By Iqbal Thokan
Gain insight into the strategic variables of your business and gain the wisdom to make sound strategic and sustainable decisions. Most great businessmen are not born, they develop and grow and make mistakes and learn from their failures, but the one thing they all develop to be great at is gaining insight into the strategic variables of their business.
Brian Tracy, one of the leading motivational and business speakers identifies eight strategic variables that every business owner needs to keep and eye on and gain insight on. Our products or services, our customers, our markets, our people, the technology we use in our businesses our finances and our capability to produce or purchase efficiently. While every one of us chooses to be the best in every one of these variables that can be quite challenging and daunting especially since we all have limited resources. However, what we need to be doing is keeping a tab on every one of them, trying to achieve the best, but be the best in a couple of them. How we chose which variable we want to be the best in is determined by the capacity of our business, our industry as well as our own strengths as business owners and leaders. Insight into our strategic variables cannot be gained if we are working in our businesses, either fighting fires or running the processes and systems ourselves rather it requires us to be working on our businesses monitoring each of the variables from a dashboard.
Our dashboards need to be our information highway and our indicators of the health of our business and needs to keep us informed of all that is going on so that we can focus our energy into moving the business in the right direction, constantly keeping our eyes on the horizon, looking out for obstacles and easier paths. Our dashboards are an integration of all our systems that help us run our processes smoothly and efficiently. Building a great dashboard takes time and it can only be achieved by working on one system at a time; building it and developing it and then making sure that each system works in harmony with each other allowing for the smooth and efficient movement of our processes.
How we decide which part of the dashboard we work on first depends on the nature of our business and where in the life cycle of our business we currently at. Analysing our processes and systems allows us to gain insight in order for us to develop a plan of execution that is easy implementable.
Every business needs a dashboard, the complexity of the dashboard depends on our business. Before developing processes, systems and a dashboard we need to know where we headed, what is our vision and this will allow us to develop each one using our resources efficiently and effectively.
One of the wisest businessman I have come across globally is none other than the grandfather of investments. A simple man but quite extraordinarily intelligent, Warren Buffet built an empire through investments and business purchases. His style of finding good investments follows four basic principles, how easily can he analyse the business, if a business is too complex to analyse he doesn’t invest. Is he able to evaluate the track record of the business, are there financial measure in place and finally what future value does the business have? As business owners these are the same basic principles that we need to apply within our business, by having the right systems and processes in place for our variables we are able to gain insight into the track record of our business and by having a dashboard we are able to easily understand our business and gain insight into its potential future value.
Our dashboards are the minds of our business that allow us to integrate all the neurons of our systems, which in turn allows our limbs to process the functions of our variables (actions) in an efficient and sustainable way. This way we are able to gain insight that will give us the wisdom to stay relevant, survive and thrive.
Iqbal Thokan is an experienced business management consultant and the founder and co-owner of breedingpositivity.com
As an entrepreneur or business person, it is your job to stay focused and always continue to improve your strategic business plan.
Are you not sure where to start?
Keep reading because I’ve outlined all of it for you . . .
The basic strategic variables for consideration as you make a plan for the future are products, services, customers, markets, finances, people, technology, and production capability.
These are areas of your business that you may continue as before or change, depending on your strategic goals.
Here are the 8 variables to keep an eye on in your strategic planning process.
1) Products And Services
What exactly are the products and services that you are planning to offer? What do they do to change or improve the lives or work of your customers? What is it about them that makes them clearly superior and the best choice for the customers that you are going after?
How much money do you have, and how much money will you need to achieve and sustain financial profitability?
Over 30% of new businesses fail because they do not watch their finances and their key business metrics.
Business success is the result of changing one of these metrics.
Do you want to learn how to change them for yourself?
Who is your ideal customer, your perfect customer? What are the demographics of your ideal customer? What is this customer’s age, education, income, occupation, and level of family formation? What are your customers’ psychographics? What are their goals, ambitions, desires, and aspirations? What are their fears, misgivings, or suspicions that might cause them to hesitate from buying your product or service?
What do they use your product or service for? How do they use it? How does it change or improve their lives in some way?
In the past you chose your product, then sought out customers. In many cases today however, companies are identifying the customer and the customer’s exact needs and then retrofitting or reverse engineering product and service development based on what the customer says he or she wants. Companies are moving from “product development” and not even creating the product until the customer has agreed to buy it at a particular price.
Your customers who buy your products will affect everything about your business, including your product sales. This is the most important metric to keep in mind.
What markets are you going to enter? How are you going to penetrate these markets? Are you going after geographic markets, horizontal markets, or vertical markets? Who are your competitors in these markets? How do you need to advertise, promote, sell and otherwise penetrate these markets?
Who are the key people you will need in terms of skills, abilities, and proven competence? Where and how will you get and keep these people?
What sort of technology will you require to build and operate your business? Is your current technology sufficient and satisfactory in light of the rapid changes in technology that you competitors are adapting?
7) Production Capability
Finally, what is your production capability? How much can you produce, deliver, sell, and service in a competent fashion? What do your products or services costs to produce, sell, deliver, install, and service? Keep an eye on your cost of goods sold.
Are you unsure about what cost of goods sold is?
8) Set Clear Goals
A few years ago Fortune magazine reported on a study that was done to determine why so many CEOs were being let go from Fortune 500 companies. The most important reason cited was “failure to execute.” The CEOs had been placed in their positions with clear, specific performance expectations for their companies.
Successfully leading your company’s strategy depends on your having laser-like focus on your goals and key business metrics.
What is your main objective for your business or for your position? What are you trying to do? How are you trying to do it? Could there be a better way? Are your goals and objectives realistic based on the current situation? What are your assumptions? What if your assumptions are wrong? What would you do then?
If you want to improve your business immediately the first thing you should look at are your key business metrics. After you analyze them you can find out exactly how to proceed next.
Many people mistake knowledge for wisdom because they are intimately related, but this is not true, they are quite different in an important way. Knowledge is the accumulation of facts and information. Wisdom is the synthesis of knowledge and experiences into insights that deepen one’s understandings and actions. In other words, knowledge is a tool, and wisdom is the craft in which the tool is used.
If we understand this difference, we will also appreciate why it is vital to properly distinguish between the two. With the Internet, we are literally awash in a sea of information! But, having a tool and knowing how to use it are two entirely different things.
I have been enjoying a National Geographic show named Einstein and picked up on a quote from Albert Einstein, that stood out for me. “wisdom is not a product of schooling, but of the lifetime attempt to acquire it.”
Wisdom is a noun that refers to the ability to make sensible decisions and give good advice because of the experience and knowledge that you have. Someone may have all the knowledge about a subject but may not have the wisdom to utilize this knowledge properly to be able to act in a sensible manner!
During the past 40 years I have spent my professional life as a serial entrepreneur and speaker. This period represents four decades worth of experiences and lessons that are highly relevant to success in today’s business world. These experiences include running businesses, consulting and coaching others to successfully navigate a variety of challenges in the day to day business world. More than ever, I am convinced that what is needed right now is human connection.
As a small business coach, engaging in countless conversations with owners, coaches, consultants and professional services, I have become deeply attuned to the struggles they face on a daily, weekly, and monthly basis. Not only are these issues caused by small business owners trying to wear the hats of sales, marketing, finance, IT, and operations, but to a great extent by their exposure to continually changing market trends with increased information, greater reliance on technology, tougher competition in the marketplace and the escalating complexity of today’s business world and simply the bombardment of knowledge.
With these factors, firmly in mind I specialize in offering group coaching to connect people to people and to bring my wisdom to the group. The purpose of these group is to provide, connection, focus, support and accountability. Group coaching attendees benefit from the peer learning with others, commonly referred to as the collective wisdom of the group. Group coaching is a powerful way to leverage time and resources and connection to gain the knowledge and the wisdom so badly needed today!
I believe we need all of this: each other, knowledge and wisdom!
Businesses need to value creating real value.
It seems we’re living in an era of extreme consequences, as the impact of business on the climate and human outcomes becomes clear. Perhaps every era is one of significant consequences, but the proverbial “problems coming home to roost” feels apt for right now.
In reaction, the business community is shifting its stated intention. Notably last week, the powerful industry association Business Roundtable “redefined the purpose of a corporation” toward broader stakeholder benefit, rather than just shareholder benefit. That is a positive step, but as many have said, actions will speak louder than words.
Even more important may be the business world re-valuing the role of wisdom in business. The body of knowledge and principles that accrue from experience and exist in fundamental laws of nature are under-discussed and under-invested in business, meaning we’re doomed to repeat mistakes and continue a decreasingly joyous spiral downward.
Changing course is possible, preferable, and more profitable.
Why does business culture lack wisdom? Three factors stand out: the pursuit of shareholder primacy, the innovation mantra, and an entrenched assumption of being right.Shareholder primacy, the theory most infamously espoused by Milton Friedman, suggests that any talk of corporations’ social responsibilities is a “fundamentally subversive doctrine.” One of the many problems with this theory is that shareholder primacy creates a completely blinkered view of the world: Leaders’ attention is trained on one thing. This ignores the reality of the complex, living, evolving ecosystem in which corporations operate: a vast system of cause and effect. Managing for one short-term metric in a complex ecosystem inevitably results in unintended—or actively ignored—consequences, like a compromised democracy, unsafe products, and rampant extremism. You can ignore the health and realities of the ecosystem for a while, but it’s not wise.
The innovation mantra, championed by legions of business schools and mega consultancies promising “digital transformation,” is another form of blinkered thinking. Just looking forward with a product-centric, efficiency-optimized mindset ignores the lessons to be learned by looking back, or around, or deeply inside or outside. This leads to companies innovating for superficial, myopic “advancement,” like high-fructose corn syrup instead of sugar, opioids instead of safer treatments, addictive technologies rather than technologies that serve well-being. The innovation mantra almost invariably solves for the short term. Wisdom-based innovation would consider the bigger picture, including human outcomes and lessons from nature’s 13.8 billion years of R&D.
The arrogance of being right permeates business. From the product development process that too often resorts to what people will accept rather than actually need, to the marketing process that too often resorts to manipulation (“growth hacking”) rather than honest advocacy, to internal hierarchies that assume rightness flows downhill, to the language of war (“blitzscaling”) that establishes which side we’re on. Being “right” precludes learning. In Gods of the Upper Air, Charles King tells how a group of anthropologists led by Franz Boas in the 1930s debunked the inherent superiority of Western civilization, a thesis that underpinned the Nazis and colonialists, among others, and was “the greatest moral battle of the time.” Inherent superiority means you miss the wisdom and unique perspectives of other people and cultures. Perhaps the latest front in that ongoing moral battle is debunking the inherent superiority in business.
These ego-driven forces have led to Pyrrhic victories. In business, “success” has been achieved, but achieved with tunnel vision rather than panoramic vision. We can do better.
How might wisdom play a greater role in business? We can accumulate more knowledge (not just data), operate from principles, and have a greater capacity to sense and evolve.Accumulating more valuable knowledge can come from more empathetic listening. Words matter here: thinking of people as “consumers” means we’re only considering a tiny percentage of their lives; thinking of people as “people” means considering their entire experience. “Consumer research” may show that product engagement will be high; empathetic listening may show whether the product leads to obesity or health, hatred or happiness, value creation or destruction. Asking the right questions may be more powerful than having the answers. While swamped in superficial information from countless A/B tests, emails and big data, we need to accrue more valuable knowledge on human and societal outcomes.
Rather than making decisions from the reflexive filters of “share growth” or “profit,” companies could make more principled decisions. Ray Dalio, in Principles, tells how Bridgewater systematized the process of distilling principles from each moment of success or failure, and also from vast research into history, culture, and industries. And they look inwards too: studying the team’s characters, so they can understand each other better, and derive principles about successful teams. To Dalio, principles are not dull values statements to be put on the wall, but “fundamental truths that serve as the foundations for behavior that gets you what you want out of life.” Bridgewater’s operations and investments are run with its principles. This principle-driven culture is not an eccentric, altruistic experiment, or “unadulterated socialism” as Friedman might have charged; it created the most successful hedge fund of all time. By mechanizing the creation and application of principles, Bridgewater captures and applies wisdom. This wisdom is what creates value.
Finally, wise companies reject the base instincts of fear, scarcity, and control. In the book Reinventing Organizations, Frederic Laloux describes high-performing companies (like Patagonia, Buurtzorg, FAVI) that have shifted to a more evolved mindset based on trust, abundance, and growth (personal, team, and company). In these organizations, people can be more themselves, management can be less dictatorial, and the organization, having dropped the pretense that it can predict and control the future through rigid strategic plans and top-down hierarchy, can evolve faster and more fully. Fear and control kill wisdom; trust and growth let it thrive.
Operating business from wisdom seems at once both obvious, given the business and human advantages, but also radical, given today’s management practices. Doing so will take more than redefined purpose, but the practice of a new mindset that values and applies wisdom. Dalio didn’t beat the market by applying the “accepted” management and investment credos, he built value by building wisdom in his team and company. That’s the opportunity ahead for the rest of the business world.
Capacity planning is essential when it comes to how to manage resources effectively and efficiently. Businesses who embrace capacity planning find they are more nimble and capable of making sure the right resources are working on the right projects at the right time.
Stop struggling with high demand and overcommitted resources. By becoming a more mature, capacity-centric organization, it is easier to make smart tradeoffs. With a higher maturity level, you can improve project timeliness and reduce the business risks that threaten to slow you down.
For example, a Resource Management and Capacity Planning Benchmark Study showed that 38% of organizations with higher maturity levels, regarding capacity planning, are better able to prioritize demand through continuous planning. They are also 29% better equipped to run what-if scenarios to optimize their resources.
How can you begin to make this resource management change and take the next steps toward maturity? Here are two simple tips:
- Understand Resource Capacity and Demand
For starters, you need real-time visibility into resource capacity and pipeline demand. This is essential if you want to proactively allocate resources and improve execution across your entire portfolio. When you get a handle on demand, you can reduce the number of unplanned projects. One way to accomplish this is to stop letting unplanned projects fly under the radar – especially when they are eating up resources and impacting your project delivery timeline.
It is also important to have the right tools to deliver an accurate view into pipeline demand. This will allow you to make sure all projects are visible and tied to strategy. For example, by relying on enterprise software instead of spreadsheets for capacity planning, you can begin to have a holistic, real-time view. By streamlining planning, you gain access to accurate data for better decision-making. This means you should encourage your PMO to become more strategic and less tactical. They can also take the lead on making sure the tools and information used are easy to access.
- Don’t Over-commit
The next step to improving resource management is to make sure your PMO is not committing to new projects without taking capacity into account. If your organization becomes more capacity-centered in its gating process, it is more likely to deliver projects on time. Your PMO should define the metrics to evaluate and prioritize projects.
When it comes to the gating process, try automating the process. This allows for continual prioritization and capacity planning across the entire project portfolio. Continual planning can ensure greater value from your resources and money invested in the portfolio.
- Conduct What-if Scenarios and Analyze Your Data
Running what-if scenarios on resources in real-time will allow you to take on new opportunities in hours or days. Skip the fire drills by using a PPM tool to get information in views that are logical and allow to pinpoint issues fast. This allows investment decisions to be made much more quickly so your resources can take on new, unplanned projects.
I invite you to read the eBook, Creating IT Capacity to Transform Business, to discover key industry trends related to resource management. The site itself offers a ton of info to help you start thinking the current state of resource management at your business as well as recommendations for managing resources efficiently.
A staunch believer in the value-based investing model, investment guru Warren Buffett has long held the belief that people should only buy stocks in companies that exhibit solid fundamentals, strong earnings power, and the potential for continued growth. Although these seem like simple concepts, detecting them is not always easy. Fortunately, Buffet has developed a list of tenets that help him employ his investment philosophy to maximum effect.
- Warren Buffett is noted for introducing the value investing philosophy to the masses, advocating investing in companies that show robust earnings and long-term growth potential.
- To granularly drill down on his analysis, Buffett has identified several core tenets, in the categories of business, management, financial measures, and value.
- Buffett favors companies that distribute dividend earnings to shareholders and is drawn to transparent companies that cop to their mistakes.
Buffett’s Investing Style
Buffett’s tenets fall into the following four categories:
- Financial measures
This article explores the different concepts housed within each silo.
Buffett restricts his investments to businesses he can easily analyze. After all, if a company’s operational philosophy is ambiguous, it’s difficult to reliably project its performance.1 For this reason, Buffett did not suffer significant losses during the dot-com bubble burst of the early 2000s due to the fact that most technology plays were new and unproven, causing Buffett to avoid these stocks.
Buffett’s management tenets help him evaluate the track records of a company’s higher-ups, to determine if they’ve historically reinvested profits back into the company, or if they’ve redistributed funds to back shareholders in the form of dividends. Buffett favors the latter scenario, which suggests a company is eager to maximize shareholder value, as opposed to greedily pocketing all profits.
Buffett also places high importance on transparency.4 After all, every company makes mistakes, but only those that disclose their errors are worthy of a shareholder’s trust.
Lastly, Buffett seeks out companies who make innovative strategic decisions, rather than copycatting another company’s tactics.
Tenets in Financial Measures
In the financial measures silo, Buffett focuses on low-levered companies with high profit margins. But above all, he prizes the importance of the economic value added (EVA) calculation, which estimates a company’s profits, after the shareholders’ stake is removed from the equation. In other words, EVA is the net profit, minus the expenditures involved with raising the initial capital.
On first glance, calculating the EVA metric is complex, because it potentially factors in more than 160 adjustments. But in practice, only a few adjustments are typically made, depending on the individual company and the sector in which it operates.
Economic Value Added=NOPAT−(CI×WACC)
NOPAT=net operating profit after taxes
WACC=weighted average cost of capital
Buffett’s final two financial tenets are theoretically similar to the EVA. First, he studies what he refers to as “owner’s earnings.”5 This is essentially the cash flow available to shareholders, technically known as free cash flow-to-equity (FCFE). Buffett defines this metric as net income plus depreciation, minus any capital expenditures (CAPX) and working capital (W/C) costs. The owners’ earnings help Buffett evaluate a company’s ability to generate cash for shareholders.
In this category, Buffett seeks to establish a company’s intrinsic value. He accomplishes this by projecting the future owner’s earnings, then discounting them back to present-day levels. Furthermore, Buffett generally ignores short-term market moves, focusing instead on long-term returns. But on rare occasions, Buffett will act on short-term fluctuations, if a tantalizing deal presents itself. For example, if a company with strong fundamentals suddenly drops in price from $50 per share to $40 per share, Buffet might acquire a few extra shares at a discount.
Finally, Buffett famously coined the term “moat,” which he describes as “something that gives a company a clear advantage over others and protects it against incursions from the competition.”5
Buffett realizes that not all investors possess the expertise needed to set his analytical tools in action and advises newer investors to consider low-cost index funds over individual stocks.
The Bottom Line
Buffett’s tenets provide a foundation on which he rests his value investing philosophy. But applying these tenets can be difficult, given the data that must be cultivated and the metrics that must be calculated. But those who can successfully employ these analytical tools can invest like Buffett and watch their portfolios thrive.
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