.

Long term strategic goals
What do you want the business to look like in 5, 7, 10 years?

• Vendor loan repaid?
• Founders exited?
• Higher revenue? To cover increasing costs, or as a result of expanding of the business
• Greater profit (not the same as revenue) to re-invest, share, distribute?
• More products, services, locations, employees

Whatever your future looks like, picture it now, then identify the actions you need to deliver to get you there. That is your long-term strategy

Enabling Flexibility
Your strategy shouldn’t be set in stone. It needs to be able to adapt to changing environments, unexpected headwinds, changes of direction. But it should remain aligned to company purpose and be stable enough to allow time for initiatives to be delivered and contribute.
 
Vendor Loan
Too many times we see the vendor loan (deferred consideration) sitting outside the financial element of the strategy.
Repayment of this should not be seen as only required in the good times.

Vendor repayment is for the value of the shares at the time of transition to EO. The cost repays the time, energy, risk taking and entrepreneurship that has been put into creating a business with sufficient substance to have been sold.
 
Hence repayment of the VL shouldn’t be seen as a current cost but an obligation based on past deliverables.
 
Too often we see new management seeking vendor loan repayment delay to offset a lack of strategic delivery. Vendors pockets, like redundancies, should be low on the list of options..

Risk appetite
What is the current attitude to risk? Does it allow for sufficient strategic opportunities, or does it restrict the business too much?

A transfer of ownership under EO may also mean the departure of the founders entrepreneurial spark. Without this, what strategic options are available that meet the current leadership team’s risk appetite whilst also delivering long-term growth without putting long-term sustainability in jeopardy?
 
Concluding thoughts
Whether your strategy is a long detailed document, or a brief direction of travel, ensure it is communicated to all employees to they can move forward together.

Ensure it has deliverables that are tracked to conclusion, don't create a log-list of actions without accountability of purpose and delivery.

Consider one or two strategic focus areas and deliver against them, rather than a long wish list with nothing delivered.

Finally, ensure that strategy is a discussion topic at all board meetings. Operational oversight is the easy bit, strategy setting is difficult and sits with the board. It’s the presence of a strategy and direction of travel that defines a good leadership team.