Is Your CEO Going to Be Removed?

It is strategy planning and budget time again. Do you find your strategic plan and budgeting is not that dissimilar year upon year? Keeping the status quo is fine if your brands are at the top of their areas but if not, doing roughly the same thing year upon year will make it difficult to realize changes and this can undermine performance results.

This article was originally going to be titled ‘Is Your Strategic Plan and Budgeting on Autopilot?’ however, another way this could be put could well be ‘Is Your CEO Going to be Removed?’ and so I changed it to this, because this is what we saw happens in companies sticking to the same rough plan and budget year upon year.

The reality is that the long-term success of a company is dependent, to a significant extent, on their strategy.

Let’s compare two different companies, who shall remain anonymous to protect the guilty.

The first one has a range of products and every year they do their strategic plan and every year and allocate their budget making small changes but roughly following a similar approach. Sound familiar? I hope not.

The other company runs analytics and continually analyzes the results of the business units and changes or just tweaks the budget allocation based on strong analysis of each products and units relative market opportunities. Funnily enough, the second company is growing significantly more than the first one who appears to only post profits from cost cutting exercises. The second company, although having been roughly the same size as the first a few years ago, is now worth close to 65% more than the other company. This is not surprising but sadly many pharma companies fit far more closely to the first, rather than the second, company.

McKinsey reviewed 1600 US companies and found that for 33% of these, the amount of capital received each year was almost exactly that received the previous year with a mean correlation of 0.99. So what this means is that despite all the strategic planning and budget allocation exercises that surely the majority of these companies do, only small changes in allocation occurred and in many, they remained exactly as they had been. Given how much better companies who actually seriously examine the market and the opportunities each year perform compared with those that simply paying these items lip service and rehash what was already done, it is surprising that companies are not doing everything within their power to change this. By the way, McKinsey found this across all industries including ours. Another interesting finding from this was that companies that made large changes in resourcing annually with an average of 56% change earned on average 30% more returns to shareholders. In addition, the companies making significant reallocation were 13% less likely to be hostilely taken over, or go bankrupt. And finally, CEOs who reallocated less in their first 3 years on the job were significantly more likely to be removed in years 4-6.

I am sure everyone believes that they do not make these mistakes but given both the studies in the area and what we have seen prior to implementing AI analytics, the chances are you probably do. Because when you think about it you have two choices: Allocate where you will reap the biggest financial rewards, or risk the market making decisions on your results for you. And we are not saying every year you need to complete change everything but you should be really looking at what you have invested where and whether it makes sense. Therefore would like to suggest a few things to assist overcome this handicap.

1. Decide on your goals. Do not make these plus or minus something from last year but really look at the market, the size, the expansion or contraction, where you sit, what competitor share is vulnerable etc. Then see what makes sense for a lofty goal. You need to know where you are going if you are going to get there.

2. Use strong big data and AI-powered analytics. Use whatever good analytics tools you have access to in order to assist with this process. Guessing is not an option. By using powerful tools you will know both what is possible and what sales ad marketing activities and budgets are needed to get there.

3. Create discipline around budget allocation. You sometimes see the voices that shout the loudest getting the most budget. By ensuring that analytics are used, more objectivity rather than emotion will be called into play in the allocation process.

4. Create systems to help implement the plan including accountability for actions with time lines. AI actually can now write the recommendations from the output already. In fact one firm I interviewed for the Eularis Members Club actually have an amazing solution that most o the big 5 management consultants now use to automatically write their recommendations now.

I am 100% certain that in the coming years, Artificial Intelligence (AI) and Machine Learning as well as Natural Language Processing (NLP) and Robotic Process Automation (RPA) will be playing a significant role in our strategy creation and implementation. In fact, I would go as far as to say that it will automate the whole process in the not too distant future. Data from numerous sources will be automatically fed in, number crunched, analyzed and output recommendations made. This is already being done in elements of the planning process and the results are far more impressive than the human created versions that were the control groups.

I interviewed a company doing this in the Eularis Members Club this week and their results were amazing. They were not a cheap solution, be assured, but the sales lift and profit lift from their work were inarguable for the ROI. The final result of these kind of approaches will be strategic plans that are tailor made and take into account the data, the organizational resources and competencies, their competitors, the market, their customer influences and environmental factors (e.g. legal, regulatory, tech, demographics and economics).