No More Business As Usual
As Tony Rigato discovered, serious strategic planning forces you to change your company--and yourself
On September 8, 1995, Tony Rigato paced a marbled hotel lobby in Ypsilanti, Mich., bracing himself for a confrontation that he knew would appear rash and self-destructive. Rigato, owner and CEO of MRM, had decided to drop his biggest supplier, a valve manufacturer whose president would soon walk through the door. The supplier's products accounted for 40% of Rigato's business as a distributor, so he knew his decision would anger his customers, baffle his competitors, and inflict temporary financial hardship upon his employees.
The astonishing thing was that Rigato could justify the move and believed it made good sense for MRM, a distributor of pneumatic industrial components in Novi, Mich., that had $10 million in sales in 1994. After all, the decision to drop the supplier was driven by MRM's strategic plan. And to Rigato, that plan was a road map that he firmly believed would help him improve the company--as long as he had the courage to follow it.
When he had first set out to explore strategic planning, Rigato never anticipated that the journey would lead him to that Ypsilanti hotel lobby, ready to turn his business upside down. But then, that's the dirty little secret about strategic planning. Done right, it forces you to view your company through a lens that eliminates the distortions of everyday business. As Rigato found out, you don't always like what you see. So if you're thinking about creating a strategic plan for your company, consider Rigato's story first. If you can't answer yes to the five tough questions it raises, think long and hard before you invest time and money in a strategic-planning process.
Do you recognize a need to change? Tony Rigato had first encountered strategic planning in 1991. At that time his father, John, still ran MRM. An American Management Association (AMA) seminar convinced the younger Rigato that MRM wasn't prepared to compete in an increasingly sophisticated marketplace. At the AMA seminar, Tony discovered strategic planning. "I knew that our planning was inconsistent and abbreviated," he says. "And when I saw that there was a complete process that covered all aspects of business, I was really excited." He conducted his first off-site strategic-planning session three weeks after the AMA course, and he got more than he'd bargained for.
Rigato remained faithful to traditional strategic-planning methods as he led his planning team, comprising his father and three key employees, through the process he'd studied. They recorded a company history, composed vision and mission statements, and then moved on to what's called a "SWOT analysis"--a discussion of the company's internal strengths and weaknesses and its external opportunities and threats. The rapid-fire assessment lay the groundwork for the tasks that followed: setting company objectives, devising strategies, and developing action plans.
Are you prepared for honest feedback--even if it's painful? Rigato had told the members of his team that he expected complete honesty. They obliged. When the subject of MRM's weaknesses came up, Todd Brieschke, then the company's Toledo branch manager, noted that one of the company's biggest weaknesses was standing right before them: Tony Rigato himself. He had been "leading people by kicking them constantly," Brieschke said. The other employees agreed, and Rigato soon found himself filling two flip-chart pages with his own management flaws: "Overrides managers' decisions," "doesn't respect peers and subordinates," and "inconsistent leadership."
Are you willing to change the way you do business--and change yourself? By the time the planning session was over, MRM had 12 new strategic objectives--and a CEO with a new attitude. "That first session," says Rigato, "made me realize that I could have all the great ideas in the world, but if I didn't develop some leadership skills, it would all be in vain." His first priority was to make MRM's day-to-day operations more systematic and less vulnerable to his own capriciousness. That meant creating--and following--policy manuals as well as procedures for hiring and firing. Rigato also introduced incentive-compensation plans based on the achievement of the strategic plan's objectives.
Will you turn the plan into action? Unlike many CEOs, Rigato lived by his plan. He often tweaked it as he went along, but he never lost sight of it. By 1993, MRM, with $7.2 million in sales, was well on its way to attaining the most ambitious of its 12 original objectives--to increase sales from $4 million to $10 million in three years. Rigato's annual off-site strategic-planning sessions became a company ritual. Each year, the planning team took a more sophisticated approach, eventually analyzing customers and suppliers, too. "We used the strategic-planning method to analyze the products that we distribute," says executive vice-president John Alder. "We looked at the history, the strengths and weaknesses, and then we looked at the numbers."
Do you have the guts to lead your company into uncharted waters? The objective analysis prompted Rigato to rethink MRM's relationships with some of the manufacturers whose products it distributed. In 1994 the planning team concluded that the company's relationship with its largest supplier no longer jibed with MRM's long-term strategy. (The president of the other company did not return phone calls about this story.) Moreover, MRM was spending 70% of its resources on that supplier's product line while it accounted for 40% of its revenues. Rigato faced a dilemma: should he stick with his strategic plan--or with the company that had been the mainstay of his business for 25 years?
Tony Rigato, who at the time had recently bought the company from his father, coached his employees to think analytically about the decision, the way strategic planning had taught him to do. As he contemplated dropping MRM's biggest source of revenues, Rigato outlined sales-replacement strategies and pledged that no one would be laid off. "I could show them through strategic planning how the decision could be made and how we could survive," he says. "And that gave me the confidence to pull it off."
In 1995 he did--after more than a year of analysis and preparation. Two years later MRM's sales have rebounded to $13.5 million. The long-term results have been impressive as well: Rigato reports that since 1991, sales have more than tripled, profitability has increased substantially, and employee turnover has reached an all-time low. "None of what we've been able to accomplish would have been possible without strategic planning," he emphasizes.
Donna Fenn is a contributing editor at Inc.
Now What? Crafting a Plan
What exactly can you expect of your first strategic-planning session? The classic planning steps, laid out for us by Ron Myers, an instructor at the American Management Association (AMA) conference that Rigato attended, look something like this:
- Develop a statement of purpose. Why does your company exist?
- Conduct a SWOT analysis. That's an evaluation of your company's internal strengths and weaknesses, along with the opportunities and threats it faces in the marketplace.
- Compose a vision statement. What are the company's long-range goals?
- State objectives. What are the milestones on the way to reaching those goals?
- Devise strategies for each objective. How will you reach each milestone?
- Create action plans for each strategy. Who will do what, by when?
- Draft a follow-up schedule. How will you make sure you're doing what you planned to do?
When you're finished, the really tough part kicks in. "There's a sense that once the plan is written, it will take care of itself," cautions Myers. "But unless the CEO is talking about the plan on a daily or weekly basis, it will deteriorate."
Strategic Planning: What Every Manager Must Know (The Free Press, 800-223-2348, $16), by George A. Steiner, is the classic strategic-planning tome that many experts refer to. First published in 1979, it's now available in paperback.
Business Plans to Game Plans: A Practical System for Turning Strategies into Action, by Jan B. King (Merritt Publishing, 800-638-7597, 1994, $29.95), is a workbook-style primer that strategic-planning novices will find useful.
The American Management Association offers several two- and three-day seminars that cover various elements of strategic planning (up to $1,495 a pop for members and $1,720 for nonmembers). Contact the AMA at P.O. Box 319, Attention: Customer Service, Saranac Lake, NY 12983-0319; 800-262-9699; or www.amanet.org. Be sure to ask for speakers' references, and don't be shy about asking for your money back if you're dissatisfied--the AMA will offer you a refund or another course.
DONNA FENN | Inc.com Contributing Editor
Donna Fenn is the author of Upstarts! How GenY Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit From Their Success, an exploration of the ways Gen Y is changing the entrepreneurial landscape.