Part 3 – Drivers – The Where, as in “Where to focus attention and resources”
In Part 1 and Part 2, we addressed creating a Vision and a Strategy to grow a business. In Part 3, we will address the Drivers to grow a business.
What are drivers? A simple, important yet challenging question as there are many potential answers. In our experience, drivers are the parts of the business that a management team has control over, when managed effectively, will deliver the greatest impact to the business’ profitability. It’s the Where to focus time and resources to have the greatest impact. Often it is the How behind strategy’s How.
In Part 1 and Part 2, we addressed creating a Vision and a Strategy to grow a business. In Part 3, we will address the Drivers to grow a business.
What are drivers? A simple, important yet challenging question as there are many potential answers. In our experience, drivers are the parts of the business that a management team has control over, when managed effectively, will deliver the greatest impact to the business’ profitability. It’s the Where to focus time and resources to have the greatest impact. Often it is the How behind strategy’s How.
Part 3 – Drivers – The Where, as in “Where to focus attention and resources”
In Part 1 and Part 2, we addressed creating a Vision and a Strategy to grow a business. In Part 3, we will address the Drivers to grow a business.
What are drivers? A simple, important yet challenging question as there are many potential answers. In our experience, drivers are the parts of the business that a management team has control over, when managed effectively, will deliver the greatest impact to the business’ profitability. It’s the Where to focus time and resources to have the greatest impact. Often it is the How behind strategy’s How.
One of the simplest but most impactful expressions of what to do when thinking about drivers was provided by Nelson Peltz (Wikipedia Peltz), CEO of Trian Fund Management, who has been a successful investor in and operator of businesses. In a Fortune interview on the best advice he had ever received, Peltz recounted his father’s advice on how Peltz’s father had doubled his industry’s profit margins – simply ask “how to get sales up and keep expenses down?”
Simple enough.
Then ask “what are the 1-3 critical controllables that would increase sales and reduce expenses?” These are the drivers.
Another approach to determining what the primary drivers are is a question that E.R. Express’ CEO, Sahil Patel, poses:
The constraint of prohibiting increasing capacity (e.g. adding more people, working more hours) forces a CEO/business owner to determine what aspects of his/her business are inhibiting profitable growth. These are friction points. Removing friction points can yield significant results, as Eliyahu Goldratt demonstrated in his operations management classic, The Goal (Wikipedia link, Amazon link), about removing bottlenecks. Potential examples include:
It’s been our experience that most organizations attempt too many goals. This “more is better” perspective is admirable, often reflecting companies who were initially successful in one realm taking on additional opportunities that were outside of the original niche. What’s important for a CEO/business owner is to step back from the business and determine whether the various initiatives that have become part of the company are aligned with the key drivers of future profitable growth.
Summary
From our experiences, we have learned the importance of developing a VSD plan – Vision, Strategy and Drivers – to accelerate growth and become a top performing company in one’s industry. The proactive setting of a VSD enables a CEO/business owner to set a course for profitable growth for his/her company.
The result of a VSD exercise is a sense of path and purpose. The expectation should not be to follow this path to a T; rather, it should provide a direction, with a framework of what needs to be done to accomplish the goal of growing profitably.
In Part 1 and Part 2, we addressed creating a Vision and a Strategy to grow a business. In Part 3, we will address the Drivers to grow a business.
What are drivers? A simple, important yet challenging question as there are many potential answers. In our experience, drivers are the parts of the business that a management team has control over, when managed effectively, will deliver the greatest impact to the business’ profitability. It’s the Where to focus time and resources to have the greatest impact. Often it is the How behind strategy’s How.
One of the simplest but most impactful expressions of what to do when thinking about drivers was provided by Nelson Peltz (Wikipedia Peltz), CEO of Trian Fund Management, who has been a successful investor in and operator of businesses. In a Fortune interview on the best advice he had ever received, Peltz recounted his father’s advice on how Peltz’s father had doubled his industry’s profit margins – simply ask “how to get sales up and keep expenses down?”
Simple enough.
Then ask “what are the 1-3 critical controllables that would increase sales and reduce expenses?” These are the drivers.
- An example from before – if the two opportunities are to focus sales people on
- a) the faster growing, yet low margin opportunities or
- b) the higher margin but moderate growing business,
- the driver could be number of new customers that fit the 2nd group’s profile.
Another approach to determining what the primary drivers are is a question that E.R. Express’ CEO, Sahil Patel, poses:
- “If you can’t add any more people or hours, how do you double your productivity?”
The constraint of prohibiting increasing capacity (e.g. adding more people, working more hours) forces a CEO/business owner to determine what aspects of his/her business are inhibiting profitable growth. These are friction points. Removing friction points can yield significant results, as Eliyahu Goldratt demonstrated in his operations management classic, The Goal (Wikipedia link, Amazon link), about removing bottlenecks. Potential examples include:
- Time friction points: Are sales people spending too much time in meetings? If so, how can their knowledge be shared internally more efficiently?
- Resource friction points: Are there large revenue opportunities that require extensive requests for proposals, coordinating large teams and necessitate huge procedural checklists because of risks?
It’s been our experience that most organizations attempt too many goals. This “more is better” perspective is admirable, often reflecting companies who were initially successful in one realm taking on additional opportunities that were outside of the original niche. What’s important for a CEO/business owner is to step back from the business and determine whether the various initiatives that have become part of the company are aligned with the key drivers of future profitable growth.
Summary
From our experiences, we have learned the importance of developing a VSD plan – Vision, Strategy and Drivers – to accelerate growth and become a top performing company in one’s industry. The proactive setting of a VSD enables a CEO/business owner to set a course for profitable growth for his/her company.
- The Vision establishes the What, as in What do we want to be
- The Strategy is the How, as in How will we execute to become our vision
- The Drivers set Where will we focus our limited resources to achieve our How
The result of a VSD exercise is a sense of path and purpose. The expectation should not be to follow this path to a T; rather, it should provide a direction, with a framework of what needs to be done to accomplish the goal of growing profitably.