Understanding Operating and Asset Goals
The challenge of balancing the present and the future
Many CEOs and management teams find it difficult to manage the short-term performance of their organizations while simultaneously building the foundation for success in future years. Particularly in small to mid-sized companies, much of management’s time and energy are consumed in day-to-day firefighting. In addition, many organizations do not have a systematic way of thinking about, and managing toward, the future. Too often a future vision is an abstraction that never materializes, because managers think of the future as something they plan for infrequently (e.g., at annual off-sites) when there is time left over after dealing with the urgencies of the here and now. As a result, organizations miss out on significant growth opportunities, or worse, wake up one day to find that their added value has eroded, leaving them with shrinking revenues and margins.
To address this challenge and thereby achieve sustained success, an organization must do two things:
Develop strategies that integrate the delivery of current results with the creation of the future
Execute on both aspects of those strategies in a consistent, disciplined fashion
Both tasks can be accomplished if a company identifies its strategic assets and sets measurable goals for enhancing those assets and for achieving excellent operating results.
A company’s Strategic Assets are the key capabilities, resources and relationships that are the basic ingredients of value creation. Examples of strategic assets include: knowledgeable, experienced employees; a loyal customer base; proprietary market knowledge, databases and other intellectual property; brands; distribution channels; etc. Seen through the strategic assets lens, management has two primary objectives:
To earn an excellent return on the existing strategic assets in the current period;
To manage the evolution of those assets so that they will continue to generate excellent returns in future periods.
In the short term, a company must decide where to focus its efforts (which customers to serve, what solutions to offer, which activities to perform)—that is, how it can leverage its existing strategic assets to gain the greatest value-adding advantage. In the longer term, a company must decide where the best opportunities are likely to lie (again, a combination of target customers, solutions and activities). It must then systematically build the strategic assets that will be required to achieve a sustainable value-adding advantage in pursuing those opportunities.
Operating and Asset Goals
To make this approach practical, companies can establish parallel sets of Operating and Asset Goals. Operating goals are primarily aimed at maximizing the outputs of the existing value engine in the current time period (e.g., revenue, gross margins, customer perceived value). The value engine is made up of the company’s value-adding activities (e.g. marketing, supply management), which, in turn, are built upon the firm’s strategic assets. Each value-adding activity should have a more detailed set of operating goals. For example, the sales activity for a travel company would have targets for the number of trips sold to various customer segments, at specific margins, etc.
The primary focus of asset goals is to enhance the value engine so that it will yield superior operating performance in future periods. An asset goal might involve extending an existing capability or relationship, or adding new ones that will be required to take advantage of emerging opportunities, or to avoid commoditization—the erosion of a company’s added value, relative to that of its competitors. While the “operations” activity in a travel company might have an operating goal that travelers rate any meals included in a package with a 9 score (on a 0-10 scale), there might also be an asset goal to upgrade significantly the entire dining experience associated with a trip. This might entail identifying the best potential food-service partner in each destination, and entering into exclusive, multi-year agreements with those vendors. That objective would, in turn, be broken down into monthly or bi-weekly action items, for example, “Identify and speak with three potential food partners in Jamaica by April 1”.)
Integrating strategy and execution, present and future
Under the intense day-to-day pressures of operating a business, many management teams default to fire-fighting and reactive decision-making. But sustained business success requires proactive strategic thinking, tightly coupled with disciplined execution; and strategy and execution efforts must integrate the present and future needs of the business.
Identifying strategic assets and establishing operating and asset goals creates a disciplined foundation for developing and executing value-focused strategies—delivering this year's numbers, while building the future value engine. A company’s current competitive position is the result of hundreds of decisions made (or not made) in the past. The equally inescapable reality is that the future of a business is always under construction. By systematically identifying the assets that will be required for a successful future, a company can manage its future, day by day, in the present.
Function or Activity
New customer portal
Redesign Ops process
Adopt new CRM system
Rules of thumb for distinguishing operating and asset goals
If a goal and its associated activities are aimed primarily at delivering this results in the current period, it is an operating goal.
If a goals is aimed primarily at generating outputs from the existing “value engine,” it is an operating goal.
If a goal is aimed primarily at laying a foundation to ensure attractive results in future periods (especially future years), it is an asset goal.
If a goal and its associated activities are aimed primarily at enhancing the organization’s strategic assets (capabilities, processes, relationships, intellectual property, etc.), it is an asset goal.
Sometimes a goal will seem to fit in either category. Suppose you have already developed a plan for growing revenue 20% this year (the revenue target being clearly an operating goal), and as part of the plan to achieve the revenue growth, you plan to hire and train additional salespeople. We would probably consider the activity of hiring people as part of the operating goal, even though the company would certainly be adding assets and capabilities. In this case, the primary purpose and context of hiring those salespeople is probably just part of the flow of delivering this year’s results.
On the other hand, if you had a major new initiative to expand geographically, or to start selling a new line of products or services, and that initiative required that you create a new sales force with new capabilities, that salesforce development initiative would probably be best thought of as an asset goal.
If you think a goal falls into a gray area, and could be considered either an operating or asset goal, don’t get hung up on it—make a judgment call and move on. More generally, we suggest that the ValueGroove Management Process always be viewed as a set of flexible tools that can be adapted by each team or organization to meet its needs. As long as there is a balanced mix of goals that address the present and future needs of the organization, and that make sense to the team, the process will be on the right track.
The ValueGroove Management Process (VMP) from Paul O’Malley Associates focuses on three areas:
1. Strategy: deciding what the organization should focus on, and communicating that focus both to employees and customers.
2. Execution: setting clear goals tied to specific action plans, and systematically reviewing results versus the plans.
3. Culture: reinforcing the values and “ways of doing things” that support sustained organizational success.
We understand that the management team’s time and bandwidth are the scarcest resources in small to mid-sized companies and non-profits. The VMP allows you to establish an effective management process with a minimum investment of time and focus, and at a cost that can be tailored to meet your budget.
If you would like to learn more about getting started with ValueGroove, please contact us.