Our firm is preparing again to plan our strategy for the next few years. It seems we continually struggle with how much we take on and particularly what to let go of in the process of adding new initiatives. Can you provide any insight into how to go about determining what we should do?
There is a saying relating to strategy and planning for the future: “Strategy is as much about what you are not going to do as it is about what you are going to do.” Many leaders don’t account for all that is not going well and instead focus almost entirely on those initiatives to determine where the company can go in the future. The reality is that all companies have parts of their businesses that are not performing well, have been marginalized, or do not fit that future. Assessing — or rationalizing, as some refer to it — each and every aspect of what your company does is needed occasionally.
What part of your business should you rationalize? Include any portion of the business that is large enough to have a material impact on the profitability of the firm or takes away precious human resources, financial capital, or leadership talent.
We find that the very best firms periodically rationalize their markets, clients or client groups, service offerings, initiatives that had been launched previously and are still not considered established, and each established functional business unit within the firm. These functional units can include larger groups or departments, offices, regions, entire divisions, or even subsidiaries.
When should you do this? The key is to perform this process often enough to identify and then change or exit those aspects of the business that are not meeting expectations. It is equally important not to do this too frequently, thus causing disruption, instability, or giving up on an area being evaluated too quickly. Rationalization is best performed annually and no longer than every few years.
One approach is to perform this process along with strategic planning. This timing gives you the opportunity to determine how what you are doing now may fit into the business of your future. Take care to avoid directly performing the rationalization in your strategic planning because it could take away from the creative thinking needed for the future. The results of this effort may be an input to the planning process to help decide where the company will place its investments, including reinvesting in existing initiatives and exiting what is not working or does not fit in the future.
Who should do this? You need to have your most objective thinker(s) perform the rationalization process. One key to make this a success is to choose an individual who is not directly attached to the topical area because independence is an important aspect of the process. Generally, forming a small task group with specific areas to evaluate is an acceptable approach if a firm does not have one person who is well rounded enough to cover all of the areas to be rationalized. In some cases, it is desirable to bring in some outside help using an industry-experienced person to get the most objectivity in the process. Whether inside or out, an individual or a group of individuals that can bring market, strategic, financial, and operational experience to the table are the desired traits needed.
What questions should you ask? The rationalization process is all about determining what is working and what is not — especially with an eye to the future. So the first question to ask is: how does this fit in with our current and future strategy of the company? Many ignore this question, and you find over time that a company continues doing things that were never included in its strategy. The remaining questions vary, depending on what aspect of the business you are rationalizing.
The rationalization process is all about ensuring the best use of your financial, talent, and leadership resources to build value for the shareholders and all employees. The best firms focus on the “critical few” things that make a company successful. So, whatever you do in planning for the future, don’t forget to look at what you currently are doing and whether you should continue on that course.
Gerry Salontai leads the Salontai Consulting Group (www.salontai.com), a management advisory company focused on helping companies achieve success in the areas of strategy, business management, and leadership. He can be contacted at 858-756-5169 or firstname.lastname@example.org.
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