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    How does [strategic] thinking differ from planning?

    Leadership Management Performance Strategy
    The leaders of two different companies contacted me this week to ask if I could facilitate a corporate strategy session for their organisations. Both are both respected, long-standing participants in their respective sectors. One is currently updating its strategy, and the other has some concerns over the performance of an important business unit:
    • Derry*: The board and CEO have recently reviewed business performance, conducted an environment scan, identified options and developed a draft strategy. The request from the CEO is to facilitate a joint board/management session to challenge the assumptions; test linkages between purpose, strategic priorities and action plans; and, help the board reach the point of deciding whether to approve the proposed strategy or not.
    • Terra*: The CEO is concerned about a steady decline in the fortunes of a business unit over several years. "We do good work, and customers like us, but we struggle to win new business. We seem to lack a differentiator." I asked about the purpose of the business as a whole, because steady decline over several years can be an indicator of a bigger problem. The CEO said that the rest of the business was doing well—the implication being that the corporate strategy is correct. It was his view that the problem is purely one of execution within the business unit.

    While these two situations were quite different, they highlight an important dichotomy that seems to catch more than a few people out—the vital difference between strategic thinking and strategic planning, and the importance of doing both:
    • Strategic thinking is the process of finding options. It's about the big picture, casting the net wide, to discover possibilities. It's not about solving problems or picking a winner.
    • Strategic planning is the process of narrowing down options, of selecting the preferred one to achieve the business' goal, and of creating action plans. It's exactly about solving problems.

    Derry has been through the thinking process and the planning process. Therefore, the discussion with the board and the CEO should be a real pleasure, because they have a context against which to conduct the debate. In contrast, the Terra CEO seems to have treated the troubled business unit in isolation from the rest of the company, and jumped to the conclusion that something is wrong within the unit. It could be, but I wonder whether the company has a bigger problem: whether the corporate strategy has some holes in it. Why has business declined? Is the once-strong market for the business unit's services still there? What part does/should the business unit play in the wider corporate strategy? The world may have moved on, so fixing a unit without grounding it in reality can be a waste of time and money. 

    The process of thinking about the wider context, the market within which a business operates is vital. The temptation is to go straight into problem solving mode is powerful—everyone likes the satisfaction of having created a plan to solve a problem. However, this is rarely the best first step. My fear for Terra that any work on the business unit will simply paper over a bigger problem. I've suggested some questions for the CEO to ponder before he goes too much further. The next conversation will be very interesting. In the meantime, the Derry workshop is booked.

    * Usual story: the company names have been changed, to protect the parties involved.
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    Actual performance trumps promises, actually

    Management Performance Strategy
    Newly-listed Gentrack provided recent and aspiring IPOs with a salutary message yesterday. The investment community prefers solid profitable companies with growth potential. Surprise, surprise.

    In the last year, several companies—including some who are yet to record a sustainable profit—have sought and gained a listing on the New Zealand stock market. The headlong rush to list seems to have been dominated by promises of huge growth and, therefore, good rewards at some point in the future. Some, who entered early, have had an amazing ride but are now getting a reality check, as I mused recently. However, many IPO companies carry a burden of debt into the IPO, which means some of the new capital is needed to tidy up the balance sheet.

    In contrast, Gentrack has been operating for many years, has many customers, and is a proven performer with a track record of profits. It also has a credible plan and has signalled an intent to pay a dividend within twelve months. The company received a warm welcome when it listed yesterday.

    Is the aura surrounding the high-tech sector and hype of stellar returns starting to lose its lustre? Maybe. However, I'm confident that the invisible hand of the market will redress any imbalances that have occurred as a result of the current lemming-like rush to list. It will be very interesting to see which companies come through the current gold rush fever well.

    (Disclosure: I do not hold any shares in any of the companies mentioned in this muse.)
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    Boardroom decisions: The crucial importance of context

    Governance Leadership Management Performance Strategy
    Things are looking rosy for the New Zealand economy—rosy enough that Paul Bloxham, Chief Economist at HSBC, reckons "New Zealand will be the rock star economy of 2014". An important driver appears to be continued strong demand for New Zealand's dairy and meat products, particularly from Asia where the move to protein-based consumption continues unabated—which reminded me of a speech that I heard eight to ten years ago, delivered by the then Chief Economist of Westpac Bank. The suggestion was that Chinese demand for coal and steel would wane, as massive infrastructure projects were completed. Demand would then shift to food, to feed the growing middle class. The corollary was that New Zealand could look forward to long-term demand for its primary exports, and the resultant economic growth from a steady stream of export receipts. The chickens seem to be coming home to roost.

    This seems to be good news, so what should corporate boards do with it, if anything? Should boards move quickly to capture "their share" of what is obviously a growing international pie? Should more capital be applied to drive expansion into new areas, or should companies stick to their knitting? These are important questions. In the last seven days, I have been party to discussions with two successful companies that are seriously considering international expansion, to become exporters of services to Asia on the back on high primary sector demand. My initial response was to suggest several questions that their boards should ask and answer before any decisions are made:
    • What is the actual opportunity?
    • How does it fit with our current strategy?
    • What do we know about the off-shore market that the locals don't?
    • How transferrable is our capability? 
    • What will the impact be on our established business? 
    • How will it fit with the wishes of our shareholders?

    The pursuit of opportunistic growth is often exciting. However, it is rarely sustainable. Boards need to stand back and look at the big picture—to understand the context within which they operate, check their strategy and understand how the so-called opportunity fits—before making any significant decisions. The pathway of history is littered with stories of companies—including some large, well-resourced ones—that have tried and failed to become exporters on the coattails of growth in another sector. However, if boards are adequately informed before they make important decisions about strategy and the application of capital, they stand a much greater chance of success. Growth opportunities abound, but context is crucial.
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    Another capital raise breaks cover

    Governance Leadership Performance Strategy
    Further to my commentary yesterday, reports have emerged from New Zealand this morning that another ambitious technology business, PowerbyProxi, is seeking capital for growth. PowerbyProxi is developing a wireless charging technology which, if it comes off, will mean fewer wires in the office and when travelling. Samsung is an early adopter. PowerbyProxi wants to hire an additional 90 engineers, based in New Zealand, Korea and the USA, to accelerate product development and commercialise the technology.

    Whereas others are heading down the IPO path to fund growth, PowerbyProxi may seek a listing or it may use other instruments. Overall, the plan sounds audacious. However, the CEO Greg Cross, has a track record of making things happen.
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    Will the surge in IPO activity lead to a supply-and-demand problem?

    Governance Leadership Management Performance Strategy
    The New Zealand Stock Exchange has admitted several new listings in the past six months, with more pending including Gentrack, PushPay, Hirepool and iksGPS. Rumours abound that several other companies are hatching plans. The Initial Public Offering (IPO) is a popular option if new capital is required for growth or if the owners want to sell down. However, it is also an expensive instrument.

    Investor and commentator Brian Gaynor has suggested that the current surge in listings in New Zealand is a good thing. It may be, but I'm not so sure—because the grown-up world of public share trading is ruthless. If value is to be realised, the IPO needs to be heavily subscribed and performance needs to be at or above the expectations created in the IM. Otherwise, a key driver to list—liquidity at a fair price—will be lost, as Moa found out recently.

    While IPOs are popular at present, the current surge in activity may lead to a supply-and-demand problem. The supply of offers is bound to exceed demand from investors at some point. Inevitably, advisors will struggle to attract sufficient interest to fill the initial subscriptions, and that will put the share price under pressure. Boards need to think carefully about this before they decide to take an IPO proposition to shareholders. It may be smarter to use debt (or some other instrument) to fund growth.
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    On the unravelling of a business

    Governance Leadership Management Performance Strategy
    I have mused on the downfall of Postie Plus twice recently: when trading was halted on the stock market, and then when an administrator was appointed. Today, a third instalment: an initial impression of what went wrong, and what boards can learn from the case.

    The Postie Plus board and management appear to have lost sight of the company's purpose. The company's genesis was as a provider of good quality, affordable clothing that was good value for money. However, in recent years, the company has found itself competing in a higher fashion segment of the market, something that the chairman—remarkably—is on record as saying that the company did not aim to do. On this information, the company was operating at variance to its strategy. Gosh. The questions that emerge from this revelation flow thick and fast. Why did the board allow this to happen? Was the board watching? Did the board know? What was the board thinking? 

    The board is responsible and accountable for the achievement of business performance outcomes in accordance with the wishes of shareholders. Yet in this case, decisions were made (or, not made?) that resulted in the company performing less well over an extended period. Sadly, the board took little, if any, action. The Postie Plus board knew something was amiss two years ago. An interview with the chairman in December 2012 corroborates this. At that point, the board should have gone back to basics—to purpose, values and strategy—to find out what was going wrong and to make some serious adjustments. However, it appears that the company simply tinkered around the margins (while the patient was dying).

    Other boards should take note. Boards need to set strategy, and they need to review business performance against strategy on an on-going basis, to determine the appropriateness of the strategy. To do this effectively, boards need to understand the business of the business they are responsible for. They need to understand the market, the competition and the emerging trends, lest they get blind-sided by competitors, completely disruptive technologies, or, more simply, a change in buyer preferences and behaviours. On the evidence to date, the Postie Plus board does not appear to have done these things—or if it has, then it has not done them well. It is little wonder that the Postie Plus business has unravelled as it has.