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Management Through Applied Planning


This article first appeared in our TECHMANAGE newsletter
December 1997, Volume 1, Issue 6

Randy Rollinson ced@wwa.com

In today's turbulent environment, organizations must deal with a broad range of environmental pressures. These pressures include competitive threats, production deadlines, quality control improvements, board development, customer service, employee issues, fundraising, pleasing key stakeholders, etc. In order to succeed in this environment, contractors must learn and utilize proven business management techniques -- otherwise they may not survive.

One of these proven business management techniques is called "Strategic Planning." Strategic planning is part of an overall philosophy of business management called "Strategic Management." Over the years, I have carefully examined the strategic management literature and practice and have created an approach which takes into consideration the realities of small business management. I call this tailored approach the Beacon Strategic Management Process. Beacon refers to both a metaphor and an acronym.

In a metaphoric sense, Beacon refers to the guiding light that helps travelers navigate their way in treacherous waters. A beacon does not eliminate the risks inherent in a chosen path, but it does provide the means for identifying and preparing for the risks and opportunities that are likely to be encountered. Similarly, practicing the Beacon Strategic Management Process positions the organization for successfully maneuvering within the oftentimes treacherous and constantly changing business environment.

As an acronym, Beacon signifies proven business principles which, when practiced, move an organization toward realizing its unique potential. Growing a successful organization is anything but easy. However, remembering core management tenets for taking you there can be easy when you think of the name - Beacon.

Each of these concepts is listed below.

Best Management Practice It is imperative in the competitive business environment to keep abreast of experiences and insights regarding best management practices and adapt and apply those that are relevant in your particular industry. Pay particular attention to the strategic, marketing, information, operational, project, financial, people and board aspects of management. Stick with what works!
Empowered Team True organization leaders empower their people to make real team-oriented contributions towards achieving a shared-vision of success. When people feel valued, trusted, and part of the solution, they work harder to achieve the organization's goals.
Applied It's not enough to point out what should be done. Organizations must efficiently apply their ideas and resources to the core operating processes of the organization.
Communication Competitive information and plans, as well as the progress towards obtaining desired results, must be communicated regularly so that empowered employees can make the right decisions.
Outcome Driven Organizations efficiently move forward by defining and embracing outcome-oriented performance measures. This results in creation of a strategy focused on generating measurable outcomes including return on investment, profitability, quality, and world-class operating excellence.
Networked Successful organizations cultivate and network with those customers, suppliers, vendors, and competitors that best fit their strategic vision and true operating capabilities.

By understanding, accepting and integrating these proven building blocks into your management philosophy, you can lay the ground work for developing a highly targeted and effective strategic plan.

So what is strategic planning? Everyone has heard the term--but what exactly does it mean? Strategic planning is a disciplined process for making decisions and taking actions that shape and guide what an organization is, what it wishes to do, and how it intends to do it.

For many years, it was thought that strategic planning only applied to larger organizations. Today, our experience and research findings have clearly shown strategic planning to be equally valid in all organizations; both for profit and nonprofit. When properly implemented, strategic planning is a results- and outcome-oriented process. Some of the advantages of strategic planning are as follows:

  • Improve organizational performance
  • Stimulate forward thinking
  • Solve major problems
  • Increase productivity
  • Build teamwork and expertise
  • Establish business priorities
  • Clarify future direction
  • Provide a defensible basis for decision-making
  • Meet key stakeholder requirements (e.g., constituents, investors, etc.)
  • Enable the organization to influence rather than be influenced
  • Enhance the organization's overall image

However, in order for an organization to experience these beneficial outcomes, the planning process must have the support and involvement of the owner, management team and key stakeholders. Without the commitment and active participation of top management in each phase of the process, the costs of planning will most certainly outweigh the benefits. Implementing a Strategic Planning process involves five sequential steps:

Strategic Planning Process Steps

To successfully undertake a strategic planning process, it is important to understand what questions to ask and what is involved in each step. This information is summarized below in a five step process.

Step 1: Get Organized to Plan

The first thing the organization must do is answer the following question... "Is now the time to develop a strategic plan?" If your business is experiencing a "life threatening crisis" or it is not committed to developing a good plan, then don't proceed.

Second, make sure you have commitment from the top. If the owner and/or top management are not 100% committed to the planning process, then the resulting plan will likely not succeed.

Third, determine if outside help will be needed. Depending on your experience with strategic planning, you may want to consider using an outside resource person to facilitate the process.

Fourth, outline a planning process that fits. Before initiating a planning process, ask yourself the following question: How much time do I (we) have to put into planning on a weekly basis. If the answer is two hours per week, then make sure you don't design a process that takes five hours per week. Also ask yourself about the "planning horizon," i.e., "How long are you planning for? Are you planning for 1 year, 2 years or 3 years?"

Finally, form a planning team. It is extremely important to involve all levels of the business in the planning process. My experience indicates that a team of 4 or 7 key people is ideal. At specific points in the process it will be important to involve others as well.

Step 2: Take Stock - Do a Situation (SWOT) Analysis

At the first meeting of the planning team briefly review the history of the organization and the current situation. Ask one person to take good notes at each meeting. This information will be helpful when it is time to draft the plan.

Second, review the organization's existing vision and/or mission statements. If your organization does not have written vision and mission statements, this should be considered as a weakness.

Third, systematically examine the internal (S) strengths and (W) weaknesses of your organization by functional and process area, i.e., administration, marketing, finance, human resource management, operations, new product development, customer service, etc. and by strategic business unit (SBU). Also examine the external (O) opportunities and (T) threats facing your business overall and by SBU. Here you should examine your competition, the needs in your market area, trends in the industry, the impact of the economy, changing demographic factors, technological developments, etc. Note: For organizations who have done at least one round of strategic planning, I would recommend that you begin by examining and prioritizing the external environment before conducting the internal analysis.

After completing/compiling the SWOT analysis, the planning team should go back over the list and prioritize the major strategic issues or opportunities it will address in the plan. This is an important step as the organization must keep its eye on the most critical issues!

Step 3: Develop a Strategic Direction

After carefully considering the SWOT analysis, the planning team has a realistic assessment of where the business is in the "here and now." Based on this shared understanding the team should examine the existing vision and mission statements, if they exist, or draft a vision and a mission statement. These statements should be carefully considered, adjusted and approved by the contractor owner(s) and the management team. They should be written in a concise manner. The vision statement should describe "what the business can become." The mission statement should answer four basic questions. 1) Who will we serve (or target)? 2) What services will we provide to meet our customers needs? 3) In what geographic area will we (primarily) provide service? 4) What are our core values or philosophy?

The vision and mission statements are important for two reasons. First, they are tools for communication both inside and outside the business. Second, once the vision and mission statements are printed and publicized the business has made a strong statement of commitment. Commitment is a major factor in successfully implementing a chosen strategy.

Following completion of the vision and mission statements, the planning team should spell out the long term strategies it will use internally and externally to realize its vision and mission. The team should also draft one to three goal statements. These statements should be specific priorities the business has established over the course of its planning horizon. For example, the business may have goals related to profitability, expansion, diversification, employee development, capital improvements, succession planning, etc. These goal statements should be reviewed and approved by the contractor owner(s) and the management team.

For each goal statement the planning team will identify key result areas (KRAs) that must be addressed in order to accomplish each goal. Key result areas are areas the business must generate results in if it hopes to realize its vision and mission. In turn each KRA should be stated as a measurable and quantifiable objective(s).

To achieve each objective the planning team should spell out specific programs and projects it will undertake for achieving each objective. Finally, for each of the major projects, the business owner and management team should empower a project manager who, along with the project team, should define a series of tasks and subtasks which when completed result in the project being implemented.

Step 4: Draft the Plan

After completing Step 3, the planning team is ready to draft the plan. Below I have listed a sample table of contents for an ideal strategic plan.

Executive Summary - This is a brief statement which uses clear, simple, concise language. It should keep the reader's attention and develop interest. It should include the following:

  • Business background
  • Summary Vision, Mission and Long-term Strategy statement
  • Primary Goals
  • Products/Services
  • Distinctive Competencies
  • Market segment(s) served

Situation Analysis - Briefly describe the major strengths, weaknesses, opportunities and threats

of the business. Remember these factors should be distilled from having systematically examined the (1) internal strengths and weaknesses of each SBU and functional area and major process of the organization, i.e., administration, finance, human resource management, operations, marketing, customer service, new product development, installation and (2) external opportunities and threats facing the business overall and by SBU.

Your detailed SWOT analysis should be included in the appendix.

Strategic Direction: This section of the plan should spell out the general direction of the business over the length of the planning horizon and provide a detailed description of how the business will achieve its overall strategic goals. It should include the following:

  • Vision, Mission and Long-term Strategy Statements
  • Primary goals
  • Key result areas for meeting each goal
  • Measurable and quantifiable objectives which address each KRA

Implementation: This section of the plan should spell out specific issues related to implementation of the plan. Issues which should be included in this section include the following:

  • Business structure
  • Major policies and procedures required to successfully implement your plan
  • Human and financial resource allocation
  • Projects for meeting each objective

Evaluation and Control: Here we describe the process for keeping the plan up-to-date. Also include any control forms that will be used to monitor the plan. Ideally responsibilities per Project Manager are sorted and included in the appendix.

Contingency Plans: This section describes critical risks, problems and assumptions which are included in the plan. The planning team should spell out what actions will be taken if critical problems occur.

Financial Plans: This section of the plan is critical and should be prioritized by the top management of the business. Depending on the nature of the plan it should include some or all of the following:

  • A detailed 2 year sales forecast by quarter
  • Actual income statements and balance sheets for the past 3 years
  • Proforma income statement for the next 2 years
  • Proforma balance sheet for the next 2 years
  • Proforma 24 month cash flow statement by month for the first 12
  • months and by quarter for the next 12 months.
  • If appropriate a break-even chart and calculation
  • If appropriate ratios compared to the industry

Appendices: This section should include information which is too detailed to be included in the body of the report. Materials which might be included in the appendices include the following:

  • Select industry information
  • Detailed SWOT analysis
  • Project plan forms
  • Sorted responsibilities per Project Manager
  • Resumes

Step 5: Implement, Monitor and Revise the Plan

While changes will certainly occur as the plan is being prepared and implemented, it is important to continually review and revise the plan as new information arises. A regularly scheduled process for modifying the plan is highly recommended. Below I have given a sample update schedule. This schedule assumes a January to December fiscal year.

January - March

  • Implement the plan from the previous year.
  • As factors change adapt the plan as needed
  • Collect environmental data
  • Monitor key performance measures on a scheduled basis

April - June

  • Continue to adjust the current year plan as necessary
  • Review/revise the SWOT analysis from the previous year
  • Define priority issues for the upcoming fiscal year

July - September

  • Continue to adjust the current annual plan as necessary
  • Review, reaffirm or modify the vision, mission and long term strategy statements
  • Review, reaffirm or modify the business goals
  • Determine if the KRAs are still the same
  • Draft at least one measurable and quantifiable objective to address each KRA

October - December

  • Finalize objectives and draft projects to meet each objective.
  • Ask each Project Manager to prepare a project plan for each project
  • Calculate and approve a proforma budget
  • Specify evaluation and performance measures and control forms

In summary, strategic planning is a powerful management tool that involves in depth organization analysis, careful strategic choice, detailed specification of responsibility, and regular review and modification. Probably, the most important endorsement I can make for this management tool is that strategic planning is helping thousands of businesses approach the next century with confidence and enthusiasm.


Below I have illustrated these points by presenting a fictitious organization called Heatwave, Inc.

Company Background

Heatwave, Inc. is a full service heating, ventilation and air-conditioning company located in Elmhurst, Illinois. Heatwave is a family business that was founded in 1965 by Robert Whitehead, the father of Mark Whitehead the current owner. Mark is 37 years old and excels at the technical side of the business. He and his wife Mary purchased the business from Mark's father and mother approximately three years ago. Mary is responsible for maintaining the financial records and supervising the administrative work.

Heatwave performs the majority of its work in the residential market, but over the past three years, the company has become more active in the commercial segment of the market also.

The business has an excellent reputation with its customers and within the local community. Robert Whitehead has been very active in many community organizations over the years. His community leadership roles include two terms as President of the local Chamber of Commerce, and 15 years as a board member of the local YMCA. Recently, Mark has begun to get involved in community activities as well. Heatwave is a long standing member of Air Conditioning Contractors of America (ACCA).

Financially, the company is stable, but has begun to experience cash flow problems. In 1995, Heatwave had total sales of approximately $2.7 million. This was an 8% increase over 1994 sales. For the first nine months of 1996, sales are at $2.4 million - a 15% growth trend for the year. In addition to Mark and Mary, the business employs 23 people which includes 15 technicians. The business has seven years remaining on a 10 year note with the local bank.

Over the past several months, the stress associated with maintaining quality services in a changing market place has become apparent to all involved at Heatwave. Staff meetings have been discontinued, interpersonal problems have developed at all levels of the company and accounts receivable collections has become a real issue. Fortunately, Mark and Mary recognize that something must change if they are to realize their vision of enjoying life while growing and protecting the business for their children. They decide it's time to develop a plan.

Heatwave, Inc. Organization Chart - January 1997

Key Company Personnel

Mark Whitehead. President and CEO.

Mark is 37 years old and has grown up in the business, literally going out on jobs since he was a kid. Mark is a community college graduate in air conditioning and makes no bones about his love for the technical side of the business. Although Mark admits to having the most comfort with the technical end of the business, he remains very open to the opportunities on the horizon for Heatwave, Inc.

Mary Whitehead. Administration and Corporate Secretary.

Mary and Mark are a team at Heatwave. They are an enthusiastic and energetic couple who are just beginning to feel comfortable with their new roles from the purchase of the business three years ago. Mary runs the accounting and day-to-day scheduling of the business company and runs it very well. Mary also graduated from the local community college with an associates degree in business.

Frank Howard. VP Field Operations.

Frank represents the old guard and is a lifelong friend of Mark's father, Robert. Through thick and thin, Frank has been there for Heatwave and he is fiercely loyal to Robert Whitehead and the Whitehead family. Frank is past retirement age but does not want to fully let go. "Big Frank" as he's called, says that he'll continue working at Heatwave until they carry him out and even at the age of 66, his large, healthy frame seems to indicate that that particular day will be long in coming.

George Allen. Installations.

George Allen is a young and aggressive technician right out of college with a technical degree. He's good at what he does and isn't afraid to let anyone know about it. Mark lured George away from a larger HVACR company which competed solely in the commercial market. George came aboard after the sale of the business to Mark primarily to get Heatwave into the commercial market. George has become quickly known throughout the company as a great motivator.

Bob McNamara. Service and Dispatching.

Bob has been with Heatwave for 22 years, joining the company right out of high school. Bob is known around the company as the "Original Steel Trap" dubbed for his uncanny ability to retain detailed and complex information as well as his logical thinking. Bob has risen through the ranks due to his ability to learn and educate himself as well as his overall excellent track record.

Case Summary

The current situation of the company shows that sales growth is healthy, 8% over '94 and currently on a 15% trend for 1996. However, if analyzed, the majority of new sales have been in the commercial segment over the last three years. Current sales were $2.7 million in 1995 with 70% in residential and 30% in commercial. The commercial sector was almost totally responsible for the 8% growth in '95 and again for '96.

The residential market

Heatwave has been a tried-and-true installer and servicing company of residential HVACR systems since its founding, providing service to the replacement market as well as new construction. The residential market had been coasting along under Robert Whitehead and was built through establishing a sense of trust. There had not been any real marketing efforts taking place for some time. There wasn't any information management going on. The staff was not well organized. Financing terms were totally open-ended The company had become complacent but still held a good reputation.

Over the past decade, the company's market area has not seen much activity in new housing development, though the Elmhurst area has continued to be a good market for the replacement business, those replacement units remain small and low cost. For the residential SBU, it is time to move on to new territory.

The commercial market

This is a new area for Heatwave, Inc., which started with Mark's initiative to retain George Allen who possessed a commercial background. In the past, the company was totally reliant on the dynamics of the residential market. Today, Mark's initiative has been paying off for the company, but not without the cost of developing new growth within a fast changing industry during a change in leadership.

Mark's initial ideas are to continue pursuing the restaurant segment, servicing ice machines and other systems. This "plum" fell into the company's lap due to his wife's contacts in this industry. The company is still trying to reorganize itself due to this new opportunity, let alone the additional commercial thrust begun just a year ago.

George Allen came from a larger commercial HVACR company already possessing good project management skills for commercial jobs. With not much effort, Heatwave began successfully bidding on new retail mall work in the growing western suburbs of Chicago. George's experience made this additional line of work almost seamless - skills for scheduling, planning, coordinating and executing were all there. The only issue for the company was how this type of client would pay their bills.

Accompanying this commercial expansion, the company is beginning to shift its residential gears toward new construction because where there's retail there has to be residential consumers. The new targeted area will be the newer and more affluent west suburban communities where new home construction will typically be within the $275,000 to $750,000 price range. Heatwave will target the upper-end custom homes of $400,000 and up as their primary target market.

Mark with the help of Mary had begun to build up the capabilities of the company in order to take it into the 21st century. The past three years have not been what they had expected; long hours, resistance by their employees and not a lot of breakthroughs. They sometimes sat together after a long day and wondered what would it have been like if Heatwave was a floundering company, instead of a strong one.

Based on this situation Heatwave decided to form a core planning team to develop an overall strategic direction for the business. The team began by completing a SWOT analysis. Below are the primary elements that came from this process.

Situation Analysis - Strengths

1. The organization is on solid financial ground.

The company's financial information is getting better with the help of Mary's computer expertise and organizational skills. Information is accurate, available and computerized. The company also has maintained a very good banking relationship and most important of all, is profitable and growing.

2. The organization is dedicated to Quality.

The commitment to Quality has been followed for a long time. The employees believe it and work at it everyday.

3. The organization possesses a skilled and versatile workforce.

The company has strong personnel skills in core areas such as project management, and technical expertise.

4. Heatwave enjoys a strong market image.

Over the last several decades, the company has fully reaped the benefits of diligently working to reach and maintain a strong, favorable image in the minds of its stakeholders. Through honest hard work, community service and good business practices, the company is known for its honesty and reliability.

5. There exists a strong family management team.

Situation Analysis - Weaknesses

1. There is a lack of communication across the entire company.

There is no empowerment or team building currently going on. Staff meetings have stopped and there is increased friction between key areas such as dispatching and service technicians. Communication disconnects are also evident between sales and installations. At times, the one hand doesn't know what the other is doing.

2. Heatwave is still struggling to understand its real costs.

Pricing is woefully inadequate and reflects old rules of thumb for overhead, etc. New information must be developed.

3. There is a lack of customer focus

Even though there is a legitimate effort to pursue quality, there is a lack of any coordinated marketing work such as research or customer feedback. The company's ability to respond to the customer in a customized manner (one-to-one marketing) is inadequate. There is also a lack of a focused customer service program.

4. Poor management throughout

Employees seem to have learned how to delegate "upwards", as more and more responsibility for every little job seems to float up the organization chart. Perhaps as a part of this weakness, there are no formal job descriptions or a personnel manual.

5. Training of technical personnel is not being pursued in a systematic and strategic way.

Situation Analysis - Opportunities

1. New single family homes continue to show strength

Growth and development of the western suburbs of Chicago continues to outpace the majority of the US. Custom, high-end home building is also very strong in this area. The "customized" economy is also at work here. Comfort is a luxury everyone is willing to pay for.

2. Continued growth in suburban retail construction

Going hand-in-hand with strong single family developments, retail in these burgeoning areas also is keeping pace.

3. Replacement Market should be stronger based on a higher than normal installation rate 15 years ago.


4. Technical complexity of the equipment calls for continuous improvement in skills and techniques.

Although training was cited as a weakness, it's not out of our abilities to improve on an excellent skill base and turn this into a competitive advantage. More advanced capabilities may lead the way toward higher-end services such as systems monitoring and residential IAQ solutions.

5. Health concerns of Indoor Air Quality

Many positive things evolve out of the public's and the EPA's concern for the quality of air. Upgrading to new safer refrigerants as well as new services in line with total system comfort demands.

Situation Analysis - Threats

1. Incursions by aggressive and varied competition

There are numerous competitive concerns facing the typical HVACR company. Competitive factors such as the deregulation of energy utilities, the growth of national service retailers such as Home Depot and consolidation within the HVACR industry led by a growing number of large, publicly-owned service companies created through the acquisition of profitable HVACR companies.

2. Increased competition for a diminishing labor pool

There is not only competition within the industry for the already scarce skilled labor pool but also from other construction trades. Fueling this is the lack of proper education at the primary and secondary levels.

3. Technology is decreasing the barriers to entry.

"One person with panel truck" operations continue to eat away at the market. The national service retailers serving the do-it-yourself market are also entering the residential HVACR market with low cost units, sometimes installed by the one-person contractors.

4. The customized economy

Also cited above as an opportunity, this area could pose as a major threat if the organization does not adequately adapt to the continual "raising of the bar." Customers continually demand more and are more educated than consumers in the past.

5. The continued professionalism of direct competitors

The best are just getting better. Better business techniques and strategies by established firms help to continually "raise the bar" also.

Strategic Direction

After reviewing the SWOT analysis, Heatwave prepared the following vision, mission, long term strategy statements, goals and key result areas:

Vision Statement

Early in the next century, Heatwave is the leading "family owned" HVACR firm in DuPage county. It is highly profitable with locations in Elmhurst, Naperville and Oakbrook. Members of the founder's family are active in the firm's leadership and operations.

Heatwave functions smoothly and professionally. Employees communicate openly across functional boundaries and solve problems together on their own initiative to satisfy customer needs. Throughout the business, there is an appreciation for helping each other. Employees are continually coming up with and implementing new ideas and improvements. Heatwave is known in its market as being very flexible, responsive to customer requests and exceeding customer expectations. There is an air of confidence and success throughout the business.

Mission Statement

The mission of Heatwave is to provide a full range of high quality HVACR services to home owners, high-end residential contractors and light-commercial property owners primarily located in the extended western suburbs of Chicago, Illinois.

Heatwave's core values are based on a complete commitment to total customer satisfaction. Our management and employees know that our vision of success can only be realized if we provide each and every customer with the very best in total comfort control products and services.

Long Term Strategies

Internal Strategies

  1. Emphasize the use of technology to increase operating efficiency.
  2. Reinvest current earnings to build long-term capacity.
  3. Cross train all personnel in order to standardize quality of service.
  4. Provide extraordinary service to all customers.
  5. Create a teamwork atmosphere at all levels of the organization.
  6. Build knowledge and expertise in the areas of monitoring systems, comfort options, indoor air quality, duct system repair, system efficiency and diagnosis.

External Strategies

  1. Emphasize a market penetration strategy in upscale new residential construction in the current market area.
  2. Over time, move to a market development strategy targeting other high profile communities in the extended western suburbs.
  3. Build selective alliances and partnerships with established commercial contractors.
  4. Remain active in ACCA. Join a MIX group in order to remain abreast of the latest trends, technology and professional operating practices.

Goals & Key Result Areas

Goal 1: To be recognized by our valued customers and our professional colleagues as the leading HVACR contractor in the Chicagoland region.

KRA 1: Publicity
KRA 2: Technician Certification

Goal 2:

To create and nurture a "team oriented" operating culture which is focused on continually improving the core processes of the business in order to better serve our valued customers.

KRA 1: Customer Service Process

KRA 2: Staff Recognition

Goal 3: To increase the profitability of Heatwave 15% each year for the next three years.

KRA 1: Market Penetration
KRA 2: Market Development
KRA 3: Cost Control

Note: The next step for Heatwave, Inc. is for each Key Result Area (KRA) they must develop a measurable objective and a series of projects to achieve the objective. Also note that the Heatwave case study will be used extensively in the ACCA Contractor Education Program.

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