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March 3, 2023
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- March 3, 2023
with connor lokar and rich armstrong
BUILDING A 5-YEAR STRATEGY
Learn how to build and execute a 5-year business strategy in the latest episode of TrendsTalk with ITR Economics Senior Forecaster Connor Lokar and The Great Game of Business President and Senior Coach Rich Armstrong.
The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.
Connor Lokar:
Hello everyone. Connor Lokar, senior forecaster here at ITR Economics for another TrendsTalk. And today we’re doing something a little bit different. We’re joined by a very special guest, Rich Armstrong with Great Game of Business, one of our business partners. So Rich, how are you doing?
Rich Armstrong:
I’m good. Good morning, Connor.
Connor Lokar:
Good morning. Yeah, I’m really excited. We’ve been talking to a ton lately about building strategies and really executing not just a one-year strategy, but really more like a five-year strategy. And that’s really core to what you folks at The Great Game of Business do, and it’s really that high-involvement planning process. So really today I was hoping that you could tell us, how does that work exactly?
Rich Armstrong:
Yeah, absolutely. Well, first of all, there’s a lot of pushback out there in the marketplace about long-term planning, that it’s impossible to plan long-term. But we’re real big believers in goal setting, and that’s really what we’re doing here is setting some long-term goals for ourselves and how we’re going to achieve them. But it’s important that we bring some believability and predictability in those plans as well, so we can manage to them. As you reference, we use what we refer to as high-involvement planning and what that is, it’s our way of consistently involving and informing and educating our entire organization on the realities of the marketplace, the company’s long-term strategy for growth, and of course, the long-term financial plans that go along with that strategy. I preference this as more of like a framework. It’s a planning framework that we’ve used for now more than 30 years within SRC Holdings and also with a lot of our clients.
The framework consists of really four areas. One is that it’s a framework that helps us set strategy for the organization, where we want to go, how we want to get there, what markets we want to serve, how we’re going to win in those markets, what capabilities must be in place, those types of things. But it’s also a framework that allows us to build a plan behind that strategy to help us execute around that strategy. So it’s building a sales plan that supports that strategy, a financial plan that supports that strategy, people plans, succession plans, and even a game plan to execute on that strategy. Another area is that, and I think it’s a real important area and where ITR really fits a lot into this framework, is the framework consists of ways that we can help us deal with the market changes that we know is going to happen within our plan.
So what are the current market realities? What are the trends? What is our current understanding in the marketplace, and how does that impact our strategy and our plans for the future? But the last part of that, last part of the framework that is really kind of the unique part of it and really probably the most critical part of it, is it’s a framework that enables us to allow everybody in the organization to contribute to it to some extent. And we use the phrase, “People support what they help create.” We have this mantra within the organization that if people participate in the process, they’re going to buy in, and they’re going to have confidence in the process. If they buy in, they’re going to commit. And if they commit, they’re going to deliver. So it’s our way of really addressing the ability to get high level of buy-in to your plan for better execution in the future. So with those four things, setting strategy, building a plan, dealing with market changes and enabling people to contribute to the process is really the framework and how we build a plan that’s believable and predictable.
Connor Lokar:
And I think that I love the framework, and a little bit more specificity. I mean, I’ve seen so many times over the years with our clients that we do forecasting work for how important having a plan is and really what can happen when you don’t. The plan’s always up and to the right. Grow revenue, grow profit, and on we go. But as we know and as you know, economic cycles can change, internal factors can change. Obviously, succession’s been a huge one and will be, given the demographics in this country. Going with the flow, it can work out really well for a year or two when the economy’s up. But then when things shift, it really illuminates that need for really an adaptive framework. Obviously, our focus is typically on how the macroeconomic and the external environment changes. And you’ve said that high-involvement planning, it’s really a process and not an event. So what does that process aspect mean to Great Game of Business?
Rich Armstrong:
Yeah, I think that’s the critical part of this, is that it has to be a process, not an event because things are going to change. So we try to build a process that’s consistent, it’s repetitive. It’s a cadence, basically, of planning. Twice a year is where we come, and we actually bring the marketplace to our people. We have a specific template about how we present to our organization what the current market realities are and how that may be impacting our strategy, may be impacting our plans and what we need to do to refine those plans. And I think it’s part of it because a lot of people treat planning as this event. It’s the end of the year grind to build a budget or we’re going to build a strategy, but then they think that strategy is just going to be static. That’s just not the reality of the world. So planning’s really an ongoing process that we use with that.
Connor Lokar:
And that’s something obviously we couldn’t agree with more because we’re watching the economic environment change every day, every week, every month, particularly in the last three years and post COVID times. I mean, it just hasn’t really calmed down for us. One of the ways that obviously the information ITR is always trying to bring is that market aspect, and the market-driven component is a really big part of your process.
Rich Armstrong:
Yeah, that’s right. And the ultimate goal for us is to, and I mentioned this earlier, is to build kind of a believable, predictable plan. And I know that’s setting the bar high. But how we do that is we really try to ask ourselves four questions that we really try to focus on in terms of what we bring when we bring the marketplace to our people. One is is the plan that we’ve set out market-driven, as you indicated? And this is really where ITR has been a big value to us over the last 20-some years, is we use that foundational understanding of where our industry is heading and where the general economy’s heading, because those are areas that are somewhat out of our control. So we have to understand what that foundational reality looks like so we can play within it. Our stated sales goals must be based on those true market potential and not real kind of pie in the sky number. And the data and the information that we gather through all of this is really what we use to build that predictability in the plan, the believability in the plan.
Connor Lokar:
I think the arbitrary number aspect of that really resonates with me because so many times with our clients, if we’re delivering a three or a five-year revenue forecast, I always like to know what they’re thinking internally. And they’ll say, “It could be a top down mandate. We’re going to do X percent per year over the next five-years.” And it’s like, “Okay, well, you’ve done that percentage three times in the last decade, and now we’re going to do it over the next five-years.” And okay, but that’s where the economic data becomes really important because when we deliver forecast, the way that we position, it’s a market-driven forecast. I’m not saying this is what you have to do. I’m saying that this is the most probable path if you are who you’ve always been because this is what we’ve seen in terms of economic cycles’ yield for you in similar periods, whether up or down.
And when I asked it was like, “Well, where does that 10% five-year CAGR target come from?” And it’s kind of a shoulder shrug, and it’s a good sounding number and it looks pretty good. But if we have two years that the economy will support that, one that’s maybe a little bit below and then maybe one that’s far below, if we don’t have a coherent plan to attack that and manage around that, then folks are going to be looking back, like you said, kind of this year-end budget grind plan, and then 12 months later they’re going to say, “What happened? What happened here?” So having that plan to execute to offset or augment is really important. And I think the performance-based aspect to that is also a key driver in terms of setting some reasonability to some of these targets. And I think that that’s a key part of the exercise from Great Game of Business’ standpoint.
Rich Armstrong:
Exactly. I love how you put that. I mean, you have to get a foundational understanding of what has been our performance, that historical performance, and how does that translate to the future? But that’s the second question we ask ourself, is this performance-based? Is there some historical performance that puts some validity into what we’re saying. And that includes industry benchmarks, a company’s past performance. But most importantly, it kind of includes things like the knowns. What are some firm orders we have signed, contracts, price changes that may go into effect? And also delivery capacity, that’s a limitation that we need to understand. So it’s really using that framework of saying, “Look, have we’ve been here before? Is that going to carry over to the future? What is that performance-based look at the plan first before we go into more of what we’re going to focus to stretch ourselves to grow in the future?”
Connor Lokar:
Yeah, and the capacity comment always rings with me because we might issue three-year forecasts, and three years out they’re X percent above where they are now. And I always like to ask, “Could you even do that? Do you have the people to do that? Do you have the capacity to do that?” And that always opens some eyes. Because the performance-based that, we always call that the endogenous trend characteristics, where it’s basically before we even start with any of the external market overlays, predictive data points. The external, the backward look, kind of really sets the guardrails of what’s reasonable. What have we seen at our highest of highs, our lowest of lows? And like you said, it kind of keeps it believable. It keeps it reasonable.
And I think a challenge, I think, for businesses particularly over the next five-years is there’s going to be a lot of growth rates and targeting and plans based on where they’ve just been, particularly over the last two years, ’21 and ’22, that might lead folks a little bit astray because from our market-based expectation, the market factors really aren’t going to be repeated that we saw from 2021 and 2022 as we exited COVID, all the stimulus support and then the associated inflation that that drove. I mean, just some absolutely preposterous top line numbers for a lot of our clients. Price a big part of it. Volume also a big part of it. And really that’s where we think the anchoring against the economic benchmarking becomes really, really important to make sure, is this really a sober plan and a sober analysis? And we’re not too caught up in where we’ve just been, but take that longer term historical view and say, “Okay, what can we do here?”
And it doesn’t have to be. Again, if ITR’s market-based opinion’s a little bit lower, there is the opportunity to beat the market, essentially, and really have that performance focus on it, whether it’s a strategy for growth or insulation or otherwise. And I think that that’s a really key look that you folks take in your process.
Rich Armstrong:
Yeah, it’s the question of just what’s going to represent some of the growth plans or aspirations and strategies we’ve set to grow the business is kind of that next question. What do we expect to happen based on our strategy? But I really want to go back to what you said, Connor. I think it’s good advice, especially in this environment, is that we’ve kind of… I just had this conversation with a client the other day, is they’ve seen some substantial growth over the last three to five-years. And just really asking yourself, is that going to continue? And some of that growth, from a revenue standpoint, is driven by price increases. And they’ve maybe have increased their overhead a bit in enjoying some of those margins that they created through price increases. And if you don’t have a reality of really what the new demand’s going to look like over the next three to five-years, you could get out in front of yourself, out in front of your skis, so to speak.
And so just getting people to look back and say, “Look, this is historic, but now let’s look forward here in terms of where we think this is going in the future and make sure that for certain that that’s going to look good for us.” I mean, at SRC right now, we’ve enjoyed, in the last three to five-years, tremendous growth. But I’ll tell you, our next year’s plan and our couple years forward, they’re relatively slow growth. And that’s how we’ve planned against… We certainly have some new products, new markets we’re serving, new products we’re going to be offering and launching. But it’s really based on the past. It’s a little bit slower growth-based.
Connor Lokar:
Yeah, it’s such a key point. And I think as we start to wrap up a little bit, and I think something that is so important in what you do and what we do at ITR as well is that this is a fully supported process, and one that people have to buy in on. I mean, when I open my keynote presentations on the road, I try to tell folks, “If we have a really good time here listening to me for 60 or 90 minutes, that’s great. But if we’re not executing on this, if we’re not doing anything with this, if we’re not buying in at our level and getting buy-in throughout the organization, then what is a plan really? If a plan’s not executed, why did we go through the exercise?” And I think that that’s a really important closing aspect of making sure that this is really kind of a meaningful objective for folks.
Rich Armstrong:
We take that very, very seriously. And in fact, when we present our plans, we’re presenting our plans at SRC to all of our sister companies, 12 different business units. And the last presentation slide on any of our business plans is our confidence level. So we go to our organization, everyone in the organization, and simply ask them, “What is your current level of confidence in our one-year plan and our long-term five-year plan? Zero to 10, zero meaning no confidence at all and a 10 meaning full confidence.” But the most important thing is we ask them what would… “Okay, the rating’s great, but what could we do to ensure your confidence?” and really get that feedback from the organization where they feel the holes are in the plan or what part of the plan gives them a little bit of anxiety in terms of our ability to execute.
That helps us really bring this full circle. It’s a great barometer of the engagement of the organization and how believable the plan really is. And we try to adjust to that, and we try to address those areas that they feel like are assumptions that maybe they don’t feel a lot of confidence in. So that’s what really brings this together. From our experience, the number one predictor to a meaningful executable plan is buy-in. If you can get really high buy-in, even with market changes, even with things that are going to shift in terms of your strategy, you still have the organization behind you ready to execute, rather than trying to explain to them why the plan is now different because of whatever black swan event happened, right?
Connor Lokar:
Right.
Rich Armstrong:
So it’s a great way from… And we’ve been doing this at SRC for more than 40 years, so it has definitely been the linchpin to our success of really circling back and asking people for their level of buy-in and confidence in the plan.
Connor Lokar:
All right, Rich, well, this has been great. Really enjoyed getting together with you on this one. So as we wrap up, where can people find out a little bit more about Great Game of Business and starting on this path towards high-involvement planning?
Rich Armstrong:
Well, they can reach out to our website, greatgame.com, and they can also reach out directly to me at RArmstrong@ggob.com. I’d love to chat with them about this process. I’m very passionate about this process. I’ve been with the organization for over 30 years, and I can tell you that has been a linchpin to our success, ongoing sustainability of SRC. And there’s a lot of planning templates and tools and things like that that we can share to help people along the way. And Connor, I just want to say today, thanks to ITR, it’s really helped us build out this process. It’s the foundational part of it. Just understanding the marketplace that we’re in is that first step of building a believable, predictable plan.
Connor Lokar:
Absolutely. Well, that’s what we’re here for. That’s what we try to do. So thanks again, Rich. And thank you, everyone, for stopping by and listening. We’ll see you on the next one.