This installment of The Common Sense Manager continues the review of Fundamental 6: Plan, Act, Review, Correct.
Creating a hierarchy of objectives for your own organization works the same way. Here’s an example with three levels in the hierarchy of marketing and sales.
The hierarchy of objectives today
THE COMPANY MARKETING SHOW MANAGER
Objectives: Grow by 20% $1M hexadecyl Produce X leads
Strategies: $3M New products Sampling plan Cosmetic formulation
Tactics: Intro hexadecyl Intro at show Display gift and forms
In this example, the company has an objective of growing by 20%. More than one strategy will be employed: expanding overseas, increasing share of market with existing customers, and introducing new products to three markets. Our example deals with introducing one of those products, hexadecyl alcohol, to the cosmetics industry.
Introducing the product is the company tactic, which becomes one of several objectives of the marketing manager. This particular objective is to generate one million dollars in sales of the new product.
A strategy chosen is to offer a plan to cosmetics company chemists, in which the company will provide sample formulations using the product. This will allow the customers to evaluate the product’s efficacy for themselves, and is expected to lead to the order volume in the objective. (A strategy rejected is a common one used by competitors: paying for storage tanks on the customer company premises and offering steep discounts for quantity purchases.)
One of the tactics chosen to implement the strategy is introducing the product at the cosmetics industry trade show and convention. The company’s trade show manager sets an objective of producing a given number of leads at the show. The strategy, using a sample cosmetic formulation as a free gift, is decided in conjunction with the company’s lab manager, who has to produce the samples. The tactic or action plan is to display the gift in the company’s booth, offer it to attendees who fill out an application form. These forms will provide the leads which will then be followed up.
A complete set of charts showing the hierarchies for each of the company’s growth strategies and tactics will include “Expand overseas” (with specific $ targets by country) which now becomes another objective of marketing and sales management, with a strategy of using agents (instead of setting up a company sales force) and the tactic is to recruit existing agents.
Similar hierarchies will be generated for “Increase share of market,” which will eventually result in specific sales objectives for each existing customer, set as objectives for each sales representative. The sales representatives’ strategies for each account, and the action plans for carrying them out, will form the bulk of the sales manager’s plan for the year.
Since the company will have objectives for manufacturing, human resources, finance, etc. the plan for each objective will look like the model hierarchy. Where a company objective is to reduce manufacturing costs by 12%, for example, the head of manufacturing may establish an objective of increasing material yield to 85%, and another of maintaining indirect labor costs at 5% of total manufacturing costs. The head of the machine shop will set some objectives for scrap and rework to help achieve the material yield, and the production manager may have an objective of zero direct labor working indirect.
The action plans necessary to achieve the objectives provide information for the departmental and overall budget. Typical budgets include sales and marketing, production, engineering, human resources, administration.
A sales and marketing budget deals with numbers of sales calls, special customer events, trade shows, advertising, product bulletins, web pages, etc.
Production budgets are based on labor, material and equipment. They begin with the order input budget produced by the sales organization, or by an inventory buildup and draw-down schedule based on the sales budget. A production manager will define and display data showing direct and indirect labor hours, equipment utilization and down-time, material costs, scrap rates, etc.
(Software producers have a different problem. In Japan, they can budget for 9000 lines of code per day per software writer. In the US, who knows?)
Engineering budgets will cover the professional time required to design new products, fixtures, etc. Human Resources budgets will deal with the cost of recruiting and training, with benefits changes, compensation increases, etc.
Why doesn’t every CEO ask for plans like these? For one thing, CEO’s who are non-business people (most scientist-entrepreneurs) tend to be overwhelmed by the complexity presented (promoted?) by “experts” in the fields of marketing, HR, production, etc.
They also apparently believe you have to know the discipline in order to manage it. One Ph.D. CEO backed off from evaluating the performance of several key managers because he, himself, couldn’t do their work
This no doubt results from the knowledge-based hierarchy in scientific fields. Scientists are comfortable supervising and coaching younger scientists because they know more about chemistry or physics than the apprentices. When supervising scientists, they don’t ask for “results.” They know what procedures will produce certain results, so they examine the apprentices to see whether they’re following the procedure properly.
What can CEO’s do to avoid this trap? First of all, they can ask finance, marketing, sales, human resources and production managers to “tell me how it works.” Production is usually the easiest, and marketing and HR the hardest. People who worked for Karl Nelson at Enjay were continually grilled about “how it works,” starting at least one manager on a life-long search for a way to give marketing “engineering-type predictability.”
And, regardless of academic or experience background, a CEO can follow the guidelines in the benchmarks and ask for explanations and defense of budgets and plans before the board, the banker of the investors do so.
To be continued.
Posted on January 23, 2012
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