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HOUSTON BUSINESS REVIEW

Strategic Planning: A Holistic Approach, Part 3 in a Series
By Gary Cooper

GARY N. COOPER, C.P.A., C.V.A., is managing partner of Cooper, Bergman & Company, L.L.P., certified public accountants which was formed in 1991, assisting small businesses and individuals with accounting, consulting and income tax planning and compliance. Services provided include medical practice consulting, business valuation, assistance with buy/sell transactions, development and implementation of policies and procedures, accounting services and tax compliance and planning. The Company has offices in Plano and Houston, Texas.

In Part I the focus was on the ways to quantify the value of a business.  In Part II the emphasis was on the four dimensions of value.  In this, the final article in this series, I will review how to put all of these elements together into a complete and holistic approach to strategic planning.

Management should understand that a focus on value creation is a holistic endeavor that should constantly and consistently be applied. It cannot be accomplished by focusing simply on the individual pieces of the value creation process. It cannot be done in a sprint. Effective change necessary to maximize value requires constant emphasis over a two or three year period.  The business owner is creating a cultural change that takes time.

Management decisions based on the four dimensions listed above will result in a management style that focuses on creating value. It requires creating a strategy, execution, and prompt benchmarking.

The holistic approach to the value creation process includes:

1)       A consistent approach to management planning, resource allocation, performance assistance and communication.

2)       A management focus and priority on value creation.

3)       Alignment of management action, the strategic objectives.

4)       An understanding of the four dimensions of value used in strategic decision making.  

In creating a plan of holistic approach owners and managers should focus of the following processes to achieve their goals:

1)       Improving their strategic decision making.

2)       Providing greater management accountability.

3)       Requiring a more effective allocation of their company's resources.

4)       Improving their capital management.

5)       Aligning performance measurement to critical success factors.

6)       Providing a common organizational language.

7)       Establishing a comprehensive program aligned with strategic objectives identified in the value creation process.

8)       Developing a corporate structure that understands how daily actions affect value.

9)       Providing the management team with a more effective and communicative strategic planning process.

In order to systematically increase the company’s value, management should go through a five step process:

1)       Analyze the current state of the company.

2)       Define the desired future state of the company and the strategic plan to create the desired results.

3)       Develop the strategic benchmarks and programs to measure the results to achieve the desired results.

4)       Create a plan to align the company’s strategies, goals and objectives, human resources, compensation plans and value drivers into a holistic model to reach the desired results.

5)       Measure the company’s results on a regular basis.  Benchmarks should be established where difference may be easily defined and corrective actions can be taken to enhance future value.

The five step process can be better defined as follows:

1)       Current state - This entails the following:

a)       Data gathering which lays out the company's strategy, historical financial data, operational data, and intangible assets and actual property data. 

b)       You must also analyze the current state related to:

i)         The microeconomic issues

ii)       Industry and competitors

iii)      Performance areas

iv)      Activity measures

2)       Desired future state. 

a)       You should design the future state with respect to the:

i)         Core strategy

ii)       Core products

iii)      Long-term  business goals

iv)      Critical success factors

v)        Key performance indicators

vi)      Benchmarks for measuring strategic effectiveness

3)       Strategic benchmarking keys.

a)       Establish a performance standard or benchmark for each performance measure utilized 

b)       Cascade performance measures throughout the organization 

c)       Secure understanding of contributions of key groups to the value creation process 

4)       Alignment execution.

a)       Alignment of all strategy, systems and human resource compensation with strategic benchmarking goals 

5)       Benchmark and monitor returns on strategic effectiveness. 

a)       This requires feedback and milestone checks

b)       Focus accountability

c)       Measure the return on strategic effectiveness

These five steps – understanding the current state of the company, the desired future state, strategic benchmarks, alignment execution, and the monitoring of effectiveness – are key in creating the business desired.