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June 22, 2019
equals (=) Shareholders: What is left to pay back investors, banks, sweat equity, etc.
“The First Law of Business Dynamics: Growth sucks cash!”
Make/Buy: The processes that generate expenses Sell: The processes that generate revenue Recordkeeping: The processes for tracking all of these transactions
“The Second Law of Business Dynamics: Buy low, sell high!”
The profit & loss (P&L) statement simply documents the revenue and expenses and determines if there is a profit. The goal is to abide by the Second Law of Business Dynamics: Buy low, sell high!
In the end, the financial goals of the company are to collect cash from customers fast enough to pay everyone it needs to employ and to reward the shareholders — and to sell things for more than they cost in order to generate a sufficient profit. Leaders must manage this balance between generating Cash and Profit, which mirrors the equilibrium between keeping the People happy and the Processes productive.
To mirror JSJ’s routine, there are four main activities in preparing for a strategic planning session (quarterly or annual): 1. Managers at all levels gather feedback from employees and customers. 2. Middle management completes a SWOT analysis and submits a Top 3 Priority list. 3. Senior leadership completes a SWT analysis and submits a Top 3 Priority list. 4. Everyone aims to keep learning and growing as a team.
Employee and Customer Feedback The first preparatory activity is to send out a short Start/Stop/Keep survey to all the employees: 1. What do you think [company name] should start doing? 2. What do you think [company name] should stop doing? 3. What do you think [company name] should keep doing?
Ask the same three questions of your customers. It could be a random sample if you have thousands of retail customers; or it might be more appropriate to have account managers query business-to-business customers face-to-face or over the phone.
The weekly routine of collecting and reviewing ongoing feedback from customers and employees will also feed into the decisions made during the planning process.
SWT Instead For senior leaders, we propose replacing the SWOT with the SWT: an updated approach that identifies inherent Strengths and Weaknesses within their firms while exploring broader external Trends beyond their own industry or geography.
Strategic thinking is coming up with a few big-picture ideas. Execution planning is figuring out how to make them happen.
Trends In addition to sizing up the immediate opportunities and threats that the SWOT tends to surface, the senior team needs to rise above all of this. Leaders should look at major trends, such as significant changes in technology, distribution, product innovation, markets, and consumer and social developments around the world that might shake up not only the business but the entire industry.
Forget about the competitor down the street. Is there a company on the other side of the globe
that might put you out of business? Is there a new technology coming onto the start-up scene that could lead to an overnight change in the way all companies must do business? How is robotics changing the very nature of work? These are t...
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KEY QUESTION: Are all processes running without drama and driving industry-leading profitability?
Throughout the book, we have emphasized setting priorities (that includes deciding which of the 4 Decisions to focus on first and which box on the FACe chart needs to be updated next). On the One-Page Strategic Plan (OPSP), there is a progression of #1 priorities: 1. Core Purpose: the one word/idea/speech driving the business 2. BHAG®: the one 10- to 25-year goal for the company 3. Profit per X: the one overarching KPI representing the core economic engine of the enterprise 4. Brand Promise: the one most important measurable promise (of three) representing the brand 5. The Critical Number: the
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Rockefeller Habits Checklist
Rockefeller Habit #1 — Healthy Team
Patrick M. Lencioni’s best-selling book The Five Dysfunctions of a Team: A Leadership Fable defines the unhealthy situations that
can derail your leadership team: an absence of trust, fear of conflict, lack of commitment, avoidance of accountability, and inattention to results.
If one or more of these afflictions exist, address it before you tackle any other aspect of execution. We strongly suggest purcha...
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“The #1 habit is the most important and first.
Rockefeller Habit #2 — The #1 Priority
To simplify our methodology, there are two main vision decisions: the BHAG® (Everest) and the measurable next step (one with a 90-day to one-year focus). Everything else in between is just a WAG — a wild-ankle guess.
The BHAG®, derived from your strategy, is the main long-term priority anchoring the strategic thinking in the vision. The quarterly or annual Critical Number is the main short-term priority anchoring the execution planning side.
Rockefeller Habit #2 starts with identifying this Critical Number, introduced and popularized through Jack Stack’s classic book The Great Game of Business: The Only Sensible Way to Run a Company. Though all your metrics are critical, reserve the term “Critical Number” for your...
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To derive the one Critical Number, imagine the hundreds of important things you need to accomplish lined up like dominoes. Find the lead domino: the one initiative that, when pursue...
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NOTE: The City Bin Co. alternates between a Critical Number and Quarterly Theme that are focused on improving the People side of the business (“180 to One,” “Saving Mrs. Ryan”) and the Process side of the business (“Life Begins at 40,” “Bin it,” “Bin’s Health”). It’s important to find the same kind of balance as you sequence your #1 priorities.
WARNING: The Critical Number, like the rest of the organization’s strategy, cannot be set in isolation from the realities of the company and the marketplace. Employees and customers will think the senior team was smoking something if they come down from the mountaintop with “the tablets” pronouncing the latest strategic plan without having completed the necessary preparation. And as Jack Stack strongly suggests, it’s best if the Critical Number is benchmarked against an external standard (e.g., “If that company can achieve 12 inventory turns, why can’t we?”), so employees don’t think the
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Aubrey C. Daniels, author of Bringing Out the Best in People: How to Apply the Astonishing Power of Positive Reinforcement (a foundational business book that all leaders should read).
Rockefeller Habits #3, #4, #7, and #8
Rockefeller Habit #3, Meeting Rhythm, will be covered in its own chapter at the end of this section.
Rockefeller Habit #4 — Every facet of the organization has a person assigned with accountability for ensuring goals are met — was covered in “The Leaders” chapter. We include a mention in the chapter on “The Priority” because the related worksheets focus on determining the one person accountable for the functions, outcomes, and processes of the organization.
Rockefeller Habit #7 — Core Values and Purpose are “alive” in the organization — was covered in “The Core” chapter. It’s important that the Core Values and the Purpose are given priority when making hiring (and firing) decisions — and when sharing praise and constructive criticism. It’s also crucial that the leadership team formulate its one passionate stump speech that can be repeated to reinforce the bigger Purpose of the organization.
Rockefeller Habit #8 — Employees can articulate the key components of the company’s strategy accurately — was covered in “The One-Page Strategic Plan” chapter. In essence, it speaks to the need for all employees to understand key aspects of the Vision and Strategy of the business, as reflected on the Vision Summary worksheet. And it helps drive alignment if all the employees have the same “elevator pitch” they share when asked the question, “What does your company do?
The fundamental job of a leader is prediction, according to the late business consultant W. Edwards Deming. At the heart of a leader’s ability to predict is data — and lots of it. Big data analysis has become mainstream and within reach of companies of all sizes. Yet leaders also need plain old human-gathered intelligence to get a gut feel for the market and what is happening in the company, so that they can make the right decisions. Talking weekly with customers and employees and then discussing what’s been learned at the executive huddle is critical. And engaging all of your employees in
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Hastings’ secret weapon is data — and massive amounts of it. It is big data analysis that allowed him to predict that a series based on the corruption of government, starring Kevin Spacey and directed by David Fincher, would be a sure bet. According to KISSmetrics, a leading blog about analytics, marketing, and testing, here’s a list of some of the “event” data that Netflix tracks for its 44 million subscribers: • When you pause, rewind, or fast-forward • What days of the week you watch content (Netflix has found that people generally watch TV shows during the week and movies over the weekend)
The dates on which you watch • What time you watch • Where you watch (by ZIP code) • What device you use to watch (Do you use your tablet for TV shows and your Roku for movies? Do people access the Just for Kids feature more on their iPads? And so on.) • When you pause and abandon content (and if you ever come back) • The ratings given (about 4 million per day) • Searches (about 3 million per day) • Your browsing and scrolling behavior The way in which businesses use data to make decisions — to predict — is undergoing the most radical change since the beginning of commerce. For more on this
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Two lessons: 1. Senior leaders need to be in the market 80% of the week, either figuratively or literally. 2. This routine must start on day one and continue through half a trillion in revenue!
NOTE: For an excellent look at the “Growth Process” at GE, read the interview with Immelt in the June 2006 issue of the Harvard Business Review. You’ll see how GE is using a red, yellow, and green measurement system; measuring advocacy by customers using the Net Promoter Score; streamlining with Lean and Six Sigma techniques; and using Work-Out sessions to garner feedback from employees. The interview describes a tour de force of best practices that align closely with the ideas in this book
However, quantitative metrics alone provide an incomplete view. Qualitative insights from conversations with the market and observations of customers and competitors fill out the data set
needed to guide decisions.
Rockefeller Habit #5: Gather Employee Input
Here are three simple questions that we recommend you use when holding these conversations: • What should we start doing? • What should we stop doing? • What should we keep doing? We encourage leaders to pay particular attention to the “stop doing” responses. They are likely destroying the motivation of the employees, as we discussed in “The Team” chapter.
Before the meal, he asks the employee to answer a few questions that are discussed during lunch: What should Markitforce start doing, stop doing, and keep doing? What does the staffer love and loathe about his job? What are his 101 goals in life — both professional and personal? “I tell them to write this stuff down, because if they write it down, it will happen. Things just start to fall into place,” says Higgins. “It’s pretty powerful. And, as a leader, it’s my objective to help them check things off their list.
Ongoing Feedback Collect weekly input from employees about obstacles and
opportunities. To keep this from turning into a collection of gripes, provide some prompts. Ask employees to submit suggestions that will: 1. Increase revenue. 2. Reduce costs. 3. Make something easier/better for the customers or employees.
Close the Loop Gathering employees’ feedback and ideas will backfire on the company if management doesn’t close the loop and act on their suggestions. At a minimum, let an employee know why an idea can’t be implemented.
Rockefeller Habit #6: Gather Customer Input
