The final piece to the Seven Strata of Strategy is actually two pieces. Remember the Seven Strata of Strategy are from Mastering the Rockefeller Habits author, Verne Harnish. His Fortune Magazine article revealed from careful research following the last recession these specific strategies were key differentiators to increase revenue faster than competitors who didn’t have these key elements identified. Companies that had these seven strategies identified outpaced their competition even during the last recession.
This step is all about measurement. As E-Myth guru Michael Gerber noted, “You can’t manage what you don’t measure, and what you don’t measure you don’t understand.” This step assumes you have already determined your Profit per X and BHAG. As noted in Find Your Economic Denominator Profit per X discovering your profit per X is not an easy task, yet the process alone is rewarding. The path to discovery leads to infinitely better understanding of what the key financial indicators are in your business, and ultimately what drives your business. Profit per X is by its nature one Key Performance Indicator that necessitates monitoring once you identify it.
It would also seem to make sense that if you’ve identified your BHAG (Big Harry Audacious Goal) you’d monitor it. Identifying your BHAG is frequently an element that gets left behind. Some people fear failure, others success. I’m sure in some cases one fear or another prevents business owners from identify a BHAG for the business. The truth is that identifying your BHAG has great aspirational and motivational energies. Being clear about what you wish to achieve, placing a benchmark somewhere in the future drives growth. The businesses that I’ve worked with that have been most successful have a clear BHAG. It simply produces better results because it inspires, drives ambition, and provides a healthy endeavor to achieve coupled with an eagerness/passion for the purpose of the business.
As a reminder on what your BHAG criteria should be, remember it needs to be:
- 10-30 years
- Challenges you to greatness
- Reinforces business fundamentals
Here are 3 practical tests of your BHAG:
- Your BHAG drives you and your strategy.
- It should be challenging enough so that you are not sure how you are going to reach it. But should not be just a wall poster!
- Be patient and persistent.”
BHAG can be just as challenging to get as Profit per X. It does not come quickly. But ask Fred DeLuca, co-founder of Subway and author of Start Small Finish Big how impactful it was and still is for the growth of his business. Subway has reached and morphed its BHAG several times. It was one of the inspirational elements Peter Buck used with Fred to help him develop and grow Subway into one of the fastest growing franchises in the world with 40,855 restaurants in 105 countries and territories. It is the largest single-brand restaurant chain and the largest restaurant operator globally.
Here from Verne’s Fortune magazine article are his insights on Measure your Profit per X and BHAG: And last, there is a key metric that defines the essence of your business model and is tied to your long range goal. Jim Collins calls this metric your Profit/X and your benchmark your Big Hairy Audacious Goal (BHAG). In the retail building supply industry, the key metric is same-store sales growth. Most BHAGs are opening some number of stores within 10 years. At BuildDirect.com, the business model is built around focusing on profit per “building product category.” And it has a specific formula for how to maximize this. To reach Fortune 500 status by 2023, Booth figures the company needs to build out 20 specific product categories, ranging from $500 million to $2 billion in revenue. Given its mastery of these seven strata of strategy, I wouldn’t be surprised to see BuildDirect.com listed in Fortune even sooner.
Does your business have a BHAG? Have you identified your Profit per X? As a business coach I’m frequently asked what can I do to grow my business? Strategy is all about top line revenue growth. If you want to grow your business, start with these Seven Strata of Strategy elements.
Next blog we’ll explore annual planning. Why if you haven’t already got your plan on paper you should.