Brandt On Leadership -- Consider Your Constituents

Dec. 21, 2004
Strategic planning demands tradeoffs among four important groups.

Every CEO loves a good strategic plan. Yet all too often these plans are sabotaged by an incomplete understanding of whom the plan will effect. Smart CEOs are increasingly aware that every company has four constituencies to balance in every strategic planning process: customers, employees, owners, and neighbors. Every action taken to satisfy one constituency will affect each of the others, often adversely. A major investment in employee training, for example, will likely improve customer service and relation-ships with value-chain neighbors, but could adversely affect profits for owners, at least in the short run. The point isn't to attempt to satisfy every constituency all the time -- that's a recipe for paralysis and disaster -- but to understand the effects if each strategic option on the expectations, perform-ance, and morale of each. How a CEO manages the tradeoffs inherent in these relationships is vital to the company's success, and to his or her own survival. A strategic constituency checklist for the survival-minded: Customers: Your customer constituency includes all those who have bought, are buying, or will buy your products or services in the future. This time component (past, present, future) is important because most businesses focus myopically on current customers, without asking whether these are the right customers -- those with whom your business will grow most profitably into the future. Are your present customers, for example, likely to grow fast enough to support the growth your other constituencies -- your employees, your owners, your value-chain neighbors -- expect? If not, which customers could? Have you asked your former customers why they left you, or if they need service beyond the original warranty? Are your branding and marketing efforts targeted at selling now or building a customer base into the future? Most importantly, what are the implications of your 2001 customer efforts on employees, owners, and neighbors? Are they worth it? Employees: Your employee constituency likewise has a time component, including employees past, present, and future. Current employees will evaluate you in part on how well you keep your promises to former employees on such things as pensions and retirement health premiums. Future employees, the smart ones you hope to recruit, will evaluate you on how you invest in your current employees, not only in terms of salary and benefits, but also in training and skills development, empowerment, and trust. How will your 2001 employee recruitment and retention strategies affect your customers, owners, and neighbors? Owners: Whether public or private, every company has an owner constituency. Most companies make the mistake of focusing most of their efforts toward satisfying the short-term needs of owners at the expense of the other three constituencies -- and, ultimately, at the long-term expense of owners themselves. If, for example, a new employee overtime policy cuts costs and boosts profits, is that good or bad for owners? Most CEOs, imagining themselves to be looking over their shoulders at profit-hungry owners, would answer yes without hesitation. But what if the new policy damages employee morale, which diminishes customer service, which in turn hurts future sales? Are owners then helped or hurt by focusing solely on their short-term interests? How will your efforts toward satisfying owners in 2001 affect customers, employees, and neighbors? How will they affect owners in 2002? Neighbors: Few companies give their neighbor constituencies enough consideration during strategic planning. Yet this constituency can have a powerful influence on your bottom line, since it includes all kinds of partners who can help or hurt you, depending on how you manage your relationships with them: competitors, peers and trade associations within your industry; value-chain partners, including suppliers, vendors, distributors, and consultants; and the communities in which your facilities operate. How will your strategies for employees, customers, and owners affect your neighbors in 2001? How do you plan to improve your relationships with them? Most importantly, where will you -- and your customers, employees, owners, and neighbors -- be in 2002 and beyond? John R. Brandt, formerly editor-in-chief of IndustryWeek, is now editorial director of the Chief Executive Group, publishers of Chief Executive and dotCEO magazines.

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