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STRATEGY

The Secrets of Great Planning

How one company uses strategic planning to set long-term goals and short-term agendas.
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With chaos the growth-business norm, every company builder wants to plan -- to set long-term strategic goals and short-term agendas -- but few ever do it. Here's how one does

Albert Van Kirk is like a lot of CEOs you meet in these pages.

Forty-seven years old. Early tenure at Xerox. Time as a salesman, then as a manager, at a fast-growth company. Out on his own in 1981 to start King's Medical Co., in Hudson, Ohio, a business that was first a brokerage and is now an owner and comanager of medical equipment. Now has 32 employees.

Van Kirk's attitude toward planning? That used to be typical, too. "My weak point is effective communication. I tell people things in the hall and expect them to get them done," he says. He had a tendency toward planning done midstride. That's how he was raised, after all; his dad had a small business, "and planning wasn't there. Whatever we had at the end of the week bought the groceries."

Fortunately for Al, he's got Bill.

William Patton, 52, is the disciplinarian of King's Medical, the company's ubiquitous planning guru. "The reason a small company survives is planning," he says fervently. "A lot of literature says there are three critical issues to a small company: cash flow, cash flow, and cash flow. I agree those issues are critical, but so are three more: planning, planning, and planning. That's my opinion as an academic, as a consultant to many organizations, and as a businessman." Van Kirk concurs. "My way is not the right way," he says with a shrug.

They both credit the planning process with keeping the company on an even keel during its rapid growth in a capital-intensive and increasingly competitive industry. King's Medical owns and manages magnetic-resonance-imaging (MRI) equipment -- million-dollar-plus machines, used by hospitals, that produce X-ray-type pictures. With 20 sites in 11 states, King's Medical has taken on $27 million in debt while growing some 400% in the past five years, from sales of $2.7 million in 1987 to a projected $13 million to $14 million this year. During the same period, some companies in the industry have gone public and become much better capitalized. Still, Patton and Van Kirk say they're holding their own, and more: they claim 12% to 20% profit margins, whereas in 1991 two of their public rivals showed profits of less than 5%, and another registered a loss.

King's Medical's planning system -- specifically the decision-making discipline and the follow-through it promotes -- is a key to the company's success. Planning is Patton's specialty: he has a Ph.D. in systems planning from the University of Washington. And within King's Medical, Patton is the necessary fanatic who makes planning actually happen. But he's quick to say there's nothing mysterious, complicated, or revolutionary about what King's Medical does. "No one really, in 1992, invents things -- why reinvent schedules or processes? What we have is an eclectic approach, using the best of what others have done over the last three decades." He adds that the process works because Van Kirk is dedicated to it. Without the support of a company's leader, plans quickly become little more than drawer liners, rather than tools that actually shape the way people at all levels in a company approach their daily work. The only thing the people at King's Medical do that is unusual, in fact, is to be relentlessly methodical about creating and following through with plans.

And they've done it since the company was small. The 11-year-old business is about to start putting together its third three-year strategic plan. The last one, developed in 1989, was written when the company had only seven employees and sales of less than $3 million. The lesson here is that even very small companies can and should think about creating and keeping a focus. It takes some time, but it isn't that complicated. And the payoffs can be huge.

"We've got a tremendous paper trail here," admits Bill Patton. Not to mention an equally voluminous vocabulary of planning jargon: action plans, mission statements, long-range objectives, monthly marketing outlines, weekly to-do lists, quarterly staffing evaluations. King's Medical is awash in documents that outline the plans managers hope to execute and that detail when the planned actions should start, when they should finish, how much they'll cost, and who's responsible for seeing them through.

But is the paper trail just paperwork? Patton and Van Kirk -- and many people at different levels in the company -- say they don't think so. Plans, they say, serve two purposes: setting a navigational course once they're in place and, before that, as they're being put together, forcing evaluation and discussion. In fact, the planning process produces two additional payoffs that are as important as any resulting plan: it makes managers see how actions fit into a broader picture, and it involves a cross section of managers in decisions, helping smooth the way from idea to implementation.

Van Kirk may profess not to be a planner by nature, but his years at Xerox did breed some good habits, one of which led to his creation of an initial business plan, back in 1981. "I wrote one," he remembers, "and it was ridiculous. You know, a millionaire in 18 months. I still have it in a notebook -- it was written on a yellow legal pad -- and I look at it every now and then and laugh." Still, it outlined the business-plan basics: the nuts and bolts of the nature of the industry, and the services the company would provide.

Although Van Kirk was the only employee of King's Medical at first, it wasn't a solo venture; he and five friends had been together in a business that "lacked integrity" and wanted to start a company with moral backbone. The other five became investors and board members, while Van Kirk drew on his experience as a salesman at a major MRI manufacturer to run the operations. (Bill Patton, now general manager, is the only one of the five cofounders who has become actively involved.)

In 1986 the company was doing about $1 million in sales with a handful of employees, brokering CAT-scan equipment. Then Van Kirk saw an opportunity. Midsize hospitals, in the 100-to-300-bed range, needed CAT-scan and MRI equipment but often couldn't afford the up-to-$2-million capital cost. King's Medical could buy the equipment, set it up in a site near the hospital (because of their strong magnetic forces, MRIs often need to be in stand-alone modular buildings), and provide an on-site technician. The hospital would use the machine on a fee-for-service basis, with the insurance-paid income from a scan (in the $900 to $1,200 billing range) split between the two. King's Medical would add value by boosting equipment usage, and revenues, through extensive marketing to doctors.

As King's Medical began to change gears and prepare for a capital-intensive operation, Patton and the board decided it was time to articulate and put to paper a long-term vision for the company, which would feed into shorter-term operational plans of day-to-day business.

Mission Statement

To start the process, the King's Medical leadership group focused first on defining, in the clearest terms possible, why they were in business. "The questions you ask yourself are very basic, the kinds of things that are listed in any strategic-planning book," says Patton. (Among his favorites: The Executive Guide to Strategic Planning, by Patrick J. Below, 1987, Jossey-Bass.) They are questions such as, What business are you in? Why do you exist? What's unique about your company? How are you different from the way you were three years ago? How will you be different in four years?

First in 1986 and then again in 1989 Patton asked each of the five board members (himself included) and Van Kirk to answer those questions and write down their conception of the company's mission. He combined the answers, eliminating repetitive responses. Then the six got together and talked about the substance of the comments, hashing out a common list of mission aims and ranking them in order of importance.

For example, among the eight points articulated on the current King's Medical mission statement are the company's commitment to "offering the highest quality support services in the marketplace to ensure that both client and corporate objectives are reached," and its dedication to "expanding business operations to include services, technologies, and/or products that would complement the core diagnostic-imaging business of the company."

The mission statement is the most widely disseminated piece of the strategic plan -- all employees have a copy in their handbooks, and it is given to all job applicants as an introduction to the company.

Critical-Issues Assessment

The next step in King's Medical's strategic-planning pro-cess is to analyze the industry, which results in the production of a business plan. That analysis might include a description of the marketplace and the company's position in it; anticipated shifts in areas such as regulatory rules; and potential responses to challenges presented by competitors, regulations, or the economic climate. "This is very standard for planners," says Patton. "It's abbreviated SWOT -- evaluating your strengths, weaknesses, opportunities, and threats."

King's Medical used several methods to cull information for the document: brainstorming with managers and executives; buying stock in public competitors ("One company listed all 32 of its sites in its annual report, which was extremely helpful to us"); running an on-line computer search of trade journals. After Patton, who led the strategic-planning process in both 1986 and 1989, had been collecting data for several weeks, he, Van Kirk, and other board members began meeting again to figure out what would be the critical issues for King's Medical over the next three to four years. (Meetings were limited to three hours. "We all have other work to do, and the time limit keeps us fresh," says Patton.)

"For us in particular," says Patton, "we're looking at issues of technology -- what if there are new advances and we're stuck with $27 million in paper [debt]? We're looking at issues of personnel: how do we recruit and train in a rapidly growing company? We're looking at issues of capitalization: how do you finance projects costing $1 million to $2 million when you want to do 5 or 12 or 30 of them?"

"In so many companies, information like this is handed down from the finance department," says Van Kirk. "They'll say, 'You'll have to sell x, period.' Or maybe they'll ask you what you think you can sell, and you'll tell them, and they'll tell you that's not enough." King's Medical's evaluation process -- which the company will be going through again beginning this fall with Van Kirk, Patton, and the directors of marketing, sales, territory management, and finance -- gets a wide range of people talking about the company's needs, as well as the obstacles it faces and how they can work as a team to overcome them.

Long-Term Objectives and Action Plans
The final step in the strategic-planning phase of the overall planning process is to lay out specific long-range objectives for the company and devise action plans so it can meet each one.

For instance, one of King's Medical's earliest long-range objectives was to put a marketing department in place. That long-term goal was then broken down into four specific steps -- hiring, training, visiting sites, and writing up documents -- which became benchmarks to track progress. Included in the plan were estimates of how long each action should take, when it was to start and be completed, and who was responsible for seeing it through.

Taken in sum, the strategic-planning phase of King's Medical's planning program consists of three parts: an articulation of the company's vision in the mission statement, a detailed description of the critical issues the company anticipates facing, and a set of action plans that should enable the company to move forward.

The time involved? The first plan took a little more than six months to complete. Patton estimates the total time he put in to be 100 hours, or about a day a week over the course of the half-year cycle. The rest of the planning group, he says, spent 20 to 25 hours in group meetings over that period. For the 1990 session Patton spent less time -- about 50 to 60 hours overall, while the board still kicked in 20 to 30 hours. This fall's revamping of the strategic plan will be launched with a three-day planning retreat for the internal management team. Patton thinks that this time through, the process should take three to four months from beginning to end.

Operational Plans
Operational planning, in some ways, is where the strategic-planning process really begins to pay off: if the strategic planning has been done well, each department will be able to set up day-to-day itineraries that are straightforward and clear -- and that derive directly from King's Medical's broader visions.

Although the needs of the divisions are different and the time frames within which they work vary, there is consistency in the way each area approaches its own planning: the same set of issues is addressed in every operational plan. "I want to see how these more specific plans fit into our long-range objectives," says Patton. "That helps us create the vertical integration of our planning, to have a set of common ends we're all going after."

Each plan, then, whether for the marketing department, the sales department, or territory managers, explicitly touches on five things:

* which objective it helps to meet,

* the measurable outcomes (what exactly will be done),

* the time frame,

* the cost,

* who will be held responsible.

It's not that there's a form to fill out ("That would limit people's creativity," says Patton), but this way of thinking about planning must somehow inform the way ideas are presented.

King's Medical department managers develop their plans in conjunction with their own staffs and then work with Patton to hone them. Van Kirk approves the final documents and is involved in periodic monitoring of the results. What the company ends up with is a several-way discussion.

"Having the material written helps with accountability," Patton stresses. "And it's become part of our culture. People may gripe a little about the paperwork, but they see the value in it." Elaine Shinko, the marketing director, says that "at times it feels like busywork, but it has a way of imposing a structure, of clarifying my goals."

It's easier, too, to tinker with plans and keep them flexible if there's an original version to tinker with. "Everything we do keys back to three questions," says Van Kirk. "How does it fit with the company's goals? Where does your department want to be? And how do you know when it's there?" It might seem counterintuitive, but heavy planning, he argues, makes a company more flexible, not less: if you repeat those questions often enough on the front end, you make them second nature later, and when rapid changes in the marketplace are pushing for rapid -- and potentially dangerous -- changes in plan, a company is more likely to make changes that still fit into its vision.

Business Plans

Outside of its strategic and operational planning, King's Medical also does planning for new ventures. The company, though, learned the hard way: in 1987 it entered the business of mobile MRI units -- units that visit several hospitals a week -- without having a specific plan to cover basics such as competition, suppositions about the marketplace, and obstacles to be overcome. "We tried it, and we blew it," says Patton. It was a $150,000 mistake.

King's Medical now has two new businesses under way, and both of them are getting the business-plan treatment this time. This past May the company acquired a modular-building-construction company, to bring in-house the most expensive work -- work King's Medical used to contract out. Already sure that the purchase fits into part of the company's core vision of "expanding business operations to . . . complement the core diagnostic-imaging business" (from the mission statement), Van Kirk is in the process of writing a business plan to walk himself through the relevant new-business questions. After researching the industry and customer opportunities, Van Kirk wrote a draft, which he passed on to the management team; he anticipates at least one or two rounds of back-and-forth critique and revision before he's satisfied he has a document that will work as a management tool. The first draft was completed about two months after the purchase, and Van Kirk is giving himself another month to incorporate changes and write the second draft; he expects a definite plan three weeks after that.

The other new business will be a consulting division that will work with hospitals on their own planning. Steve Bruns, who's been with the company for a year, began in July to write a plan after talking with (and getting notes from) account reps and salespeople about their impressions of opportunities in the market. He also has had detailed conversations with Van Kirk about how this new business fits into the overall vision of the company. "As part of the ground rules," says Bruns, "we have to articulate how this serves the core business."

The processes of planning have seeped into other, nonoperational areas of King's Medical. For instance, all employees are encouraged to set annual personal goals -- to write them down and help figure out how the company can help them be met. The company, for instance, pays for college courses, which are reimbursed at 75% during studies, with the other 25% paid upon graduation; it also pays for conferences and memberships in associations.

The idea of setting personal goals came out of a board retreat held two years ago and a separate discussion about what was lacking in the company. "People aren't evaluated per se on these goals," says Patton, but discussing goals raises important issues that might not otherwise come up. Those discussions take place at least four times a year during informal performance evaluations; the meetings take 30 to 90 minutes.

At other times, employees have picked up on the propensity for planning and have used similar formats for bringing ideas to managers. Marketing specialist Jill Forrest wrote a nine-page proposal for getting computer upgrades and the Windows program after she and three other employees attended a computer meeting; the plan came complete with detailed cost information and suggested time lines. Her ideas are being incorporated into a plan by an outside consultant who's setting up a local area network within the company.

Overall, planning has helped to strengthen King's Medical's focus. The company's plans have encouraged a sense of ownership among employees, forced management to think with clarity, and fostered accountability at every level of the organization. Planning has helped carry a young company over its first formidable hump. "At this point we can probably survive one big mistake," Van Kirk says, "but until last year, we couldn't. Not with projects this big; not having to borrow the kind of money we borrowed in order to grow. One mistake and we'd have been out of business."

Of course, the record shows that King's Medical never made that fatal misstep. "The key," says planning convert Van Kirk, the onetime skeptic, "is keeping on track."




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