Why Strategy, What Strategy
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I was inspired to write this article as a result of reading, The Strategic Thinking Manifesto by Rich Horwath. It’s an excellent piece you will benefit from and enjoy. I am putting a financial advisory spin on the material.
What is a strategy?
Whether you are a one-person financial advisory practice, a 20-person ensemble practice, or a 10,000-person financial advisory firm, you must define your strategy, have a written business plan, and review it very regularly as a leadership team. Often, I have seen mandates come down from “on high” to submit your business plan. Because they come from “on high,” they are often short, written, reports, sent upstream, put in a draw or file, and never seen again. Often the business plan is just how much new business we are going to get in the next time period. Sometimes reports are aggregated, corporate decisions made, and sometimes resource plans developed. Sometimes quotas are passed back down that are related to projections, sometimes not. Rarely do the plans sent upstream outline a strategy and tactics as to how those goals will be reached because “on high” primarily wants the numbers. Local management may or may not focus on and vet the how tos.
The data in the Horwath’s article is fascinating. While the piece discusses the top 10 strategy challenges and the frequency of each challenge by company, the real value is that not only does a survey say, “67% of managers believe their organization is bad at developing strategy,” but that the definition of the word strategy can be clarified. The author defines strategy in this article simply as “the general resource allocation plan.” However, in his book, StrategyMan vs. The Anti-Strategy Squad, he updated the definition to "the allocation of resources through a unique system of activities to achieve a goal," or even more simply, “how you plan to achieve a goal.” “Once we’ve identified the goals and objectives, then we can determine the strategy, which is the path to achieving them. Strategy and tactics are how you will achieve your goals and objectives and how you will allocate your resources to succeed. ‘Strategy is the general resource allocation plan.’ The tactics are specifically how you will do that.”
Strategy further defined
Another definition is, “Strategy is an action that managers take to attain one or more of the organization’s goals. Strategy can also be defined as ‘A general direction set for the company and its various components to achieve a desired state in the future. Strategy results from the detailed strategic planning process.’”
The phrase “goals and objectives” also needs clarity. A definition I found helps clarify that phrase so we can do our planning. “Goals are general guidelines that explain what you want to achieve in your “community”. ... Objectives define strategies or implementation steps to attain the identified goals. Unlike goals, objectives are specific, measurable, and have a defined completion date.” I believe the terms overlap and can be interchangeable to avoid confusion. Objective is also defined as “a thing aimed at or sought; a goal.” Defining objective as a goal can create confusion so I suggest, we use either word to mean the same thing, our desired future state, e.g., $1 million in production in five years.
Strategy example
Our objective or goal (you pick it), for a hypothetical financial advisory practice is to become a million-dollar producer, i.e., the goal or objective of our financial advisory business is to generate one million dollars of revenue from our clients by December 2026 (in five years). We start with the assumption that this is a practice with one financial advisor for simplicity. Appropriate support staff, technology, office space, etc. are part of the tactics needed to support the goal/objective.
Our goal/objective can be further defined with several elements, for example:
- Gather client assets to total $120 million dollars by 12/31/26.
- All assets will be fee-based.
- Our average fees across our practice will approximate 83 basis points.
Our strategy or strategies in this case will be several-fold, but we’ll keep it simple for now. Let’s assume we have a current book of business of $50MM.
Strategy 1 – Grow our current book organically, i.e., from current clients.
- Gather assets held away by existing clients. Our goal/objective is to grow our current book at 10% compounded annually for 5 years not including market growth. This would result in a growth in net new AUM of about $30MM.
Tactics include:
- Conducting detailed financial plan reviews for every A client annually and tracking major life changes every three months.
- Conducting detailed financial plan reviews for every B client every 18 months and tracking major life changes every six months.
- Conducting high-level financial plan reviews for every C client every 18 months and tracking major life changes every six months.
There are more detailed process steps, but these are the high-level tactics/to dos. This work will also lead to the need for execution resources (technology, perhaps human capital, skills, etc.) but this is beyond the scope of this article.
Other strategies for growing the practice from our existing base are not considered at this point. Strategies such as book acquisition are not a part of this paper because we are focusing on defining terms and providing base examples.
With a total growth goal/objective of AUM $70MM over the next five years, and $30MM projected as coming from existing clients, we need an additional $40MM in net new asset inflow over the next five years. Our strategies for “inorganic” growth, i.e., “New Client Acquisition Marketing” or “Prospecting” include, for example:
- Strategy 1 – Introductions from Clients
- Strategy 2 – Targeted Seminars
- Strategy 3 – LinkedIn Prospecting
- Strategy 4 – Introductions from COIs
Our five-year goal/objective for $40MM in NNA, says we need to acquire $8MM in NNA per year. We can set sub-goals from the following strategies:
- Strategy 1 – Introductions from Clients
- Five net new clients with an average AUM of $500,000 = $2.50 MM NNA/year
- Strategy 2 – Targeted Seminars
- Five net new clients with an average AUM of $600,000 = $3.00 MM NNA/year
- Strategy 3 – LinkedIn Prospecting
- Two net new clients with an average AUM of $500,000 = $1.00 MM NNA/year
- Strategy 4 – Introductions from COIs
- Two net new clients with an average AUM of $750,000 = $1.50 MM NNA/year
We can develop tactics (steps or plans) for each of the four strategies and assign goals/objectives for each sub-strategy. This can bring reality to the sub-strategies (i.e., are these goals possible and what will it take to execute them). This will allow the advisor (or team) to say, “I can easily beat or meet these goals/objectives.” They can also ask themselves or team, “Are these reasonable sets of assumptions?”. They have options to modify the assumptions, goals/objectives, strategies, etc. and increase or decrease them considering resource requirements (Human capital, technology, skills), etc. There is little in the goals/objectives, strategies, or math that aren’t clear and easy to define, yet according to the referenced article, “67% of managers believe their organization is bad at developing strategy.” As you can see so far, this is not hard. You need a process, as stated, a strategic planning process. What is hard are the tactics, and more so, the execution of those tactics. Let’s discuss tactics.
Tactics examples
Examples of tactics for the following strategies might be:
- Tactics for strategy 1 – Introductions from clients
- Complete "client wisdom" profile for key clients identifying ways to seek introductions using the principle of “aided recall”. (A technique to narrow the request so the client understands exactly who we would like to be introduced to.)
- Determine approaches to seek introductions personalized to each client.
- Script introduction requests to use at annual meetings.
- Ensure every meeting agenda includes service review discussion, feedback, and introduction discussion.
- Tactics for strategy 2 – Targeted seminars
- Using "client wisdom," identify clients with companies, organizations, hobbies, etc. where you can get a small homogeneous group together of people the client knows and would invite to discuss educational topics of interest as a way of meeting new people.
- Plan and schedule bi-monthly/quarterly small group education meetings.
- Develop one or two standard venues.
- Develop four standard meeting subjects.
- Develop standard invite and follow up process both for attendance and after session.
- Tactics for strategy 3 – LinkedIn prospecting
- Develop a list of potentially qualified people you know and determine if they are on LinkedIn.
- Your clients, prospects, friends, family members, and appropriate COIs
- People you know who are working are more likely to have broader networks.
- Your health practitioners if possible
- Any small business relationships you have
- Others who are not competitors
- Determine which of your connections you are comfortable using as an introduction source.
- Go through your connection's connections (your second-degree connections assuming they are "visible") to decide which of those connections could be qualified introductions.
- Prepare a list of names.
- Prepare an email from you to your first-degree connection saying you’d like to have a discussion.
- Follow up with a call to your connections to get agreement to discuss the people.
- Let your connection know you will put together a note and set up a short chat.
- Follow up with the discussion to identify people your connection knows well enough to introduce you and is willing to do so.
- Develop next steps.
- Develop a list of potentially qualified people you know and determine if they are on LinkedIn.
- Tactics for strategy 4 – Introductions from COIs
- Identify a select number of potential COI partners.
- Vet potential COIs with your clients.
- Study COI’s public data, website, LinkedIn, Facebook, Google, other
- Make an initial call to COI to determine if they are accepting new clients or are already committed to working with other financial advisors to whom they refer.
- If COI appears to be potential partner, schedule an initial meeting with the COI to develop an initial relationship and vet the COI and potential.
- As appropriate, have the COI visit your office to meet your people, discuss your processes and see your technology and facilities.
- Plan the next steps with the COI.
Strategy challenges
The Strategic Thinking Manifesto outlines the “top 10 strategy challenges and the frequency of each challenge by company.” The number one challenge noted is “Time”. Ninety-Six percent (96%) of the study group cited time as the most common strategy challenge. I don’t argue the study findings, but my belief is that “Time” is not really the challenge. I rather believe it’s the lack of goal definition, strategy, and tactics, and the lack of execution of the tactics. The Manifesto states, “With more responsibilities and fewer people to handle them, many managers are overwhelmed with activities.” It also states, “When there is a lot to get done, time to think is often the first thing to go.” Interestingly, the second most commonly cited challenge of the study participants was “Commitment” at 72% and the third was challenge was “Lack of priorities” at 60%. I suspect these are the real challenges as these represent a lack of leadership which would go away along with the time constraints if leadership led. The Manifesto also stated, “According to a study out of Harvard Business School, a shocking 95% of employees in large organizations are either unaware of or don’t understand their company strategies.” To me, that brings us of back to commitment and prioritization and a familiar comment from Inc. magazine,” … recall the story from Alice In Wonderland where Alice reaches a crossroads where the Cheshire cat is sitting. Alice asks the cat: "Which road should I take?" In reply, the cat says: "Where are you going?" To that, Alice says: "I don't know." "Then it doesn't matter which road you take," the cat says in response.”
The point is that if you don't know where you are going as an organization, you won't know what decisions to make when you reach a fork in the road. If your strategy is known, then it makes it easier to decide which tactics you need to use to reach your long-term destination. And this is also much more efficient and effective.
Leadership must define and commit to and prioritize the execution of the strategy and tactics to reach their stated goals, their destination. They must recognize that Strategy and Tactics and their execution, are both “Urgent” and “Important”. If goals are truly “Urgent” and “Important” and so stated, time can be found. Why, because the Manifesto states, “a ten-year study out of Harvard Business School showed that firms with clearly defined and well-articulated strategies on average outperformed competitors by 304 percent in profits, 332 percent in sales and a whopping 883 percent in total return to shareholders. Yes, strategy does matter.” They further state, “While it’s convenient to blame an organization’s failings on external factors such as the economy, decisions about strategy account for failure a whopping 70 percent of the time.”
The Manifesto further states, “According to a study out of Harvard Business School, a shocking 95% of employees in large organizations are either unaware of or don’t understand their company strategies.” This is another leadership responsibility. In a one-person financial advisory practice, the leader is obvious. In a 20-person ensemble practice, it’s the “team leader”. In a 10,000-person financial advisory firm, it’s the CEO. Perhaps an issue is one that Michael Gerber pointed out, individuals in many positions don’t spend enough time working, “on the business” as opposed to “in the business.”
While there are another seven challenges the study group cited, one that also stuck out to me is “the preference of the status quo…the “if it ain’t broke, don’t fix it,” mentality.” Some years ago, I wrote an article, “If Your Client-Service Model Ain’t Broke… Fix It Anyway!” The opening sentence is, “Service offerings that were seen as premium yesterday may be considered ho-hum today. To keep your clients loyal and attract new business, you need to continually create “delight” with strategic updates.” This belief is based on “Dr. Noriaki Kano, a leading client satisfaction researcher, who developed a model (The Kano Model) that speaks to this challenge of adding client value. This model of client satisfaction, and hence loyalty, predicts that the degree of client satisfaction is dependent upon the degree of need fulfillment but is different for different types of client expectations.” The point is that over time every business has the potential to become a “buggy whip manufacturer” offering products, services, solutions that are no longer what people need or want. Think of Xerox, Polaroid, Kodak, Borders, Pan American, F.W. Woolworth, Toys R Us, Blockbuster, Tower Records, Compaq, Wang, TWA, DeLorean, Enron, E.F. Hutton, Arthur Andersen, Compaq, WorldCom, Bear Stearns, and many others. I think of IBM where I spent decades and the changes from my time at the company and how pleased I am to see their dramatic changes over time that allow them to remain an industry leader still employing over 345,000 people.
Competition demands a strategy and tactics that obviate your demise by constantly improving whatever you offer the markets or as the term goes, “Beyond Better Sameness” the title of another of my articles.
Conclusion
My final note on why strategy and the objectives from which it is driven comes from a true story I found in a book by Dr. Benjamin Hardy, Personality Isn’t Permanent.
“The British rowing team – which hadn't won a gold medal since 1912 – got committed in preparation for the 2000 Sydney Olympics. That commitment was embodied in a single question they asked themselves before making any decision: Will it make the boat go faster? This one question allows them to measure every situation, decision, an obstacle – and to not get derailed from their objectives. Every decision or opportunity, every member of the team asks themselves: Will it make the boat go faster? If the answer was no, they didn't do it. They were committed.
Eat the donut?... (Will it make the boat go faster?) Stay up late go to the party?... (Will it make the boat go faster?)
Because they were committed, they got the results they wanted. They won gold that year.
Do the decisions you make running your practice, your business, align with your goals/objectives? If you have defined your strategy and tactics, you can answer the question, Will it make my practice better?, and you can win your gold.
David Leo is founder of Street Smart Research Group LLC. He is an author, speaker, coach, consultant, and trainer to financial professionals. David is an experienced business manager who works solely with Financial Advisors, Planners and firms who want to organize, structure & grow their businesses by attracting, servicing, and retaining affluent clients.
If you have questions or would like assistance in personalizing and implementing approaches from The Financial Advisor’s Success Manual, schedule a free 45 Minute Strategy Session at https://calendly.com/davidileo or contact me at [email protected] or visit my website at www.CoachDavidLeo.com
My book is available at Amazon at https://www.amazon.com/Financial-Advisors-Success-Manual-Structure/dp/0814439136.
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