My early training as a new management hire taught me the importance and value of using a consistent, systematic approach to decision making.
This five-step process can be overlaid on most complicated decisions, as demonstrated in this month's newsletter with an example from World War II.
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Goodrich & Associates
Five Proven Steps To Problem-Solving
Many years ago, when I worked in "Big Food," I (like all new management hires) went through a program that drilled us on how we were supposed to think. More specifically, it was focused on teaching us how to solve problems and document and communicate our thinking. The program was called STEPS, because the company wanted us to follow the steps, sequentially.
Here they are:
1) Situation Analysis
4) Action Plans
Let's first review each, followed by a concrete example and a few pointers for success.
- Situation Analysis
A lot has been written, discussed and debated regarding the right way to do a situation analysis. But whatever that right way is, it is problem and situation-dependent, so I won't go into details here. That said, and in all cases, a good situation analysis leads to an objective that is feasible and, often, solves the problem. Strategies flow from the situation analysis.
This is what you and your organization are trying to achieve. But it's more than that - a good objective is stated as a concrete measure by a certain date.
Saying, for example, that your company wants to be the best, leading, etc., is not an objective. The objective must be feasible as demonstrated by the situation analysis.
Sometimes in big companies buzz words do work, provided they have teeth. When I was at Kraft Foods in the '80s, our objective was to be "the leading food company in the world." But what does "leading" mean? Well, we took our competitors and plotted them on a graph with EPS growth on the Y axis and ROE on the X. If you eye-balled a curve through those competitors that were on the edge of that trade off, we wanted to be on or beyond that curve. Now "leading" became very specific and measurable.
These are the overarching, high level themes used to achieve the objective. A strategy to grow a business and increase profits might be to buy companies that do the same as you in different geographic markets. The situation analysis should have identified markets to expand into, ways to achieve economies of scale and shown that acquisition is more viable than de novo expansion.
Note that strategy, by itself, doesn't have anything actionable. Which companies? Which markets? How will economies of scale be achieved? That's where the action plans come in.
- Action Plans
Action plans identify the work to be done in concrete ways for which people can be held accountable. To execute the above acquisition strategy, for example, steps might include retaining investment banker and specialized counsel, arranging financing, identifying targets and so forth. Action plans are work that must be done to execute a strategy.
World War II as an example
Tracking is exactly that. It is measuring progress on action plans and checking that (as a result) the strategies are working and the objective remains achievable - without changes in strategies or plans. Rarely is such the case, and so the reason to track progress. Most of the time strategies will need to be tweaked and action plans adjusted.
Since a good example from one of my clients would make public too much information (and take too long to read), let's consider a well-known example from WW II. [Situation Analysis]
FDR and his team assessed the situation and saw that if Germany prevailed, it would be a threat to the United States (as would Japan). Germany has finite resources and had consumed most of the resources from the conquered territories. A full-scale invasion of England is hard for anybody. In the Pacific, Japan's conquests were spread out and relied on their control of the seas to supply and maintain their winnings. The United States has two vast oceans between us and the enemies. We have abundant resources and our country hasn't been ravaged by war. [Objective]
FDR and his team thought we could win WW II by jumping in. More specifically, that we could force Germany and Japan to surrender. A goal more definable than simply "winning." [Strategies]
The US employed several strategies. Leverage our strong economic base by building up the war machine. Take Europe and defeat Hitler. Hold Japan and the Pacific until we could divert meaningful resources from the European front. These strategies say how Germany and Japan would be defeated and flow directly from the situation assessment. [Action plans]
In the end, we didn't win WW II with well thought out strategies - we won the war by killing lots of Germans and Japanese. That is the essence of the action plans that we undertook to execute the strategies. To build up our war machine, steel was rationed and so forth to crank out guns, ammunition and ordinance, aircraft, ships, etc. England was kept alive by sending supplies over and fending off the U-Boats, Eisenhower was appointed supreme commander of Europe and so on.
[Tracking] And, of course, there was constant tracking by military staff and countless Washington bureaucrats. Tips and pointers for effective implementation
- Take advantage of cascading objectives. FDR's strategy of taking Europe first became Eisenhower's objective. Eisenhower then developed his own strategies that were implemented with plans (build up for D-Day, bomb Germany's infrastructure, etc.). In this case, Eisenhower's objective was set. He needed to expand the existing situation analysis for Europe only to figure out the strategies and actions to achieve that objective. But the objective itself was already in place and I suspect the strategies already were well framed.
In large organizations we are often in a similar situation; the objective has been handed to us. At that point, the focus of our analysis should be on how to achieve the objective, not whether the objective should be something else. For FDR, clearly communicating his objectives and strategies enabled everyone else to get their job done (because they knew what the definition of "done" was). FDR did not micro-manage WW II from the White House by developing and monitoring Eisenhower's action plans.
- Ensure action plans are clear and concise. When what is supposed to happen is not clear, it is not likely to happen as intended. Action plans often become somebody's objectives.
Clear communication helps the organization better understand the objective and strategies so mid-course corrections can be made in the field without reanalyzing everything, or worse, winging it.
- Focus your attention given limited time and resources. Often, a full situation analysis cannot be done before taking action. This is typical of my crisis management clients. My first objective in these assignments is always to preserve cash and understand cash flow. That is why I am there. There is no point analyzing the client's competitors, etc., if there isn't cash to make payroll.
In these situations, the focus is necessarily on the most critical part of the relevant situation: How much cash is there and when will it be gone? Almost always in these assignments, one of the strategies is to conserve cash so there is time to develop and execute options - to do a situation analysis, develop a feasible objective and achieve it.
This limited approach can help avoid paralysis by analysis. When the situation analysis is sufficient to be reasonably sure of the objective and the strategies to achieve it, many things can be started now. There is no need to wait for a comprehensive analysis to be complete.
The training I received all those years ago is as useful and valid today as it was then. Just make sure you follow the steps! Situation analysis, objective, strategies, actions plans and tracking.
Heard on the Street
What's in your wallet? Capital One has pounded that theme for years. But, in today's world, we have little money in our wallets; it is in the bank.
So what is in your
One measure of how much junk (not liquid assets) is in your bank is how much your bank had to borrow from the Federal Reserve and the Treasury during the crisis. To see how much your bank borrowed click here.
If that doesn't scare you, click on your bank to see what multiple of market capitalization they borrowed. Citicorp peaked close to 1,400%. Lehman was just under 45,000%!
Goodrich & Associates is a management consulting firm. We specialize in helping our business clients solve urgent liquidity problems. Our Founder and Principal, Charlie Goodrich, holds an MBA in Finance from the University of Chicago and a Bachelor's Degree in Economics from the University of Virginia, and has over 30 years experience in this area.
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