Wednesday, August 4, 2010

Enterprise Restructuring – Step One

This is the first in a series of articles aimed at the reinvention of retail business for the 21st Century. It goes beyond computers and technology and offers insights as to why many retailers have failed and why they will continue to fail unless they take action to reinvent themselves while there is still time.

In order to do this, a person has to first revisit the past. For some of you that may be only a few years, but for others, it may go back to your parent's and even your grandparent's time when they began in the business you inherited. The probability is that most of you may be operating under business plans that if created today, might seem ridiculously inadequate for the current times; and here's the problem: As your business has changed, your business 'plan' has become obsolete.

What is a Business Plan?
It's a mistake to say a business plan is a document to get financial backing for a new venture.

A Business Plan is a living document and guide for running operations once the enterprise is started and on its way, with the express benefits of pulling the management team together and forcing them to more fully appreciate the task ahead of them.

It's been my experience that when turning businesses over to their sons and daughters, one of the biggest mistakes parents make is to suggest policies, which worked well in their day, will also work equally well after they have gone. The fact is that every business will face a crisis every three to five years, and plans that worked well a decade ago are obsolete and desperately need to be changed.

The first cars were called 'horseless carriages', because they resembled a horse carriage, without the horse of course. The first radios we called 'wireless' because they suggested some resemblance to telegraphy without the wires. It wasn't until years later that they were renamed when someone realized 'cars' bared no resemblance to horses as 'radios' bared no resemblance to telegraphy. Both of the above technologies have been called 'disruptive technologies', not merely because they replaced existing ones, but more importantly, they demanded a complete restructuring of the enterprises that created and used them.

A quarter of a century ago, small to medium-sized enterprises (those with less than 500 employees) began to introduce computers into their environments and a forced restructuring of businesses took place without well thought out plans to make the transition. The obvious reason being that most business owners had only heard the word 'computers' and really had no idea what they were going to do with one. I know, because when I began selling computers in 1978, I would ask people what they expected to do with them and I watched their eyes glaze over. I actually remember more than one customer telling me they just wanted to put it in the front office so their customers would see they had one.

It's impossible to imagine what you can do with a new technology until you understand its capabilities. More often than not, when you acquire a new product you may go for months or even years before you exhaust all of its capabilities. By then it's already obsolete and it's time to learn something new. For example, in the eighties I had a good friend who bought a VCR because everyone he knew had one and he thought he should have one too. After several instructions on how to insert a tape and play it, that was the extent of his total knowledge about VCRs.

When not knowing how to use a new product becomes an obvious liability, for example when a competitor starts using the same technology to make your life miserable, a person may panic and make matters worse by trying to make the product perform in ways other than which was designed.

Companies that once relied on fifteen office employees soon reduced their staffs to five, or less. The decision to 'computerize' was not based on the idea that it would eliminate employees — quite the contrary. In fact, even suggesting that computers would replace personnel was considered politically incorrect. But looking back, that's exactly what happened.

Very few, if any small businesses planned for their transition into data processing. Without proper planning, many invested in the wrong technology and went belly-up. The primary reason for most all business failures can be traced back to the lack of planning – probably at the rate of 95 percent would be a conservative estimate. Conversely, most business victories were a direct result of proper planning. Surely there is always 'dumb luck', but it's usually temporary. The successes attributed to Walmart's planning are legendary. Sam Walton was an expert at planning. If he had not done so, the name Walmart would not be known today.

Planning can and should result in the perpetual restructuring of a business, and the bane of restructuring is often the resistance of management. Attempting to use a company's own management to construct a plan is difficult if not impossible, mainly because it will require a change of the jobs and responsibilities of the planners, and we are all painfully aware of our inherent rebellion against anything new. Oftentimes, as in Walmart's case, a plan must come from a single individual within an enterprise with the vision, determination and authority to see a plan through to its end, else it will be consciously or subconsciously sabotaged by those who see it as a threat.

Having said all that, how does one go about creating a plan and maintaining it throughout the restructuring process? Believe it not, it's deceptively simple. You should start with two or three simple aims:

  • Make you company more profitable through the use of technology
  • Become more competitive
  • And/or make the enterprise grow faster

That's it. The most important step in planning is to start with two or three simple goals. Later, you can break these goals down into objectives and processes to make them a reality. A plan started with three simple goals can quickly become a thousand pages, but for now, don't waste your time with more grandiose plans such as 'building ten new stores in the next twelve months', or how you will reach those goals. All of this will come into play as the plan develops.

The next step is to create an overview model of your business. This is a step that is frequently skipped and will result in the plan coming apart before you even get started. A thorough understanding of the current structure of an enterprise is important prior to a discussion with management regarding restructuring.

Here are the basic steps that follow:
(Don't worry if you are not familiar with these terms. We will get deeper into them in future blogs.)

  • An analysis of goals and problems
    • Identify the current goals and problems and how they are associated with each department
  • Critical success factors
    • Things that must be accomplished in order to succeed
  • Technology Impact Analysis
    • Chart the rapidly changing technologies and the opportunities and threats they may introduce
  • Strategic Systems Vision
    • The restructuring of a business and the way it does business without regards to automated systems that already exists
  • Overview of the functions of the business
    • Map the business functions hierarchically associated with departments and locations
  • Entity-Relationship modeling
    • Associate entities with business functions in a matrix and cluster to find naturally cohesive groups of entities and functions

A thorough understanding of the structure of a business is desirable before dialogues with top management regarding restructuring. The process of analyzing goals, problems, critical success factors (CSF's), technology impact, and strategic opportunities will most certainly cause a refinement of the business model.

The 'business model' is a living document and we will constantly revisit the business model to determine what alterations need to be made to meet our goals.

Next to the formation of a living business model, the most important factor in restructuring is gaining the commitment of the participants. Without a fully committed management team, the plan is dead in the water before it even starts.

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