Last week I pointed out that business success requires more than a good plan. I said that the end-to-beginning planning process, if done well, would identify all of the challenges that would need to be dealt with to be successful. Once identified, decisions must be made on how to address these obstacles to a plan’s successful implementation.
There are some that will tell you that what will make the difference in these situations are managers that are critical thinkers. Theoretically a critical thinker is someone who is presented with an argument and can determine if it is true, sometimes true, partially true or false. Other definitions can be more detailed but this is essentially the gist of critical thinking. This simple definition assumes that the thinker sets aside emotional issues and any form of bias.
This is where the real difficulty lies. To be successful in assessing potential challenges a manager must be completely objective. Let’s take a simple example. Suppose you have planned to increase revenues by 5% for the upcoming year. To achieve this you might:
1) Increase rates by 5% and maintain current sales volume levels,
2) Increase volumes by 5% with no rate increase,
3) Increase some mix of rate and volume,
4) Add new products,
5) Add new customers.
6) And so on.
Let’s say that the planning process has uncovered a potential challenge to the 5% revenue increase - a new competitor with similar products offering discounted rates in order to gain market share. You are now faced with determining which mix of actions will most likely work.
If your company is the market leader with a strong reputation and image you may decide that the competitor’s strategy of offering low rates will fail and you choose to increase rates by 5% with no other actions required. You make this decision because there is a history of companies using these strategies to gain market share in the past and they have all failed to have any impact on your ability to grow revenues.
It is not uncommon for managers to choose actions based on limited and biased information. In using this approach a manager may rely on past experience and his/her belief that the outcomes in the past will hold true for the future. Indeed projections based on history will work until they don’t work – then the outcome may have very negative consequences.
Some would say that a critical thinker would be able to assess the argument that customers would accept a 5% rate increase without reducing volume and determine if this claim true or not. Then the best option for achieving a 5% rate increase would be identified and this action would be taken. Problem solved.
Here is the problem; this argument can only be answered correctly if perfect information is available. In fact anyone can determine the correct answer if perfect information is available. Unfortunately, when it comes to projecting the future or human behavior there is no source that can provide perfect information.
Managers are forced to use history, intuition, biases and beliefs coupled with as much data as is available to make critical decisions. Over the years different mathematical projection techniques and gaming theories have been developed to help managers better predict outcomes but they still do not provide perfect information.
So what is a manager to do?
The end-to-beginning process can help identify challenges or obstacles in reaching a planned goal. Successfully addressing challenges requires developing a list of possible outcomes for each challenge and identifying the worst outcome. Once identified, a contingency plan should be developed that allows the overall objective to the plan to be achieved even if the worst possible outcome materializes. In our example, if the rate increase results in a volume decrease then a plan should be in place to expand the customer base that allows the overall 5% revenue increase. This is a contingency plan that is ready for implementation should the need present itself.
The problem with contingency plans is that they take time to implement and they may be overly optimistic with respect to providing needed results.
Rather than having a shelf full of contingency plans it is probably better to develop plans based on a certain degree of failure in addressing identified challenges. In our example it might mean implementing a 5% rate increase plus setting a volume increase of 3% and developing new products and customer segments for yet another 5%. In other words plan for failure to achieve success.
Popular posts from this blog
When introducing a new product or service to the market a key, and often critical, consideration is the price for this offering. I have seen folks simply take the cost of production and use a percent mark up as a pricing model. This is the simplest model and it provides a good example for the need to consider other pricing model options. Here are 10 things to consider before setting a price for your product or service: · Mark up Based on Cost Vs Retail . In the opening paragraph I gave the example of a model being used that marked up a product by a percent over the cost. The cost used here is generally direct cost or labor and materials. If someone wants a 30% of the asking price to be the mark up, then using 30% of cost won’t provide the desired outcome. Simply put, it is the wrong math. If something costs $1 to make and it is marked up by 30% for a selling price of $1.30 then the profit of based on the asking price is 23.07%. To arrive at
Here is the third example of developing a marketing strategy project for a new product. This is a fictional company developed by a team of MBA students in my marketing strategy course at the University of Houston C.T. Bauer College of Business. Executive Summary Avenir is a forward thinking and progressive technology company seeking to positively impact the lives of our customers, collaborators, and shareholders through the creation of new technology. We were established in 2001 and are proud to employ 211 hardworking individuals at our Houston, TX headquarters. Avenir designs, markets and licenses the K-1 battery, a new kinetic powered battery that will enhance cellular telephone battery life. The K-1 battery will alleviate the need to constantly charge cellular phone batteries through electronic devices. Our new battery offers a significant leap forward in the world of portable electronic power to the cellular customer. Our collaborators will se
Here are some more thoughts on why newspapers may still be a wise investment and how they may find ways to develop a stable of print and digital products that complement each other. Virtually all newspapers have websites that look good and have great functionality. So why aren't they all producing acceptable amounts of profit? The question probably should be asked differently, "What do consumers and advertisers expect from newspapers?" Then ask, "What do they expect from the Internet?" The answers are different but there is overlap. The area of overlap is the area of opportunity for creating a business that is needed by consumers and advertisers and capable of creating value that translates into profits. To determine the real value of the website it is useful to measure the total advertiser dollars spent on a website only ad buy versus those being bundled with a newspaper or distribution ad buy. These stand-alone purchases might give so