The strategic-planning summary that helps Cin-Made decidewhich market opportunities to pursue
To hear CEO Bob Frey talk about his small-company experience, you'd think he'd completed a 12-step program for Mom'n'Pops Anonymous: "I had worked for a big consumer-products company most of my career and had been known as an excellent strategic planner. Yet here I was, a failure. The problem was, I was sick of bureaucracy, so when I bought my own company, I started keeping things in my head. I lost sight of some valuable disciplinary techniques."
Before Frey decided to take control of the destiny of Cin-Made, a Cincinnati-based maker of paper and cardboard packaging he purchased in 1984, he was a man without a plan. His company bumbled through the marketplace, barely able to cope with change. He finally stood up and took notice when the company's margins dwindled to paper-thin proportions, in 1987. Five years later Cin-Made is reaping the rewards of a textbook-perfect strategic plan. Pretax profit margins, once spotty, have increased by a factor of five. And two substantial products are ready to spring from the company's research-and-development lab, which could potentially double 1991 revenues of $3.4 million.
What happened? "When motor-oil cans went to plastic [from paper], our industry was rocked. I was flailing about trying to find some way for our company to survive." Unlike many of his competitors, Frey found that, with a small capital investment, his machinery could be used to make chemical canisters. He decided to pursue that application, and the company's size and market share doubled.
For the first time, Frey really looked at the packaging market and his company's relationship to it. Those new chemical-canister customers requested custom-designed features, and when Frey was able to deliver, the customers didn't blink at the higher prices. That contrasted starkly with Cin-Made's traditional line of tubular-packaging products, for which price was a haggling point and competitors were everywhere. That new kind of reaction from customers convinced Frey that his overall strategy should be to transform Cin-Made from a price-driven commodity player to a specialty-niche marketer.
Cin-Made began to devote much of its energy to finding new applications to meet customers' special packaging needs -- needs that me-too packagers would not have the wherewithal to provide. Cin-Made's R&D efforts are now focused on keeping one step ahead of the packaging trends, so the company won't get caught short as it had in the past.
After spending a couple of years trying to make its regular tubular-product line profitable, Frey decided to just let it wither and sink a substantial capital investment into custom-built machinery.
"To properly exploit our premium-niche strategy, we have to plow more into R&D," Frey says. "That yields products with higher price tags to reflect that investment. The more things we try out, the better our chances of success. We are going out and seeing what prospects' needs are and trying to design something for them."
Out of that strategy, Frey developed a highly specific one-page summary that effectively guides the company's operations. The snapshot shows what products Cin-Made is currently committed to harvesting, growing, or developing, and details how those aims can be achieved. The summary is so easy to absorb that everybody, from machine operators to members of the board, could use it when deciding how to put the company's resources to best use.
Frey updates the summary at least monthly -- sometimes weekly -- but it encapsulates a five-year strategy. On this and the following page he explains the kind of thinking that goes into the summary and how it guides all his decisions. "There are so many opportunities out there that seem appealing," he says. "This helps me know when to say no."
"I wanted a sequence of single words to categorize the steps of arriving at a strategic plan for a product and to outline how we were going to implement that plan." For example:* * *
Down. "We measured competition, prices, volume, margins, and market opportunities and concluded that there's a lot of volume in these low-speed tubular products -- such as mailing tubes, for example -- but the buyers aren't loyal. The low-speed machinery is older, and there are price wars going on." Besides listening to industry scuttlebutt at trade-association meetings and hobnobbing with customers, Frey also pulls Dun & Bradstreet reports on his 10 biggest competitors and plots their progress on the walls of his office.
Harvest. "We aren't going to compete on price. That undercuts the fundamental value-added niche strategy of the company. We have a relatively high-overhead organization that isn't put to good use by selling low-margin products like these. Many customers have been with us a long time, and we get a steady stream of orders, but the volume decreases every year. That means our margins are excellent and our prices are too high for us to actively solicit business. When I decided to harvest this line, I also had plans for others to grow and take its place."
Decrease. "It wasn't immediately obvious that the low-speed business wasn't the way to go. Now that I've got it sorted out and have decided to harvest it, I can spend my time more productively growing other product lines."
Value. "If you don't commit to a price strategy, you can find yourself getting seduced into price wars that won't be good for your business in the long run. We've chosen not to try to take business away from competitors. We won't price competitively; we'll price for value. We'd rather make money than push volume through."
None. "It's much easier to decide where to make capital improvements if you know which products show the most promise for the future. To beat leading players in the low-speed-tube market would require a half-million-dollar investment on our part. But maybe we can leapfrog past them and become a fairly significant player in the new-style-can market, if we invest in that newer, more promising technology."
None. "There is no formal quality strategy for this line. We've gone back to our old system of operators sorting good tubes from bad ones as they come off the line. We've shifted the quality resources to products that require child-resistant caps, where producing flawless products is more important."
Tactics These notes function as reminders about how Cin-Made should follow through on the different categories of strategies when choices must be made. For the mailing tubes, the strategy is simple: hold business. "Do a good job and attend to customers' needs. Maintain. But don't take extraordinary measures."
Market Strategy: Do Not Enter
"We aren't a metal-stamping company, so our techniques for making the metal ends for tubes aren't as good as those of someone in that industry. Besides, we think the trend is going toward paper and plastic. We still produce metal ends for internal use, and we think there's opportunity to improve costs. But if we can't make any headway, we'll outsource this line next year."
Gaining Share in the Core Business
"This represents the majority of our business. Now that the shakeout in the motor-oil-can business is over, the market size is stable. Today we have only 1% to 2% of the total market, so our goal is to gain share. But we won't be a low-priced supplier. We are going to practice value pricing by finding new niches. My whole management team will fan out and talk with prospects to find new opportunities for us."
Attacking a Growing Market
"I concluded that this market was growing from a number of things: a main competitor that makes this style of paper-bottomed can went through an internal leveraged buyout; the company that makes the machines that make this type of can is selling more and more; paper-bottomed products are being talked about more and more in trade-association meetings. We must keep investing, with justifications, in this capital equipment to bring more applications to the marketplace."
Competitor B Vulnerability
"Part of executing our strategy is paying close attention to our competitors. Recently I found out that one company was financially strapped, making it difficult for it to compete against us. Its customers are now some of our prime targets."
Knowing When to Compete on Price
"We made a substantial capital investment in this area [high speed tubes] before I worked out my niche strategy, so here -- even though it diverges from the overall plan -- I'm willing to compete on price, but only at very high volumes, so I can recoup the investment. On that basis, this category contributes to the bottom line, so we'll stick with it until our newer product lines are entrenched in the marketplace. Employees are careful about deciding when to cut prices, because we have installed a very powerful profit-sharing program."
Taking Chances on New Products
"For the past few years I have been working on a new papermaking technology that has swallowed up a considerable share of the company's R&D budget. But now it's coming to fruition: a joint venture to build a new million-dollar machine that will produce a price-competitive, environmentally sound packaging product. The market potential is almost infinite." In another joint venture, Frey is importing a European packaging design to the United States. When a customer base is established, he'll make a capital investment into it.
The Longer Term
The bottom third of Frey's strategic summary addresses longer-term goals and tactics. These notes are less product-specific and more geared to overall implementation of the mission statement.
"Because our strategy is to be continually identifying new niches, we need to expand our sales presence. Since many of my senior managers have successfully delegated many of their responsibilities, I've asked every manager to hit the road. Even my financial manager has committed half his time this year to selling. If your people are committed to your product and technically understand it, they can sell it. They may not have as smooth a presentation as full-time salespeople, but they have other payoffs. They can spot needs and fix problems customers didn't even know they had: they might see that customers are throwing away two cans out of a hundred and say, 'My God, we can prevent that by designing new lid-placement equipment for them.' You don't get that with a conventional salesperson."
Continual Strategic Improvement
"This summary [of strategic goals] is tied into our mission statement and annual corporate objectives. We found that in reviewing last year's operational plans, there were too many objectives that weren't results-driven. For instance, last year's big push to do quality training lacked focus. We never asked, To accomplish what? You have to be able to measure the goal, determine the time frame, and decide on implementation. Now our goal is to get defects on specific machines down to a certain level at a certain time."
Responding to the Market's Environmental Imperative
"The composite-materials industry -- plastic-or foil-coated paper -- is being threatened because it's difficult to recycle those materials. Half our business uses composites, so it's a very substantial threat. Besides trying to come up with substitutes, our biggest R&D investments have been focused on our new environmentally sound packing material. It depends on technology that's totally different from that of winding paper for a canister, but it fits in with our mission of being a packaging company."
"[Research and development projects] are all investments. Without all these activities down here, the future of our company would be dismal at best. We'd see a gradual decline in our profits and revenues. Product attrition happens quickly in the marketplace. So we have a beefed-up R&D center. I don't ask people to justify spending on R&D as much as I ask them to justify more costly capital expenditures. That would just kill the sparks of creativity. I don't want to make my employees sell their ideas to me, since I don't have to sell my ideas to them. The secret is to allow a lot of little risk experiments. If employees want to spend $20,000, I'll give them $5,000 and see how far they get. I treat myself the same way."