Economic Recovery Gaining Traction

Many economists and business commentators are beginning to agree that the latter part of 2010 will make it the “rebound year.”[1][2]

[powerpress: http://gsbm-med.pepperdine.edu/gbr/audio/summer2010/recovery.mp3]

Businesses Must Plan for Post-Recession Growth and Sustainability

Recession Recovery signpostIt is widely reported that the economic recovery from one of the most severe recessions in United States memory is beginning to gain traction. The authors firmly believe that it is crucial for business owners, executives, managers and Human Resource professionals to prepare for this imminent economic recovery. The Federal Reserve Chairman, Ben Bernanke, recently reported on June 7, 2010, through the Associated Press[3] that he sees signs that the economy will gain traction and not fall back into a “double-dip” recession. Bernanke reported that the economy grew at a rate of 3 percent during the first quarter of this year.

The current economic mindset, however, is resulting in employee layoffs, the termination of employee benefit programs, and the elimination of training programs and leadership development efforts. Businesses should therefore begin to transition to a system that facilitates stabilization and again allows for the kind of sustainable organizational growth that can ensure the viability of any organization. This article will address issues associated with employee training, employee benefits, management development, and litigation management.

The Mindset of the Post-Recession Workplace: Survival and Sustainability

The post-recession workplace will require a return to adequate talent management, competitive employee benefits, provisions for essential employee training programs, and continued leadership development in order to both develop and maintain important job core competencies. The pace and complexity of companies’ environmental, economic, and strategic planning changes will have to be hastened in the post-recession jobs marketplace.

The Human Resources (HR) function, in particular, must play a critical role in efforts to effectively align companies with the realities of recovery. HR must provide guidance to company leaders in their efforts to successfully respond to inevitable challenges.

There is no question that over the past few years, the economic downturn has caused companies to rethink their business strategies and HR practices. While the authors of this article believe that many of the organizational changes that have been implemented will likely remain intact after the economy rebounds, new mindsets, ways of thinking, and strategies will be essential.

Re-Doubling Communication Efforts

Keep in mind that “perceptions” among employees play a very significant role in a weak economy. It is extremely important for leaders and HR professionals to maintain and encourage frequent, candid, and proactive communication. Handling the “people side” of things is more important now than ever.

Equally important is maintaining esprit de corp, not only among the employees in an organization, but among all of the appropriate stakeholders (whose perceptions are also very important).

The Role of HR Leaders: Stepping Up in the Post-Recession Recovery Period

The current recession provides an excellent opportunity for HR professionals to be effectively proactive, stepping up and contributing to their organizations strategically. HR managers and directors in today’s business climate should be involved in every step of not only the strategic planning for their organization, but also in the actual strategic implementation process.

Litigation Management

HR professionals should consider consulting with legal counsel about new trends in compliance requirements and business regulations.

After two successive years (2008 and 2009) of reporting declines in the number of lawsuits and regulatory proceedings, in 2010, senior corporate counsel began to anticipate an increase in lawsuits and government problems. This is probably because employees are emboldened to pursue their grievances by a recovering economic climate.

In the midst of a recession, business organizations often find that the number of lawsuits decline. Even government probes will often be fewer in number. Repercussions from the recession are the most frequently cited reasons for expected increases in litigation and business regulation at the local, state, and federal levels.[4]

In one annual survey monitoring litigation trends, about 40 percent of the more than 400 participants who represented 276 U.S. companies and 125 companies in the U.K., experienced increases in the number of wage and hour, multi-plaintiff labor, and employment law cases brought to court during 2009.[5] Among the most numerous types of litigation were disputes predicated upon wage and hour laws.[6] Employees generally alleged underpayment for overtime, meals, and rest times.

Another absolutely critical area to examine is the appropriate classification of employees. Retailers who often rely on part-time and/or seasonal workers have the most significant risk of being named as defendants in these types of claims. As a practical litigation mitigation measure, it is therefore imperative that HR professionals revisit their compensation policies and practices, the appropriate classification of their employees, and all current local, state, and federal compliance laws circa the current year, 2010.

Other critical areas of complex legal compliance in the economic recovery period will pertain to general employment discrimination cases, right to privacy issues, possible ERISA (Employee Retirement Income Security Act of 1974) violations, as well as disability claims and age discrimination issues. Viable mitigation measures for these types of disputes include well-conceived, drafted policies that have been effectively communicated to all employees and incorporated into the employer’s employee development programs and training regimen. Other employment-based claims that will pose significant concern to companies in terms of their possible financial risk are claims predicated upon sexual orientation discrimination, sexual harassment issues, violations of the Family Medical Leave Act, and disputes deriving from non-compete agreements.[7]

It is also crucial that HR professionals and business owners carefully review and update all employee policy manuals and handbooks to be current with 2010 employment-related laws and regulations.

The current stages of the recession recovery period should spur HR professionals to closely monitor federal, state, and local legislative agendas. There will almost certainly be pending legislation that will directly impact companies’ new strategic plans. For example, the health care reform legislation may directly impact the cost of doing business in the future and may necessitate a careful review of employee benefits.

Likewise, HR professionals and managers should consider consulting with legal counsel about developing trends in litigation and business regulation. Specific areas of liability that have the potential to impact the cost of doing business and new strategic plans include products liability, employment law, and tax law. Specific areas of business regulation that have the potential to impact the cost of doing business and new strategic plans include wage and hour policies, workers compensation, and environmental rules and regulations.

Lastly, in an effort to reduce costs, a company’s long-term strategic planning should not overlook the need to review dispute resolution strategies. Perhaps adopting alternative dispute resolution policies, e.g., arbitration relative to employer/employee disputes, as well as standard form contracts, could dramatically reduce the costs associated with the resolution of such disputes.

Think Beyond Merely Being Defensive and Reactive: Lead

By identifying and planning post-recession strategies and HR-specific programs, sustainable organizations are more likely to succeed and even prosper, while those that adopt only a short-term reactive perspective are more likely to struggle or fail. Sustainability demands a balance between short- and long-term thinking.

In difficult times, sustainable businesses actually seek out opportunities for the future. They utilize best practices to appropriately manage and guide current resources, and they also prudently invest in longer-term human and capital resources.

Overly conservative companies that do not embrace a longer-term, sustainability-based perspective as a core value are more likely to run the risk of surviving only in the short run and thereby, from a weakened position.

Another appropriate role for leaders and HR professionals at this time is to enhance the current organizational culture with a sub-culture of “looking for new opportunities.” Against the backdrop of our current business climate, enhancing “effective leadership in a recession” is absolutely critical for organizational survival and sustainability.

Concluding Remarks: Survive and Thrive

Truly sustainable organizations do not fear the ups and downs of the economy. In fact, sustainable and progressive organizations prepare for just these highs and lows. They realize that the current economic challenges are certainly significant, but nevertheless temporary. They view the economy as resilient in the long run and they make sure that they are adequately positioned to prosper when the turnaround inevitably comes. By maintaining a longer-term focus on the organization’s critical factors for success, they are better positioned to survive and thrive.

Specific Recommendations for Human Resource Managers and Professionals


  • It is essential to be in on all strategic planning meetings.
  • Assume an active role in facilitating full discussions.
  • Keep the conversations grounded and positive.
  • Balance short-term with long-term perspectives (i.e., through scenario planning).
  • Be a driving force in shaping clear commitments to new strategic plans.
  • Give thorough attention not only to key planning strategies, but also to specific implementation strategies throughout the organization.
  • Be proactive: Take a significant and very active role in supporting all managers and leaders.

[1] Leonhardt, David, “Judging Stimulus by Job Data Beginning to Reveal Success,” The New York Times, February 18, 2010, OpEd.”

[2] David Wessels, “Business Recovery and Reorganization After an Economic Recession,” The Wall Street Journal, February 14, 2010, OpEd.”

[3] Ben S. Bernanke, The New York Times, Business News: Federal Reserve Statistical Release Data, June 7, 2010.

[4] http://www.fulbright.com/images/publications/6th.LitTrendsreport 2009.pdf. (link no longer accessible).

[5] Ibid.

[6] http://www.fulbright/com/images/publications/6th.LitTrendsReport 2008.pdf. (link no longer accessible).

[7] Ibid.

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The Role of Finance in the Strategic-Planning and Decision-Making Process

The fundamental success of a strategy depends on three critical factors: a firm’s alignment with the external environment, a realistic internal view of its core competencies and sustainable competitive advantages, and careful implementation and monitoring.[1] This article discusses the role of finance in strategic planning, decision making, formulation, implementation, and monitoring.

[powerpress: http://gsbm-med.pepperdine.edu/gbr/audio/winter2010/PedroKono_article.mp3]

Any person, corporation, or nation should know who or where they are, where they want to be, and how to get there.[2] The strategic-planning process utilizes analytical models that provide a realistic picture of the individual, corporation, or nation at its “consciously incompetent” level, creating the necessary motivation for the development of a strategic plan.[3] The process requires five distinct steps outlined below and the selected strategy must be sufficiently robust to enable the firm to perform activities differently from its rivals or to perform similar activities in a more efficient manner.[4]

A good strategic plan includes metrics that translate the vision and mission into specific end points.[5] This is critical because strategic planning is ultimately about resource allocation and would not be relevant if resources were unlimited. This article aims to explain how finance, financial goals, and financial performance can play a more integral role in the strategic planning and decision-making process, particularly in the implementation and monitoring stage.

The Strategic-Planning and Decision-Making Process

1. Vision Statement

The creation of a broad statement about the company’s values, purpose, and future direction is the first step in the strategic-planning process.[6] The vision statement must express the company’s core ideologies—what it stands for and why it exists—and its vision for the future, that is, what it aspires to be, achieve, or create.[7]

2. Mission Statement

An effective mission statement conveys eight key components about the firm: target customers and markets; main products and services; geographic domain; core technologies; commitment to survival, growth, and profitability; philosophy; self-concept; and desired public image.[8] The finance component is represented by the company’s commitment to survival, growth, and profitability.[9] The company’s long-term financial goals represent its commitment to a strategy that is innovative, updated, unique, value-driven, and superior to those of competitors.[10]

3. Analysis

This third step is an analysis of the firm’s business trends, external opportunities, internal resources, and core competencies. For external analysis, firms often utilize Porter’s five forces model of industry competition,[11] which identifies the company’s level of rivalry with existing competitors, the threat of substitute products, the potential for new entrants, the bargaining power of suppliers, and the bargaining power of customers.[12]

For internal analysis, companies can apply the industry evolution model, which identifies takeoff (technology, product quality, and product performance features), rapid growth (driving costs down and pursuing product innovation), early maturity and slowing growth (cost reduction, value services, and aggressive tactics to maintain or gain market share), market saturation (elimination of marginal products and continuous improvement of value-chain activities), and stagnation or decline (redirection to fastest-growing market segments and efforts to be a low-cost industry leader).[13]

Another method, value-chain analysis clarifies a firm’s value-creation process based on its primary and secondary activities.[14] This becomes a more insightful analytical tool when used in conjunction with activity-based costing and benchmarking tools that help the firm determine its major costs, resource strengths, and competencies, as well as identify areas where productivity can be improved and where re-engineering may produce a greater economic impact.[15]

SWOT (strengths, weaknesses, opportunities, and threats) is a classic model of internal and external analysis providing management information to set priorities and fully utilize the firm’s competencies and capabilities to exploit external opportunities,[16] determine the critical weaknesses that need to be corrected, and counter existing threats.[17]

4. Strategy Formulation

To formulate a long-term strategy, Porter’s generic strategies model [18] is useful as it helps the firm aim for one of the following competitive advantages: a) low-cost leadership (product is a commodity, buyers are price-sensitive, and there are few opportunities for differentiation); b) differentiation (buyers’ needs and preferences are diverse and there are opportunities for product differentiation); c) best-cost provider (buyers expect superior value at a lower price); d) focused low-cost (market niches with specific tastes and needs); or e) focused differentiation (market niches with unique preferences and needs).[19]

5. Strategy Implementation and Management

In the last ten years, the balanced scorecard (BSC)[20] has become one of the most effective management instruments for implementing and monitoring strategy execution as it helps to align strategy with expected performance and it stresses the importance of establishing financial goals for employees, functional areas, and business units. The BSC ensures that the strategy is translated into objectives, operational actions, and financial goals and focuses on four key dimensions: financial factors, employee learning and growth, customer satisfaction, and internal business processes.[21]

The Role of Finance

Financial metrics have long been the standard for assessing a firm’s performance. The BSC supports the role of finance in establishing and monitoring specific and measurable financial strategic goals on a coordinated, integrated basis, thus enabling the firm to operate efficiently and effectively. Financial goals and metrics are established based on benchmarking the “best-in-industry” and include:

1. Free Cash Flow

This is a measure of the firm’s financial soundness and shows how efficiently its financial resources are being utilized to generate additional cash for future investments.[22] It represents the net cash available after deducting the investments and working capital increases from the firm’s operating cash flow. Companies should utilize this metric when they anticipate substantial capital expenditures in the near future or follow-through for implemented projects.

2. Economic Value-Added

This is the bottom-line contribution on a risk-adjusted basis and helps management to make effective, timely decisions to expand businesses that increase the firm’s economic value and to implement corrective actions in those that are destroying its value.[23] It is determined by deducting the operating capital cost from the net income. Companies set economic value-added goals to effectively assess their businesses’ value contributions and improve the resource allocation process.

3. Asset Management

This calls for the efficient management of current assets (cash, receivables, inventory) and current liabilities (payables, accruals) turnovers and the enhanced management of its working capital and cash conversion cycle. Companies must utilize this practice when their operating performance falls behind industry benchmarks or benchmarked companies.

4. Financing Decisions and Capital Structure

Here, financing is limited to the optimal capital structure (debt ratio or leverage), which is the level that minimizes the firm’s cost of capital. This optimal capital structure determines the firm’s reserve borrowing capacity (short- and long-term) and the risk of potential financial distress.[24] Companies establish this structure when their cost of capital rises above that of direct competitors and there is a lack of new investments.

5. Profitability Ratios

This is a measure of the operational efficiency of a firm. Profitability ratios also indicate inefficient areas that require corrective actions by management; they measure profit relationships with sales, total assets, and net worth. Companies must set profitability ratio goals when they need to operate more effectively and pursue improvements in their value-chain activities.

6. Growth Indices

Growth indices evaluate sales and market share growth and determine the acceptable trade-off of growth with respect to reductions in cash flows, profit margins, and returns on investment. Growth usually drains cash and reserve borrowing funds, and sometimes, aggressive asset management is required to ensure sufficient cash and limited borrowing.[25] Companies must set growth index goals when growth rates have lagged behind the industry norms or when they have high operating leverage.

7. Risk Assessment and Management

A firm must address its key uncertainties by identifying, measuring, and controlling its existing risks in corporate governance and regulatory compliance, the likelihood of their occurrence, and their economic impact. Then, a process must be implemented to mitigate the causes and effects of those risks.[26] Companies must make these assessments when they anticipate greater uncertainty in their business or when there is a need to enhance their risk culture.

8. Tax Optimization

Many functional areas and business units need to manage the level of tax liability undertaken in conducting business and to understand that mitigating risk also reduces expected taxes.[27] Moreover, new initiatives, acquisitions, and product development projects must be weighed against their tax implications and net after-tax contribution to the firm’s value. In general, performance must, whenever possible, be measured on an after-tax basis. Global companies must adopt this measure when operating in different tax environments, where they are able to take advantage of inconsistencies in tax regulations.

Conclusion

The introduction of the balanced scorecard emphasized financial performance as one of the key indicators of a firm’s success and helped to link strategic goals to performance and provide timely, useful information to facilitate strategic and operational control decisions. This has led to the role of finance in the strategic planning process becoming more relevant than ever.

Empirical studies have shown that a vast majority of corporate strategies fail during execution. The above financial metrics help firms implement and monitor their strategies with specific, industry-related, and measurable financial goals, strengthening the organization’s capabilities with hard-to-imitate and non-substitutable competencies. They create sustainable competitive advantages that maximize a firm’s value, the main objective of all stakeholders.


[1] M.E. Porter, “What is Strategy?” Harvard Business Review, 74, no. 6 (1996). [purchase required]

[2] D. Abell, Defining the Business: The Starting Point of Strategic Planning, (New Jersey: Prentice-Hall, 1980).

[3] J.S. Bruner, The Process of Education: A Landmark in Education Theory, (hyperlink no longer accessible). (Boston: Harvard University Press, 1977).

[4] J.A. Pearce and R.B. Robinson, Formulation, Implementation, and Control of Competitive Strategy, (New York: Irwin McGraw-Hill, 2000).

[5] C.S. Clark and S.E. Krentz, “Avoiding the Pitfalls of Strategic Planning,” Healthcare Financial Management, 60, no. 11 (2004): 63–68.

[6] T. Jick and M. Peiperl, Managing Change: Cases and Concepts, (New York: Irwin/McGraw-Hill, 2003).

[7] J.C. Collins and J.I. Porras, “Building Your Company’s Vision,” Harvard Business Review, 74, no. 5 (1996). [purchase required]

[8] Pearce and Robinson.

[9] J.A. Pearce and F. David, “Corporate Mission Statement: The Bottom Line,” The Academy of Management Executive, 1, no. 2 (1987): 109–116. [purchase required]

[10] R.K. Johnson, “Strategy, Success, a Dynamic Economy, and the 21st Century Manager,” The Business Review, 5, no. 2 (2006).

[11] M.E. Porter, “How Competitive Forces Shape Strategy,” Harvard Business Review, 57, no. 2 (1979).

[12] Ibid.

[13] A.A. Thompson, A.J. Strickland, and J.E. Gamble, Crafting and Executing Strategy, (New York: McGraw-Hill/Irwin, 2009).

[14] Pearce and Robinson.

[15] Thompson, Strickland, and Gamble.

[16] B. Jovanovic and G.M. MacDonald, “The Life Cycle of a Competitive Industry,” The Journal of Political Economy, 102, no. 2 (1994: 322–347).

[17] C.A. Lai and J.C. Rivera, Jr., “Using a Strategic Planning Tool as a Framework for Case Analysis,” Journal of College Science Teaching, 36, no. 2 (2006): 26–31.

[18] M.E. Porter, Competitive Advantage: Techniques for Analyzing Industries and Competitors, (New York: The Free Press, 1980).

[19] Thompson, Strickland, and Gamble.

[20] R.S. Kaplan and D.P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” (hyperlink no longer accessible). Harvard Business Review, 74, no. 1 (1996).

[21] Ibid.

[22] Peter Grant, “How Financial Targets Determine Your Strategy,” Global Finance, 11, no. 3 (1997): 30–34

[23] Ibid.

[24] Sidney L. Barton and Paul J. Gordon, “Corporate Strategy: Useful Perspective for the Study of Capital Structure?” The Academy of Management Review, 12, no. 1 (1987): 67–75.

[25] B.T. Gale and B. Branch, “Cash Flow Analysis: More Important Than Ever,” Harvard Business Review, July–August (1981).

[26] H.D. Pforsich, B.K.P. Kramer, and G.R. Just, “Establishing an Effective Internal Audit Department,” Strategic Finance, 87, no. 10 (2006): 22–29.

[27] Q. Lawrence, “Hedging in Perspective,” Corporate Finance, 115, no. 36 (1994).

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The Company Director’s Role In Company Growth

With implementation of the Sarbanes-Oxley controls now in place at most publicly held companies, many boards of directors are shifting attention to issues that are more likely to grow revenues and profits. A recent McKinsey survey (The View From the Boardroom, March 2005) supports this shift in concluding that one-third of the company directors surveyed want to spend significantly less time on audit and compensation issues.

Many directors have expressed a desire to become more involved with their company’s strategic growth planning. The McKinsey study[1] found that 75 percent of the directors surveyed want to spend at least a quarter of their board time dealing with the company’s business strategy, its risks, and maximizing growth opportunities.




Photo: Joseph Sebastian




Though just one survey, these conclusions support what many of us see in the boardroom every day: The pendulum of topics commanding directors’ attention is swinging from oversight and compliance back to where it should be focused on the company’s growth plans. Boards do their jobs best when challenging the CEO to grow revenue, asking questions, and vetting the strategic plan. That’s how directors increase shareholder value.

Changing the Board’s Traditional Role

The following chart illustrates what traditional boards viewed as their role. Notice that the board stayed at approving and monitoring the company’s business strategy rather than helping to formulate and implement.

The Board of Directors’ Traditional Role in Strategy

Formulate Approve Implement Monitor
Board X X
Management X X

However, if directors truly wish to become more involved in their company’s growth strategies as shown in the McKinsey survey cited above the simplest way to engage the board is to put the growth plan first on the agenda. This keeps oversight, regulatory compliance, and general governance activities from monopolizing the entire schedule, thereby giving priority to the discussion of strategy formulation and implementation.

Since the board chair cannot allow a single topic no matter how important to occupy the entire agenda, the smartest way to accomplish the goal of a full and complete discussion of the company’s growth plan is to talk about it in bite-sized segments throughout the planning cycle. Such quick, intense exchanges between the board and management strengthen overall strategy and ensure that the resulting growth plan is grounded in reality.

Getting Boards of Directors Involved: Case Study Advanced Medical Optics

Most directors of Advanced Medical Optics (AMO) of Santa Ana, California are intensely involved with specific senior executives through AMO’s director/executive mentoring program. This program matches each of several senior executives with particular directors in that executive’s area of concentration and provides a forum for their regular interaction. The purpose is to mentor the executives and to get the company’s board of directors more closely involved. As a result, key board members of AMO are involved with strategy formulation.

CEO Jim Mazzo keeps AMO’s entire board informed throughout the planning process. Each discussion of the growth plan is short, concise, and informative. The directors learn what the growth strategies team is considering. Directors get to offer opinions and ask questions, thereby taking co-ownership of the process with management. The primary benefit is that by the time AMO’s strategic plan is completed, it drills into the smallest, most critical details needed to make the plan successful. It answers the critical question, “How will this strategy make more money than the plan costs to implement?”

Recruiting Board Talent

The days of the CEO’s buddies populating boards are past. Today’s directors are often experts in their own right. They are chosen for their experience and capabilities. With this background, board members who insist on being treated as a talented, expert resource improve the formulation, approval, and monitoring of business strategies while leaving implementation of strategy to the management team. Today’s skilled directors now drive the strategic growth plan by drilling down on the link between employees’ skills and competent management.

Growth the Key Strategy

Most companies have as a strategic objective to grow faster than the overall market. To do this, they must unseat market share from competitors or identify niche areas of faster growth within the overall market. Not only must the strategic plan clearly identify how this growth will occur, but regular board discussions should also track progress toward achieving this objective.

Mid-Course Corrections

But what if things go south? Directors don’t want a growth plan that assumes the company is like a truck driving through a town where every traffic light is green. They want a plan that shows what happens when specific contingencies occur. Often scenarios planning “if this happens, then we do X, and here’s the impact, provide all the insight necessary. Certainly, directors need the business and industry background to know what critical questions to ask and how to accurately interpret the responses. Such questions frequently facilitate healthy board discussion. They often take the following forms:

  • What are the potential upside and downside of specific contingencies?
  • What is the probability of each?
  • What events must happen for the upside or downside contingency to occur?
  • Can the board of directors control any of the contingencies?
  • What are some alternatives and options for dealing with contingencies, assuming the best case and worst case scenarios?

Harnessing Board Talents: Case Study Primal Solutions

Getting the board involved in formulating, approving, and monitoring the company’s strategy engages directors’ often ignored capabilities. A good example is the management of VoIP software producer, Primal Solutions. Management quickly realized that the board not only wanted to participate in strategy formulation, but that its members also had more experience in formulating business strategy than did many management teams of companies considerably larger than Primal Solutions’ $10 million in 2004 sales.

Primal Solutions’ CEO asked the lead director and one advisory council member to work with the management team to formulate the company’s business strategy. Together, they filled specific experience gaps. As directors, their intent was to guide, help avoid pitfalls, and empower the CEO throughout the process. Their role was to stay in the background and support the discussions rather than to dominate them.

Five members of the management team, a member of the board of directors and an outside facilitator shaped Primal’s business strategies and the plan to achieve them over one two-day meeting and three subsequent one-day meetings. The board member’s presence added to the sense of urgency and seriousness that the project demanded.

The resulting strategic plan reorganized the company into two different business units. The plan also recommended some strategic personnel changes needed to implement the plan. These changes would not likely have occurred as quickly had the strategic plan not been treated as a blueprint to be followed by management and monitored by the board.

Primal’s approach succeeded because they followed these important rules:

  • Schedule significant time several full days in this case to hold meaningful conversations.
  • Create an atmosphere that makes the strategic planning team feel that it’s okay to challenge and question assumptions and that it’s okay not to know the answer because we’re all working toward a common goal: to increase shareholder value.
  • Review the broad competitive landscape and alternative market scenarios.
  • Hold subsequent meetings to review and approve each stage of the strategic growth plan.
  • Devise a scheme to measure specific metrics used to track plan implementation and performance.
  • Reserve significant parts of each board meeting to devote to the company’s growth strategy.
  • Benchmark and monitor the company’s market position compared to that of its competitors.
  • Identify and track the two or three capabilities that are critical to achieving success.

Tapping the Board of Directors’ Special Talents

Two simple questions that are very important to formulating the company’s strategic plan can help identify possible shortfalls in the board’s capabilities:

  1. What essential areas of expertise, technical know-how, and experience does the growth plan require?
  2. What inventory of this expertise, technical know-how, and experience does each board member bring to the table?

Getting the answers to these questions may require a competency assessment either by the board itself or by the strategic planning team. Along with board members who have technical qualifications, directors recruited to help formulate the strategic growth plan must be evaluated regarding their attitudes, values, time constraints, abilities to work cooperatively, and their desire to contribute to the team’s success.

Using an Advisory Board: Case Study Sonic Foundry

What if the board doesn’t have the necessary qualifications to help with the strategic growth plan? It is difficult to quickly change the composition of the statutory board. However, a company can swiftly create and enable an advisory board with relevant experience and industry contacts.

A good example of this is Sonic Foundry (SoFo), a company who created a real-time multimedia presentation recorder and Web communications system. SoFo’s growth strategy requires them to cross the chasm by moving sales from customers who are strictly early adopters to customers who are in the mainstream market. Since SoFo is a small company, the business strategies team consisted solely of the CEO and the head of sales and marketing. Owing to the company’s prior business and rapid evolution, the statutory board lacked the distance learning and distribution experience needed to help management create the strategic plan. Even worse, SoFo’s small window of opportunity to stay competitive didn’t allow time to recruit statutory board members who had the right backgrounds. Instead, they quickly formed an advisory board. The full 10-person advisory board meets twice a year. However, the smaller, specialized committees such as the growth strategies committee meet considerably more often.

SoFo’s use of committee members from the advisory board expanded the growth strategy team’s depth and experience. SoFo’s strategic planning process resulted in a number of key decisions being made, such as unbundling the products to make them easier to use and moving the purchase decision from their customers’ IT departments to the end users. SoFo also raised prices and began charging for features that they had once just given away. Profit margins rose.

Today, SoFo has a formalized strategic planning process that holds three one-day meetings annually and involves the management team and the advisory board. The management team reports back to the advisory board on lessons learned and actions taken. Like Primal Solutions’ board, SoFo’s advisory board members participating in formulating the company’s growth strategies are not interested in dominating the discussions. Rather, their mission is to add expertise to planning deliberations and to empowering the CEO.

Managing the Board’s Agenda

Board meetings are busy affairs. Adding one more thing to an already crowded agenda can be disruptive. If that additional thing is something so critical to the company’s future value as business growth strategies, then the board must create a new paradigm to manage its agenda.

Boards that want more involvement in formulating company growth strategies create a strategic review committee. This committee draws out the board’s expertise, but doesn’t take huge chunks of board time, since the committee meets off-line, often with key members of the management team. The strategic review committee saves the board time by communicating and prompting board discussion on strategic direction, identifying and monitoring business drivers, keeping an eye on and responding to major strategic issues, and understanding the company’s competitive position all of which are among the board’s responsibilities in providing strategic oversight.

Providing Directors the Information They Need




Photo: T. Al Nakib




Engaged directors often first want to understand the market. They need independent information showing market size and market share for both the company and for competitors. They want to see sales trends in the market place and to identify where new customers are entering the market while the old standbys may be exiting from it. Savvy directors make the connection between those market segments and niches that are expanding and those that are contracting. They link that information with key points in the strategic growth plan and then reach their conclusions.

Conclusion

With some advance attention to likely concerns and questions, members of boards of directors gain greater confidence that the planning team has looked into all the areas that hold potential opportunity or threat for the company. Such oversight often requires individual members of the board and outside advisors with specific expertise to become involved in the strategic planning process. The board of directors empowers the CEO to lead the company’s planning process and provides a sometimes necessary assist to create the final plan. With this higher level of involvement, the board of directors has all the information it needs to thoroughly discuss the growth plan and to approve its implementation.

Look for boards of the future to become increasingly involved, not only in approving and monitoring their company’s business strategies, but also in offering concrete advice to the management team in strategic formulation and implementation. Because directors are more qualified now than ever before, expect them to use their vast experience to help grow revenues and profits.


[1] “The View From The Boardroom,” The McKinsey Quarterly, 8 March 2005, http://www.mckinseyquarterly.com/article_page.aspx?ar=1584&L2=39&L3=3&srid=7&gp=1.

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Avoiding Ethical Misconduct Disasters

Ethical misconduct disasters constitute serious costly risks to the continuity and survival of a business. Regular headlines reveal that breakdowns of integrity collectively cost businesses billions of dollars in litigation, fraudulent financial acts, increased costs, fines, reputation and image damage, customer/client trust, lost sales and recovery costs, and potentially land senior management in prison. No company is immune from these threats. Prudent businesses must plan to manage integrity continuity by assessing their vulnerability to ethical disasters, taking proactive measures, and preparing their organizations to mitigate and survive when such scandals break.

Strategic Integrity Continuity

Most organizations have long acknowledged that business continuity planning is an essential priority for effectively anticipating, preventing, mitigating, and surviving natural disasters, data loss, accidents, and deliberate malevolent acts. What many are only now discovering is that integrity continuity planning is also due diligence. Ethical issues must be on the strategic agenda. Such planning must go beyond compliance issues and reactive disciplinary policies to actually manage integrity.

 

 

 

Photo: Steve Carboni

 

 

 

Integrity management should be a priority not only because it is legally required, but because it is the right thing to do.[1] Employees who know that particular workplace decisions, behaviors, and processes exist in an ethically judged context are more aware and motivated to act ethically. Employees who perceive such activities as existing detached from an ethical context or who utilize an alternative (unethical) value paradigm (i.e. financial or perceived performance) are less aware of ethical implications and more motivated to act unethically.

Integrity management is intertwined with managing the larger corporate culture and with the informal reward/motivation processes that impact employee decisions and behaviors in ways that transcend policies printed in a written code of conduct. Common ethical and professional standards include assumptions that decisions and behaviors are conducted honestly and that employees and managers never knowingly harm or do damage to fellow employees, stakeholders, customers, clients, or vendors by deception, misrepresentation, fraudulent report, coercion, conflict of interest, or other acrimonious acts.

Recognizing the Risk for Integrity Lapses

Too frequently, top corporate executives think that ethical scandals “couldn’t happen to us.” Those sentiments are intrinsically related to the aftermath statement, “I never thought this would happen to us.” The reality is that all of the common justifications for ignoring integrity continuity planning are based on misplaced trust in unmanaged human nature and ignoring the systemic factors that give rise to ethical disasters.

Managing integrity requires strategic planning and enactment beyond hiring “good, basically moral people.” Even systematically hiring only employees with perceived high levels of morals and ethics is no sure-fire method for preventing a major scandal. For example, consider the scandals questioning conduct of some priests within the Roman Catholic Church. Neither does formulating a detailed written statement of ethics or specific documented policies provide fail-safe methods for preventing such disasters. (The final 65-page Enron corporate Code of Ethics was written in 2000 and was intended to help guide employees for “conducting the business affairs…in accordance with all applicable laws and in a moral and honest manner.”[2])

A false sense of security is a main factor that prevents companies from creating a plan of action to follow if a disaster occurs. No company is immune from scandals, and not all scandals are of a company’s making. Certainly disgruntled antagonists can and do spread false rumors and slander and distort the truth for their own self-interests.

Ethical Misconduct Disasters

Ethical misconduct disasters are specific, unexpected, and non-routine unethical events or a series of unethical events that create significant operational disruptions and threaten or are perceived to threaten an organization’s continuity of operations.

However, not every unethical decision that occurs is a crisis for the organization. In fact, businesses that effectively manage integrity can systemically absorb, react to, and appropriately adjust to most breakdowns in conduct or decision-making. Poor choices are made all the time. The key is whether the organization has adequately planned to mitigate against lapses in ethical decision making through prompt response, disciplinary actions, appropriate disclosure, communication to the workforce, and public crisis management communication so that the lapses do not escalate into catastrophes. Because of the severity, persistence, and lack of quick and appropriate response to misconduct, public scrutiny of an organization’s mishandling of such events and the resulting involvement of legal or regulatory structures may escalate so that the misconduct actually becomes a disaster for a business.

In a Sarbanes-Oxley world, what prudent executive would ignore the risks of ethical scandals? Yet numerous recent revelations about ethical misconduct make the prospects of the “unthinkable ethical disaster” a realistic concern. What do you think of when you hear the following corporate names: Martha Stewart, Qwest, Merrill Lynch, Tyco, Enron, WorldCom, Andersen, Sears, Mitsubishi Motors, United Way of America, Global Crossing, Adelphia, Citigroup? Some cases of ethical scandals have resulted in senior executives facing prison sentences.

One study revealed that 62 percent of all companies experienced a “significant or major” integrity continuity disruption between 1986 and 1996.[3] Although predicting ethical scandals in American business is not an exact science, one CFO.com projection forecasts up to 20 “major” business ethical misconduct disasters every year.[4] Ethical misconduct scandals can spring from any segment or level of a company’s operations. The major categories of such disasters typically include instances of harassment or discrimination, criminal or illegal activities, financial improprieties, customer deception, bribery or improper influence, regulatory violations, corruption, or undisclosed conflict of interest.

Sentencing guidelines, such as those of the Uniform Federal Sentencing Guidelines for Organizations, increasingly hold executives and senior management accountable by instructing judges to consider the organization’s efforts to plan, train, and implement policies to mitigate, enact full-disclosure efforts, and cooperate with authorities.

Intrinsic Ethical Assumptions

Ethical behavior is a growing concern across society in general. Times have changed since the days when one could uncritically assume that all employees are hired with a fundamental and rigid commitment to recognizing, understanding, and acting ethically in every possible situation. Furthermore, even good, moral individuals may be influenced by reward systems, unique temptations, or unseen pressures that will affect their ethical decision-making in some situations.

According to a 2002 national study of 12,000 high school students:

74 percent admitted cheating on an exam at least once in the past year;

38 percent admitted shoplifting at least once in the past year;

37 percent admitted that they would lie “in order to get a good job.”

Josephson, M. “Report Card 2002: The Ethics of American Youth,” (Josephson Institute of Ethics: Los Angeles, 2002).(no longer accessible).

In addition, the “inherent ethics” of the “good moral people” that a company hires include:

  • 76 percent of MBA graduates who reported that they were willing to commit fraud to enhance profit reports to management, investors, and the public;[5]
  • The fewer than 50 percent of employees who believe their employers have high ethical integrity;[6]
  • 30 percent of all employees who currently report that they know or suspect ethical violations such as falsifying records, unfair treatment of employees, and lying to top management;”[7]
  • 41 percent of employees in the private sector and 57 percent of employees in the public/government sector who are aware of ethical misconduct or illegal activities;[8]
  • 60 percent of employees who state that they know but have not reported instances of misconduct in their organizations. Most employees cite the lack of companies’ confidentiality policies as reasons for not coming forward about ethical misconduct. They fear “whistle-blower” retaliation and that existing policies won’t protect them.

Integrity Continuity Analysis

Integrity continuity considerations are commonly ignored by senior management, particularly at the chief executive level. Research has found that 60 percent of chief executives and boards of directors failed to engage in integrity continuity planning discussions or to include such considerations in strategic planning.[9] Furthermore:

  • 57 percent of companies “have never” incorporated integrity continuity planning at the strategic executive or board level.[10]
  • More than half of all businesses fail to assess ethical misconduct risks and to ensure integrity continuity.[11]
  • 54 percent of companies do not have employee ethics compliance measurement among their performance appraisal criteria.[12]
  • 56 percent of companies have never conducted an ethical behavior compliance audit.
  • 23 percent of companies have never engaged senior management in ethics/compliance training efforts.[13]

It is imperative that companies carefully assess the integrity risks that are unique in their business by analyzing the following:

  • On what criteria does the company base confidence in its integrity continuity?
  • Do all company personnel know how to act or behave ethically and appropriately in all situations and contexts?
  • Do employees know the rules for each situation that may arise?
  • How does the company know that employees have this information?

In most cases, ethical disasters involve employees who failed to follow their department’s internal corporate policies and guidelines. Far too many corporate scandals have occurred because the organization was an “enabler” of the employee’s unethical behavior.

One approach that has been used effectively to assess a company’s strengths, weaknesses, opportunities, and threats is the Ethical Conduct Audit©.[14]

Ethical Conduct Audit© can:

  • Gather information
  • Establish reporting channels
  • Assess culture
  • Examine perceived reward system
  • Be alert to “warning signs”
  • Identify patterns of potential misconduct

Such an assessment can provide insight into both legal compliance behaviors as well as into the ethical reasoning and decision-making that is often difficult to see with unfocused or casual observation.

 

Five Key Steps to Reach Integrity Continuity Goals

 

 

 

 

Photo: Denise Palhares Mooney

 

 

 

Prudent executives can initiate the following five proactive steps that can move their organizations towards integrity continuity goals and objectives.

1. Establish Explicit Ethical Goals and Criteria

Every company should establish detailed codes of ethics and all applicable compliance expectations. Such standards can distinguish between legal and ethical conduct, but in both cases, the organization’s expectations upon individuals should be defined and put in writing. Criteria should include specific examples of common or routine situations as exemplars so that there are clear cut “models” of what criteria are expected to govern or guide decisions and behavior for employees regarding what is (or is not) considered consistent with the company’s expectations. In fact, the more such examples are descriptive of the types of choices and situations that employees might be expected to encounter during their work performance, the more powerfully such illustrations can serve as the basis for integrity ideals that are likely to be enacted. All of these written ethical codes should be distributed and reinforced with all employees.

2. Demonstrate Commitment to Ethical Goals and Criteria

Executives must demonstrate top management’s commitment to integrity as a strategic goal of the corporation. While having a written code that explicitly defines ethical expectations is important, it is also important to demonstrate to your workforce that the organization is seriously committed to expecting employees to meet and exceed such standards. Designating a corporate ethics officer or creating an ethics management team to manage a strategic integrity plan and to signal commitment helps employees readily see that any statements of ethical conduct expectations are not just “lip service.” In addition, performance appraisal processes must tie rewards systems to indicators of integrity as well as to other measurements of productivity. The rewards system (including informal rules and rewards) must be consistent with integrity expectations. Furthermore, it is important to consistently reward integrity and to make sure that these instances are publicized throughout the organization. Finally, management must insure that a clear and efficient disciplinary process for lapses of integrity is in place.

3. Communicate Ethical Expectations and Train Workforce to Enact Ethical Goals and Criteria

Every employee, manager, and executive in your company should participate in ethical training programs as part of the strategic commitment to integrity continuity management. Recognizing ethical dimensions of various situations, understanding the company’s ethical expectations, applying ethical criteria in “complex” situations, instituting ethical decision-making processes, implementing ethics in action, and ensuring legal compliance are all part of an on-going integrated training program that should be in place in every organization. Given the recent scandals, prudent company executives should also determine what sorts of on-going ethical training initiatives are underway at their accounting firms and among suppliers, vendors, distributors, and other “intertwined” entities. Finally, such training cannot be “theoretical.” It is imperative that everyone be thoroughly trained in transferring and applying ethical principles to the specific situations and decisions that they face in the performance of their jobs.

4. Assess and Monitor Employee Behavior and Decisions

It is essential to monitor and audit employee conduct (formal and informal) to have a realistic picture of the types of behaviors and decisions that occur within your organization. Start with a comprehensive Ethical Conduct Audit ©[15] to get an overview of the current enactment of integrity across your organization. Review the various decision systems and critical points where your organization may be vulnerable to lapses in integrity. Review ongoing extensive surveillance and collaborative participation efforts to ensure that all behaviors and decisions are being conducted ethically. Create and maintain confidential “whistle-blower” channels, policies, and protections for those who report unethical conduct.

5. Maintain On-going Proactive Integrity Continuity Management

Create and maintain a supportive climate for ethical conduct by recognizing and rewarding acts of integrity and ethical decisions. Abide by and enforce disciplinary policies in consistent and fair ways. Anticipate potential threats to integrity continuity. Develop plans for reacting and responding to the discovery of unethical behavior. Prepare contingency plans for handling issues that might potentially become major scandals and disruptions to your ongoing operations.

Proactive Integrity Continuity Management Tactics

  • Set and maintain integrity goals at the strategic level.
  • Demonstrate top management commitment to integrity.
  • Monitor and audit conduct (formal and informal).
  • Tie performance rewards system to integrity conduct.
  • Distribute written rules, policies, and procedures.
  • Reinforce written rules, policies, and procedures.
  • Train employees to recognize and make ethical decisions.
  • Establish Corporate Ethics Officer/Team.
  • Designate Ethical Compliance Manager.
  • Install surveillance and evaluative processes and foster collaborative participation.
  • Maintain “whistle-blower” channels and policies.
  • Ensure supportive climate for ethical conduct.
  • Reward acts of integrity and ethical decisions.
  • Abide by and enforce disciplinary policy consistently and fairly.
  • Offer Organizational Transformation (OT) training and development programs.
  • Immediately respond to misconduct; follow procedures consistently and fairly.

Summary: When Ethical Scandals Occur

If an ethical scandal does occur, the response must be quick and decisive. It is always important to follow procedures consistently and fairly. It is also important to document all aspects of your efforts for integrity management as well as all actions and steps followed in response to episodes of ethical misconduct followed by immediate action. Rest assured that every step taken (or not taken) will be closely watched by other employees and eventually by the media as well as the public at large. If employees know the company’s internal procedures and policies as well as its legal and regulatory requirements, follow disciplinary policy consistently and swiftly, contact and cooperate with law enforcement (when appropriate), and review stakeholder agendas, then possibly the company may emerge gracefully from the disaster.


[1] LeClair, D. T., Ferrell, O. C., and Fraedrich, J. P. (1998) Integrity Management: A Guide to Managing Legal and Ethical Issues in the Workplace, University of Tampa Press.

[2] Enron Code of Ethics, Enron Corporation, 2000: 2.

[3] Gottlich, J. A. and Sanzgiri, J. “Towards an Ethical Dimension of Decision Making in Organizations,” Journal of Business Ethics. 15 (12) 1996: 1275-1285.

[4] Taub, S. “Crisis of Ethics: Ethics Officers Predict a New Wave of Corporate Scandals,” CFO.COM, 19 June 2002. http://www.cfo.com/article.cfm/3005220?f=search.

[5] Lazere, C. “Ethically Challenged:Teaching Ethics Is Required But Schools Have Wide Latitude in How They Do It, “CFO Magazine, April 1997.

[6] Walker Information and Hudson Institute. Workforce 2020, (Indianapolis, Indiana: Walker Information and Hudson Institute, 1999).

[7] Ibid. Walker Information and Hudson Institute, 1999.

[8] “Integrity and Ethics in Public Administration: Polls and Surveys,” Public Management, October, 1998, (Public Management: Washington, DC): 3-4.

[9] Taub, S. (2002). http://www.cfo.com/article.cfm/3005220?f=search.

[10] Ibid.

[11] Chandler, R. C. and Wallace, J. D. “Brief Results of the Pepperdine University Ethical Misconduct Disaster Recovery Preparedness Survey,” Disaster Recovery Journal, 14, Summer 2001 (3), 2001: 21-22.

[12] Taub, S. (2002). http://www.cfo.com/article.cfm/3005220?f=search.

[13] Chandler, R. C. and Wallace, J.D. (2001); 22.

[14] Chandler, R. C. “Managing Ethical and Regulatory Compliance Contingencies: Planning and Training Guidelines,” Contingency Planning and Management 2000 Proceedings, (Witter Publishing: Flemington, NJ, 2000): 6-7.

[15] Chandler, R. C. Ethical Conduct Audit. Pepperdine University, 2005.

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Increasing the Firm’s Strategic IQ

In industries where change is constant and revolutionary, key managers and knowledge workers need to learn to think more and more like a CEO and to be included in a dynamic strategic planning process.

When General Electric cut its strategic planning department by 99%, that seemed to be the deathblow to the strategic planning function. Instead, it may have been the savior because at the same time GE abolished the planning department, it established the Crotonville Center to train thousands of managers in a more dynamic strategic planning process and decision-making.

Other companies, including IBM, TRW, Nucor Steel, and John Deere, have since followed suit. They have increased the number of managers and knowledge workers involved in strategic decision-making, thus giving them access to more critical information and training them in areas such as reading financial statements.[1]

One of the main reasons for this change was the need to be more responsive to the customer. Top managers were becoming increasingly isolated or frustrated by their companies’ lack of ability to meet customers’ needs. By involving lower levels of the organization in strategic planning processes and decision-making, these companies are able to design a dynamic planning process and achieve strategic goals that better fit the needs of today’s marketplace.[2]

At the roots of the dynamic strategic planning model are the core elements of the static strategic planning processes. They are not lost. However, knowledge of them is spread throughout the firm, thereby allowing for increased dynamic involvement by more people. By understanding how strategic planning is changing, companies can build more effective processes that respond to today’s competitive challenges.

Static Versus Dynamic Strategic Planning

Whether a firm engages in a traditional static planning process or a dynamic one, ultimately the purpose of strategic planning is to add value to the firm by adding new customers, new products or services, new markets, new locations, or new breakthrough technology. If the plan does not add value, it is worthless.

Static planning processes usually answer the question of fit. How does our firm fit with its environment? What are the strengths, weaknesses, opportunities, or threats (SWOT) and the “GAP” between opportunities and capabilities? Value is added when a firm’s internal capabilities fit with its external environment. Static processes optimize value creation. These “fit” models tend to provide insights that lead to incremental changes, but rarely inspirational changes. Thus, they came under attack in the 80s for “analysis by paralysis”[3] and more recently for stifling innovation for the sake of optimization.[4]

Revolutionary change requires a new, dynamic model of strategic planning. It does not ask about fit; it asks about the future. Used in such hypercompetitive industries as software and biotech, dynamic strategic planning answers two questions: “Where do we want to go and how do we want to get there?”[5] Executives become visionary and transformational on the one hand and managers of strategic context on the other. Managing this context includes training others in strategic thinking to increase the collective capacity of the organization to make strategic decisions, its strategic IQ.

In other words, in dynamic strategic planning processes, key employees learn how to think more and more like a CEO in terms of static strategic planning, thus matching strengths and weaknesses with opportunities and threats. They learn to increase their strategic intelligence by learning from their competitors, customers and suppliers to ask strategic questions, to plan for contingencies, and to engage in scenario planning.

Involving more employees in dynamic strategic planning is necessary in industries in which change is rampant. However, unless there is a need for managers and knowledge workers to think strategically, involving them in dynamic strategic planning can reduce their efficiency. In stable industries, static planning processes work. However, in dynamic environments, even leaders may need to learn new skills, including managing the strategic context.

Anchors

Managing strategic context starts with the heart of a good strategic plan: the company’s purpose, values, and strategic goals. In static models, the core purposes and values often take a back seat to rigorous analysis and data collection, but in dynamic models, they anchor the process and keep it from spinning out of orbit. Leaders need to spend a lot of time reiterating the purpose and these core values, which are the roots of strategic thinking throughout the firm.

Dynamic strategic planning processes use vision statements instead of static mission statements. Vision statements embody the core values and purpose of the firm and state them in terms that inspire and stretch the firm to achieve a broad future-oriented purpose. “We set the standard” was an embryonic vision at Microsoft. The early personal computing firms realized that they were not just creating a valuable product; they were changing people’s lives. Microsoft knew that to be at the forefront of this change, it had to be the standard bearer.

Instead of static SMART goals (smart, measurable, appropriate, tied to rewards and timetable) that are manageable, dynamic strategic planning processes rely more on BHAG (big, hairy, audacious goals) that are motivational. According to Gary Hamel, strategic planning processes should lead to revolutionary goals with evolutionary steps.[6]

Using vision statements and BHAG goals as anchors to involve more employees in strategic planning processes is not without risk. If the freedom to make strategic decisions throughout the organization is not rooted in a strong, shared vision, rather than enhancing a company’s ability to achieve its strategic goals, that freedom can lead to chaos. Without adequate review and appropriate controls, individuals may inadvertently, or otherwise, go off on destructive tangents. Firms such as Enron have set revolutionary goals, but have failed to manage the strategic context or establish adequate controls. Thus, the next step in dynamic strategic planning is to manage the strategic context through the strategic planning process.

Process

Static strategic planning processes are like luxury liners. They are elaborate, complex, and proceed at a snail’s pace. They often result in “SPOTS,” — Strategic Plans on Top Shelves.[7]

In a dynamic planning process, the executive team and key stakeholders will often go off site for a weekend and hash out the strategic vision and goals of the company. While these provide the anchors and goal posts, they leave a lot of room for strategic thinking on the upside and running adrift on the downside. Thus, the senior team must also spend time increasing the strategic IQ of the company by determining its strategic architecture and organization. Such actions include planning processes, training, information systems, rewards, and reporting and team structures that facilitate strategic thinking in order to exploit the increased strategic intelligence of its managers and employees.

Organization

Static strategic planning is traditionally a top-down process. It is tightly controlled by an executive team with support from a centralized planning staff that provides information on markets, competition, customers, and economic forecasts. Company-wide strategic planning processes often include major plans every three to five years and annual updates. Often these updates are tied to, and sometimes tied down by, the budget process. Static strategic planning often fits well with traditional organization charts that are multidivisional or functional. Communication and decision-making follow a vertical flow up and down the chain of command.

Dynamic strategic planning processes require a more horizontal approach to communications and decision making. They are more likely to flourish in organizations that utilize teams and networks.[8] The executive team creates the vision and grand strategies that provide a context for all other strategic decision making. The team then determines whom to involve and the processes for communication and implementation. They must also plan for the training of those who are now being asked to think strategically. Once managers are trained, they must be given incentives to act. Finally, an information system that supports the flow of knowledge and shows evidence that organizational units are achieving their strategic goals must be put in place.

Training

In the 80s, CEOs became disillusioned by the level of precision and lack of accuracy of their planning processes. Savvy companies started training top managers to use the fundamental skills of the static model to think strategically even though few of them had either Ph.D.s in economics or crystal balls. These managers in turn demanded more and better information on customers, competitors, industries, environments, and internal capabilities and resources. Key sources of this information were front-line managers and knowledge workers.

Just as strategic thinking moved from CEOs to top management teams, it later moved from these teams to knowledge workers and managers, requiring that they be trained in strategic decision making skills, including understanding the firm’s strategic vision and purpose. They, in turn, began asking questions about customers, competitors, and suppliers; gathering appropriate data; determining their organizational unit’s core competencies, and obtaining evidence that they were achieving their strategic goals.

Information Systems

In static strategic planning, information is funneled through a centralized planning staff that does data manipulation, strategic analysis, and financial analysis. Thanks to information technology (IT), strategic information can be made readily available in dynamic planning processes to anyone who needs to know it. IT systems support real time decision making in new and exciting ways. Companies can now directly link their systems to those of their customers and suppliers to create faster response time and improved inventory control. Linking systems also to strategic goals can increase a firm’s value.

In the knowledge creating company, a knowledge spiral occurs when tacit knowledge is articulated by knowledge workers, then recombined in new ways, and internalized by other workers.[9] In dynamic planning processes, this knowledge spiral is used for innovation that is tied to the firm’s strategic vision and goals.

Changing an IT system from one that is data based to one that is decision based can be difficult. To break down the powerful fiefdoms of IT managers, a new breed of IT professionals is needed who can design systems for knowledge workers. They in turn then can become knowledge brokers, teaching other knowledge workers and partners how to use their specialized knowledge to better support their clients. Balanced scorecards that link processes, information, and strategic goals are one example of such knowledge transfer.

Dynamic planning systems are supported by information systems that monitor and measure progress toward strategic goals on a real time basis. Websites are created to show progress toward strategic goals, gather strategic intelligence, and allow for constant communication and feedback among the senior management team, managers, and knowledge workers.

Attitude

In static strategic planning processes, there is a clear hierarchy of strategic thinking. At the top of the command chain are the strategic thinkers. They are the queen bees. At the bottom are the worker bees or drones without the mind or desire to be strategic thinkers.

With an increase in trained knowledge workers, strategic thinking is not only possible, it is also needed at all levels of the firm. Dynamic planning implies an egalitarian culture in which all knowledge workers are valued and equal. For example, at McKinsey Consulting, managing director Rajat Gupta considers himself “first among equals.” At Southwest Airlines, “Everyone is a leader.” Such attitudes pervade dynamic strategic planning processes.

To achieve such dynamism, a reward system that encourages strategic thinking is needed. It is important to create incentives and career paths that reward the desired behavior that increases the firm’s strategic value.

According to Roger Martin of Monitor, the global consulting firm founded by Michael Porter of Harvard Business School, “Managers can no longer afford to think of their workers as automatons who merely execute tasks handed down from above. All workers make key decisions every day about how they do their jobs, and those decisions can affect a company’s strategy–for good or for ill.”[10]

What Can this Mean to You?

Shifting from static planning to dynamic planning is not about how to plan as much as it is about who plans. It is about shifting strategic thinking down to more and more levels of the organization so that the firm’s strategic IQ can be increased. Therefore, companies that are contemplating making this shift need to understand the following:

  1. Executives anchor strategic planning by creating visions that state the values and purpose of the organization. They manage the strategic architecture of the firm by teaching managers and knowledge workers how to think strategically and to take appropriate action.
  2. Managers and knowledge workers need to be trained in the fundamentals of strategic planning, including how to understand financial statements such as profit and loss statements, how to determine fit strategies by matching internal capabilities with external opportunities, and how to engage in scenario (what if) planning.
  3. Managers and knowledge workers need IT systems and web based support that links them to top management, strategic goals, and other knowledge workers.
  4. Executives need to be sure that the core values and vision of the company are constantly and consistently kept in focus and that there are enough controls and processes in place to monitor what is actually happening.
  5. Once the firm’s strategic IQ is increased, its managers and knowledge workers can make strategic decisions about how to use its capabilities and resources in new markets, products and services, new locations, and breakthrough technologies, thereby adding real value to the company.

Instead of having one large lawnmower to cut thousands of blades of grass, the firm has thousands of mowers cutting the grass simultaneously. By increasing the strategic IQ of these knowledge workers, the firm can respond more rapidly than its rivals to the fast moving changes taking place in today’s marketplace.


[1] Marie Gendron, “Strategic Planning–Why It’s Not Just for Senior Managers Anymore,” Harvard Business Review, (1998), p. 3-5.

[2] Ibid.

[3] Thomas J. Peters and Robert H. Waterman, In Search of Excellence: Lessons from American’s Best-Run Companies, Cambridge: Harper and Row. (1981).

[4] Gary Hamel, Leading the Revolution: How to Thrive in Turbulent Times by Making Innovation a Way of Life, New York: Plume. (2002).

[5] Shona L. Brown and Kathleen M. Eisenhardt, Competing on the Edge: Strategy as Structured Chaos. Cambridge: Harvard Business School Press. (1998).

[6] Ibid., Hamel.

[7] This term was coined by two University of Michigan professors, Drs. Wayne Brockbank and Noel Tichy (designer of GE’s Crotonville Center to train managers in strategic thinking and decision-making).

[8] For an overview of how to communicate your strategy internally, see Jake Laban and Jack C. Green, “Communicating Your Strategy: The forgotten fundamental of strategic implementation,” Graziadio Business Review (Vol. 6, No. 1, 2003).

[9] Ikujiro Nonaka and Hirotaka Takeuchi, The Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation,. New York: Oxford. (1995).

[10] Marie Gendron, (1998).

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Artificial Intelligence Techniques Enhance Business Forecasts

“He who lives by the crystal ball soon learns to eat ground glass.” – Edgar R. Fiedler

Today’s business world is driven by customer demand. Unfortunately, the patterns of demand vary considerably from period to period. This is why it can be so challenging to develop accurate forecasts. Forecasting is the process of estimating future events, and it is fundamental to all aspects of management. The goals of forecasting are to reduce uncertainty and to provide benchmarks for monitoring actual performance. Emerging information technologies and artificial intelligence (AI) techniques are being used to improve the accuracy of forecasts and thus making a positive contribution to enhancing the bottom line.

A new generation of artificial intelligence technologies have emerged that hold considerable promise in helping improve the forecasting process including such applications as product demand, employee turnover, cash flow, distribution requirements, manpower forecasting, and inventory. These AI based systems are designed to bridge the gap between the two traditional forecasting approaches: managerial and quantitative.

Organizations develop forecasts to support planning and decision-making processes. Specific operations forecasting applications include product demand, inventory levels, manpower levels, scrap rates, and raw materials requirements. Forecasts can also be used as motivational tools. Technology based forecasts tend to focus on new product/service development. For example, how long will it take before the DVD is the primary media platform in the home? Economic forecasts deal with business parameters such as interest and inflation rates. (For a more detailed explanation of economic forecasting, see Economic Forecasting: How Pros Predict the Future in the Winter 2000 issue of the Graziadio Business Review.

Forecasting Approaches

Generally speaking, forecasts are based on quantitative analysis, qualitative analysis or a combination of both. Often quantitative forecasting is referred to as objective analysis while qualitative forecasting is called managerial or judgmental analysis. Typically, there is tension between these two approaches. Quantitative forecasts, which are often favored by operations, tend to be developed using a bottom up approach while managerial-based forecasts, usually preferred by the marketing group, are approached from a top down perspective. For example, a primary marketing goal is to insure adequate supply while operation’s focus is on minimizing inventory. The resolution of these two approaches is how forecasting errors occur and presents an opportunity for using artificial intelligence methods. Quantitative forecasting can be characterized by one of the two basic techniques:

  • Time Series – The future will tend to look and behave like the past. For example, gasoline prices for the next six months will continue along the same lines as they have over the past six months.
  • Relational – The future is dependent on the direction of a variety of factors. For example, new housing starts might be a function of interest rates and local weather conditions.

A time series is a set of data points recorded over successive time periods. Examples include monthly billables, weekly unit product demand and quarterly inventory levels and stock prices. A relational database consists of the recording of several variables for a number of observations. For example, a financial relational database could consist of revenues, earnings and assets for the Fortune 500.

The following graphic highlights the typical forecasting process. The resultant forecasts are evaluated by comparing predictions with actual results. This assessment is accomplished by examining the error terms. An error term is the difference between the prediction and the actual outcome. Based on an error assessment, the forecasting process is continually updated through the adjustment of model inputs.

Typical Forecasting Process

Typically, no one forecasting approach is best in all situations. Instead, it is most appropriate to use a combination of different forecasting techniques in arriving at composite estimates. Furthermore, it is usually a good idea to provide interval or range estimates as well as a single point forecast.

Timeframe and Data

Two major issues in the forecasting process are the time horizon and extent of data availability. The following graphic illustrates the relationship between qualitative and quantitative forecasting as a function of time horizon and data content.

Judgmental vs. Objective Forecasting

Often, objective approaches are used when there is sufficient supporting data and the horizon is relatively short. On the other hand, long-term forecasts tend to favor judgmental approaches since extrapolations based on historical data tend to break down over time. Furthermore, some forecast applications involve situations that do not have a history. For example, consider receiving the assignment, in 1985, of estimating the impact of the Internet on business by the year 2000. For more information on judgmental forecasting visit: http://www.ncedr.org/tools/tools/tool7/judgmental.htm

To the general public, artificial intelligence conjures up visions of science fiction as illustrated in films such as The Terminator, The Matrix, and A.I. In reality, AI has considerable potential for improving productivity throughout the organization.

Artificial Intelligence Use Expanding

What is AI? AI is generally defined as a computer-based analytical process that exhibits behavior and actions that are considered “intelligent” by human observers. AI attempts to mimic the human thought process including reasoning and optimization (http://ai-depot.com/). The overall market for AI related systems is growing rapidly. Presently, the United States accounts for over 60 percent of an estimated $900 million global AI market. One purpose of AI is to help organize and supply information for the management decision-making process in such a way as to improve overall efficiency and performance. Three of the more commonly used AI systems in forecasting are:

  • Neural Nets emulate elements of the human cognitive process, especially the ability to recognize and learn patterns. The architecture consists of a large number of nodes that serve as calculators to process inputs and pass the results to other nodes in the network. These systems have the advantage of not requiring prior assumptions about possible relationships. One application of neural nets might be forecasting employee turnover by category based on such factors as tenure with the firm, managerial level, and gender.
  • Expert Systems summarize the totality of available knowledge and rules. “Knowledge” is stored in a set of “if-then” rules. The knowledge base can be obtained by interviewing experts or integrating sets of data. For example, predicting upcoming weather conditions based on current temperatures, humidity levels, season of year, and geographical location.
  • Belief Networks describe the database structure using a tree format. The nodes represent variables and the branches the conditional dependencies between variables. Belief nets generate conditional probabilities for a variety of future outcomes. For example, estimating the chances of various product sales levels based on such traditional factors such as marketing and R&D budgets as well as market signals like customer complaints.

These AI systems can be employed for both forecast classification (e.g., preferred customer vs. marginal customer) and prediction (e.g., annual sales). The following table provides a simple illustration of how AI could be used to refine a marketing strategy based on three customer behavior factors: profit margin, retention probability and potential long-term value to the firm.

Each of these factors is characterized as either low or high. In practice, a more complex characterization scheme with more factors and more levels (e.g., low, medium, high) can be used. This table shows the appropriate qualitative strategy given each set of circumstances. Customers would be characterized in terms of their demographics and prior purchasing behavior. Quantitative forecasts can also be developed along the same lines.

Profit Margin
Retention Probability
Long Term Value
Strategy
Low
Low
Low
Reduce marketing resources
Low
Low
High
Market distinct product portfolio
Low
High
Low
Examine up-sale opportunities
Low
High
High
Market missing products
High
Low
Low
Refocus marketing effort
High
Low
High
Re-attract these customers
High
Low
Low
Increase marketing resources
High
High
High
Pursue these customers

Used in this way, the system can automate the process of both qualifying and quantifying marketing prospects and forecasting demand. Other related AI capabilities include:

  • Identify similar purchasing patterns within a given time frame.
  • Segment databases into related factors.
  • Detect relationships and sequential patterns.
  • Develop categorization and estimation models.

Used in combination with traditional forecasting, AI can help ameliorate friction that may exist between objective and managerial oriented approaches. More specifically, it integrates the best features from both classical approaches in structuring a virtual forecasting system.

The human brain contains on the order of 1011 neurons. While this number is impressive the number of synapses, estimated at 1016, is truly unbelievable. This is equivalent to the number of printed characters in all of the books contained in the United States Library of Congress 300 times over! By contrast a typical forecasting application might contain a few thousand neurons.

Results Talk

The following list presents some examples where organizations have improved bottom line profitability by improving the forecasting process.

1. Hyundai Motors reduced delivery time by 20% and increased inventory turns from 3 to 3.4.

2. Reynolds Aluminum reduced forecasting errors by 2% that resulted in a reduction of 1 million pounds in inventory.

3. Unilever reduced forecasting errors from 40% to 25% yielding resulting in multi-million dollar savings.

4. SCI Systems reduced on-hand inventory by 15% resulting in $180 million in annual savings.

Literacy grew out of the collision of the steam engine and the printing press. What will the Internet’s linguistic impact be? We may be in for some real surprises. Will this process cause sophisticated artificial intelligence to finally burst onto the scene?
Michael Hawley – Technology Review

Improve Your Forecasts

In a turbulent business environment, forecasting can lead to significant competitive advantage as well as to costly mistakes. Forecasting errors impact organizations in two ways. The first is when faulty estimates lead to poor strategic choices, and the second is when inaccurate forecasts impair performance within the existing strategic plan. An example of the former would be to increase the level of vertical integration based on a forecast of stable demand when demand actually turned out to be highly unstable. An example of the latter would be to significantly increase facility capacity based on a forecast of strong demand when, in fact, demand turned out to be soft. Either way there will be a negative impact on profitability. The following process outlines a plan for improving forecast accuracy using artificial intelligence support systems:

1. Evaluate and characterize the current forecasting system.

2. Measure the current level of error.

3. Compare error levels with industry norms.

4. Specify new requirements.

5. Characterize the economic impact of improved forecasts.

6. Identify alternative AI forecasting options.

7. Select best approach(s).

8. Develop implementation schedule.

9. Identify potential bottlenecks and problem areas.

10. Implement new system and monitor performance.

A primary objective for using AI is to better integrate the managerial and quantitative estimates and thereby reducing the forecasting errors. Organizations that currently utilize AI may increase the accuracy of forecasts by improving data collection methods and expanding efforts to gather market intelligence. Past customer behavior is often a reliable data source of future behavior. Finally, as in other areas of knowledge management, it is critical to maintain strong support for the forecasting process from the entire management team. Visit the following site for more on how AI is impacting business: http://www.shai.com/ai_general/value.htm

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Economic Forecasting

Varied forms of analysis can chart the course for your organization.

Accurate and timely information about what is likely to happen to the economy and society in the future has always been of value to business decision makers. One of the best-known stories of such forecasting is recorded in the first book of the Bible. In that case, Joseph was given the ability by God to interpret the Pharaoh’s dream and forecast that there would be seven years of very good harvests and then seven years of famine. Acting on that forecast, Egypt stored grain during the good years and survived the famine – and even prospered as people from surrounding lands had to come to buy food. More than a millennium later, the Oracles of Delphi also appealed to the gods to predict the future for the Greek kings and Roman emperors. In fact, there are reports throughout history of unusual forecasting techniques – often shrouded in mysticism.

While current economic forecasts may still seem to some to be mystically derived, today’s economic forecasters tend to rely more on data, computer models, and economic theories rather than divine inspiration although, given the accuracy of their forecasts compared to Joseph’s, one might question the change in tactics. However, forecasting has become an important part of planning for any other business. For example, sales forecasts impact the inventory of both finished goods and raw materials, the need for some types of personnel, space requirements, and financing, among other things. Macroeconomic forecasts may influence whether and where a business decides to expand, and the type and amount of financing that is used.

The development of modern economic theories such as the business cycle theory, the creation of various indexes, including the indexes of leading and lagging economic indicators, and sophisticated computer programs have given rise to new forecasting techniques. One of the key assumptions for most forecasters is that the past serves as the most important guide to the future. That does not mean that the future is a re-run of the past or that data about the past should be the only basis for a forecast. Obviously, socioeconomic conditions and global economies do not remain constant over time. Nevertheless, data about past trends and activities, when fit into a theoretical framework, provide some of the best information available.

Getting Started on Company Forecasting

If you are one of those for whom a business forecast usually means an intuitive guess, the following steps can help you begin a more formal forecasting process.

  1. Identify the problem.
  2. Determine how you would use the forecast to deal with the problem.
  3. Select the particular items you would need to forecast.
  4. Determine the appropriate time horizon for a forecast that deals with this problem.
  5. Research the techniques and theories used by others to forecast this variable in the past.
  6. Evaluate all possible opinions and consider pros and cons.
  7. Use a forecasting model that fits your business given your constraints and limitations.
  8. Make the forecast.
  9. Interpret the results.
  10. Make decisions and take action based on results.
  11. Implement a revolving recap of your forecast versus the actual figures.
  12. Modify your forecasting model or technique accordingly.

Forecasting Models and Techniques

To be able to follow the above steps, it would be helpful to have at least a brief introduction to the macroeconomic indices that are available and to the forecasting techniques that are commonly used by individual businesses. Beginning with the latter, there are two major ways to categorize forecasts: by the time frame to which the forecast applies, and by whether the techniques used are basically quantitative or qualitative.

Time Frame

The time frame for a forecast can be short-range, medium-range or long-range. Short-range forecasts typically cover the immediate future and are used to deal with issues of daily or weekly operations of a business. Typically, a short-range forecast would cover a period of one or two months. A medium-range forecast usually covers the period from one to two months to a year and is generally related to something like a yearly production plan. A long-range forecast would be for more than one or two years and is used to plan for the production for new products or the expansion of production capacity, or in the consideration of long-term financing.

Qualitative Techniques

Qualitative forecasting techniques are based on expert opinion and judgment. Today they are most frequently used when no quantitative data are available. When well done by a knowledgeable expert, qualitative techniques can provide reasonably good forecasts for the short term because of the familiarity of experts with the issues and problems involved. The primary problem in using qualitative methods is identifying the appropriate employees and then getting them to agree on a common forecast.

The main qualitative forecasting techniques are: executive committee, the Delphi method, surveys of the sales force, surveys of customers, historical analogy, and market research. Some of these obviously have a quantitative component as well. The executive committee technique consists of selecting a group of employees to represent the relevant departments of the firm and charging them with the task of creating a forecast, for example a sales forecast. They use inputs of various sorts from all parts of the organization, as well as from outside the organization, to create the forecast. This is probably the most common forecasting method used for both new and existing products and services. It is also one where strong personalities, or people in higher positions may dominate, and therefore the actual degree of consensus may be masked. In using this form of forecasting, it is important to be sure that all relevant information is solicited and considered.

The Delphi method is a variant of the executive committee approach, but the interaction is indirect, iterative, and very structured. It was designed to minimize the adverse effects of interacting groups. While there are variations of the method, the basic premise is that once the experts are identified, each is given a reasonably structured set of questions or issues to which to respond. Responses are sent to a coordinator or monitoring group that does not actually participate in the Delphi process. Responses are then fed back to each respondent, without identifying any individual with any opinion. Participants respond again in light of the views of their fellow respondents. There may be several repetitions of the process until a consensus emerges. The group may be brought together at the end to reach final consensus. Using electronic technology can help shorten the required time.

When conducting a survey of the sales force, data are gathered from members of sale force representing different products, segments or regions, and these data are combined. Managers may need to modify the aggregate numbers to ensure realistic estimates since there may be temptations to bias the reports. If rewards are based on beating estimates, the estimates may be very conservative. If the system rewards very high goals, the results may be very optimistic. To be effective, a good communication system should be available.

Direct contact with the organization’s customers is another way to make a sales forecast for a product or group of products. This method is preferred if the organization has relatively few customers. Mail questionnaires, focus groups, telephone interviews, or field interviews are tools used in market research. These inputs are used to analyze the market reaction in a target region, or outlet. These can be used for forecasting sales of a new product. Another method to estimate future sales of a new product is the use of historical analogy, where the forecast is based on the pattern of a similar product’s sales.

Quantitative Forecasting Models

These techniques use statistical methods for projecting from historical data. Some quantitative methods involve using company data to forecast individual firm performance, but there are also numerous indices and indexes published by the government or by private forecasting firms that can be of great help. In general, quantitative techniques are preferred when appropriate data are available. The main assumption is that the historical pattern will continue into the future.

Time series techniques are the most popular quantitative method. Two major types of time-series methods are moving average and exponential smoothing. The moving average is, as the name implies, a series of arithmetic averages. For example, to predict sales for the next period using a moving average, you would add up the actual sales for a specified number of periods (e.g., weeks or months) and then divide the total by the number of periods used. In a weighted moving average, weights are assigned to the previous periods. The sum of the weights must be equal to one, and more recent periods are weighted more heavily than those that precede them.

Exponential smoothing is a form of weighted moving average in which the new forecast is a weighted sum of the actual observed sales or other variable in the current period and the weighted forecast of that variable for the period. It therefore implicitly incorporates all of the data used to create the previous forecasts, but is much easier to compute. The major advantage of the moving average method is that it is easy to use, quick, and inexpensive. The major disadvantage is that it does not react well to variations that occur for reasons such as cycles and seasonal effects.

Indicators also are important in forecasting. Three types of indicators have been used for many years to help forecast the national economy. They are the Leading, Coincident, and Lagging indicator series. The terms refer to the nature of their relationship to the business cycle. The Bureau of Economic Analysis (BEA) of the Department of Commerce collects the data and has identified a particular series number for each indicator, 120 in all. As no single indicator series can encompass the economy’s diverse activity, it is necessary to track many different series to determine the direction of the economy.

Using these data series, the National Bureau of Economic Research (NBER) has developed composite indexes that capture and smooth the data contained in several of them including the three major Composite Indexes – Leading, Coincident, and Lagging. These indexes are reported by the BEA every month in the Survey of Current Business. Components of the Leading Indicators index include such things as average weekly hours worked and claims for unemployment insurance, manufacturer’s new orders, stock prices, orders for plant and equipment, an index of consumer expectations, the real M2 money supply, etc.

The Composite of Leading Indicators is useful for understanding the business cycle and is primarily intended to identify changes in the direction of the economy. Components of the Index of Coincident Indicator’s are: employees on nonagricultural payrolls, industrial production, personal income less transfer payments, manufacturing and trade sales.

The Lagging Indicators composite includes changes in labor costs per output, ratio of inventory to sales, and figures on installment credit and loans, among other items. In practical attempts to forecast the future, these Indices are among the most important tools available to most organizations, including the national government.

Any business operates on the basis of some forecast about the future, whether it is an intuitive guess or a sophisticated model involving large amounts of quantitative data. Perhaps in some small, stable businesses the former may work reasonably well but, the chances are, the more thoughtful and thorough the forecasting process, the more useful it will be. The techniques presented here are among those most frequently used today. For the most part, they are complementary. When carefully selected, and learned well enough to be properly applied, they can help a business move confidently into the future.

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Launching an Effective Citizen Advisory Panel

CAPs offer a way for companies to assure the public about the safety of their operations and the thoroughness of their environmental management programs or, in fact, to enhance such programs through broader participation.

A small newspaper expected the community would be pleased several years ago when it announced plans to build a new office and production site near a local mall and residential area. Company management was surprised when several community groups protested the plant because they believed it would be noisy and would create dan