Chapter 4 -
Strategic planning

The principal function of a business plan is to establish that a particular line of business is viable in the marketplace and that there’s sufficient financial and management strength to support it. In many ways, it’s a justification of a predetermined goal. Setting that goal and mapping your steps to achieve it are principal purposes of strategic planning.

Strategic planning and business planning are not the same. You use strategic planning in the formulation of a business plan, but it’s a valuable day-to-day tool as well. Although business planning leads to a specific document, strategic planning is more of a process. The result of strategic planning may be a mission statement and action plan on which you base your business plan, but the value of strategic planning is broader. It lies in changing the way you, your managers and your employees think about their jobs.

Strategic planning sounds very lofty and perhaps a little too intellectual, but in reality it uses some tried-and-true approaches that you can adapt to your own situation. Contrary to its image, strategic planning is not unfocused daydreaming. Although you can come up with some great ideas when you allow your mind to wander, strategic planning doesn’t rely on sudden revelations.

Finally, strategic planning is one way to begin the business planning process, but not all business plans require formal strategic planning. If, for example, you must decide in a matter of days whether to act on an opportunity or to resolve a threat, you have no time for a thorough strategic planning effort. You must rely on your experience in trucking and your knowledge of the market to skip the strategic planning and go right into writing or updating your business plan.

Consider your mission
Begin the strategic planning process by envisioning your company’s future. Do you want to specialize or haul general freight? Will you commit to serving every customer with a company truck or build flexibility by brokering freight or hiring owner-operators? Should you provide coast-to-coast service or specialize in regional hauling? Will you hang your hat on some aspect of service, such as fastest dispatch, guaranteed on-time delivery or logistics management?

Of course, some aspects of your vision may be more personal and not really appropriate for including in a mission statement. Perhaps you want to reach a certain number of power units or employees within a given time. Maybe you want to remain small enough to maintain personal control over the entire operation. Or perhaps you don’t care who runs the company as long as you make lots of money and see your company’s name splashed across hundreds of trailers from coast to coast.

The mission statement won’t reflect these secret desires, but they are important considerations. As you develop your strategy, don’t forget to weigh it against these unspoken goals.

Your next step is to assess your proposed mission in light of a frank and honest review of your management, financial and marketing resources. Only by comparing what you have with what you need can you settle on an appropriate mission statement.

Include everyone
Invite your whole company — key managers, if you have any, as well as representatives of dispatchers, drivers, mechanics and other staff — to participate in strategic planning. Each worker’s perspective on the business is different from yours. Perhaps more important, they have access to information that you don’t because they deal more directly with problems than you do — or because people tell them things they are afraid or too polite to tell you.

Dispatchers have insights into equipment utilization and both shippers’ and drivers’ attitudes toward your company. Drivers also may have something to say about your customers and about how you could save time in routing, loading and unloading. Both drivers and mechanics can tell you about equipment performance and reliability, and mechanics can pinpoint parts and systems with longevity problems.

If these don’t sound like strategic issues, understand that setting an overall strategy is only one phase of strategic planning. Specific objectives and the day-to-day tactics to implement them often are quite simple and down to earth. Also, you include everyone not just to get different points of view. These are the people who must implement any strategy you set, so it’s important to include them in the setting of that strategy.

Many planning experts recommend formal planning sessions, perhaps even at another location, so that participants can separate their daily chores from longer-term problem solving. Scheduled meetings in a casual atmosphere are a good idea, particularly if you anticipate strong resistance to change or finger-pointing among your people regarding problems. You might even want to hire a professional facilitator if you expect discussions to become heated. Set aside at least a full day of planning, preferably two, so that you don’t feel rushed.

The formality of scheduled meetings might seem intimidating and perhaps even silly for a small trucking company that has few, if any, layers of management. If formal strategic planning sessions seem inappropriate, consider posing your questions to other managers and employees casually, individually and over a period of time. But in general, formal planning sessions likely will be more productive and efficient than a casual approach.

What are your SWOTs?
You have brought all your key people together; now what? Begin by explaining the market and economic developments you have unearthed so that everyone can begin the process with a common understanding. This may lead to a discussion that produces still more market intelligence. Employees often don’t recognize the value of some of the little tidbits of gossip they pick up routinely. Showing them, for example, how you see an opportunity in construction of a new assembly plant near a receiver’s facility may spark some “outside the box” thinking.

Next, it’s time to begin analyzing your preferred goals in light of a frank assessment of your company’s strengths, weaknesses, opportunities and threats — commonly called a SWOT analysis. This exercise, fundamental to strategic planning, works best when you have broad participation from your company’s work force. The more narrow the interests represented, the more likely your assessment will ignore some important realities.

Although one goal of your SWOT analysis is to prepare and confirm a mission statement, it’s a valuable tool for identifying short-term opportunities and threats that may crop up.

Strengths generally benefit you now and may include both internal and external factors. Strengths aren’t necessarily exclusive to your company. A strong market for construction materials, for example, would be a strength for a flatbed carrier, even though other flatbed carriers benefit as well. Other strengths might be low driver turnover, a stable and long-standing customer base, high equipment reliability and low debt.

Weaknesses are current problems. High driver turnover, poor loss control, a young and inexperienced management team, and poor equipment utilization are examples of weaknesses, as would be any problem — high fuel prices, for example — that affects trucking companies in general.

Opportunities and threats are future-oriented, even if that future is next week. An opportunity could be a new industry coming to town, acquisition of a smaller trucking company whose owner is retiring or a chance to refinance debt at a much lower interest rate. Unlike strengths, which can be general and ongoing, opportunities are specific and may be fleeting. Some opportunities may be available for years; others require action within months — or sooner.

Threats, too, can be long or short term and are specific in nature. Major expansion of a competitor, resignation of your key contact at your biggest shipper, severe compliance problems that could draw stinging enforcement action or a lawsuit that threatens to sink your company may pose a threat to your business.

By listing your SWOTs side by side, you can develop or confirm an opinion about your likelihood for success.

Record SWOTs as meeting participants propose them. Once this brainstorming is completed, discuss each and reach a consensus, if possible, on whether each item truly is a strength, weakness, opportunity or threat. Sometimes, however, you may need to list, or not, an item in the face of vocal opposition. You can’t afford to ignore a threat or weakness just because it embarrasses an employee or group of employees. One of the reasons you include every department and all stakeholders in this meeting is to protect yourself from accusations that you never considered a particular point of view.

Define your mission
The SWOT analysis provides a “reality check” for your mission statement. If, for example, you plan to market your company as the lowest-price carrier in the Southeast but you operate new, driver-spec’ed equipment, pay competitive wages and carry a huge debt load, something has to give. Either you will fail to make good on your mission statement, or you almost certainly will go out of business.

Or suppose you promise maximum reliability, but your turnover rate is so high that trucks often sit idle, and your equipment is so old that you suffer frequent breakdowns. You can proclaim reliability, but it won’t take long for shippers to realize that it’s an empty promise.

You must match your mission statement with your capabilities, either by defining a mission that you can deliver now or by changing your business to reflect your preferred mission. Many mission statements lack the grounding of a SWOT analysis, so they are meaningless; managers and employees often ignore them or even ridicule them. A good mission statement is one that truly describes what your trucking company strives to be, providing everyone in the company with a set of priorities.
In short, your mission statement sets the standards against which you and your company are to be judged. It establishes the:

• Fundamental reason your company exists
• Range and scope of your services
• Type of customers you serve
• Areas of specialty, if any
• Your future direction

The mission statement is more than a marketing tool; it lays the foundation for specific objectives and tactics.
Your mission statement should be simple, preferably one sentence and never more than two. Avoid flowery or bureaucratic language that does nothing but lengthen the statement and makes it harder to understand in a single reading. And be as specific as possible; the more vague your promise to customers, the more difficult it is to define success. Consider the following examples:

1. “SCU Trucking Co. is dedicated to the proposition that all customers will receive value-oriented, individually designed, quality-managed service under conditions and time frames specified by the customer.”
2. “SCU Trucking Co. strives to provide the most reliable refrigerated truckload service east of the Rockies.”

Which is a better mission statement? Besides the fact that No. 1 is virtually unreadable, it says nothing. Change the name from SCU Trucking to SCU Inc. and this could just as easily be a barber shop as a trucking company. Even if you know that SCU is a trucking company, you don’t know what or where it hauls. Yet many mission statements are hardly any better.

No. 2, however, is simple and brief. In one sentence, you know what this carrier is all about.

The one piece of a mission statement that is almost never printed but always assumed is that you intend to make a profit. This point may be obvious, but it’s important to remember as you develop the strategy for making good on your mission statement. Given enough money, anyone can be the best. Some of the actions you take to implement your strategic plan will address profitability, even though it appears nowhere in the mission statement.

Develop objectives
Now you must establish some general objectives for translating the mission statement into actions. The objectives, sometimes called key result areas, establish the broad grouping of the results that the company must achieve to deliver on the overall mission and to overcome any weaknesses or threats to that mission.

Each objective should capitalize on a strength, take advantage of an opportunity, correct a weakness or overcome a threat. To keep your focus, try to limit your objectives to between six and 12. Your objectives should be:

• Measurable, tangible or verifiable
• Tied to a time frame, including a completion date
• Specific in terms of money, personnel resources or other costs you expect
• Challenging and motivating in order to stretch everyone beyond current performance
• Realistic and attainable
• Consistent with company plans, policies and procedures
• Specified in writing, outlining clearly who is responsible for what

It takes time and effort to set balanced objectives. It’s pointless to set objectives that you will achieve automatically, and it’s futile to set objectives that are impossible. You want to motivate your managers and employees without destroying morale.
Using mission statement No. 2, what might be some objectives for SCU Trucking’s goal to be the most reliable refrigerated truckload carrier east of the Rockies?

One objective might be to achieve on-time delivery of greater than 97 percent within six months. Another might be to deliver goods at least 99.8 percent of the time without any loss due to poor temperature control or equipment failures. These and other objectives relate directly to your mission.

Other objectives might be directed at capitalizing on your mission statement. Promoting your reliability to customers, for example, is a good objective. Another group of objectives might be aimed at cost-savings and profitability — reducing total operating costs 5 percent per year, for example.

Outline tactics
To accomplish each objective, establish a tactical plan. Tactics are the day-to-day steps needed to achieve a goal. Consider SCU Trucking’s goal of accepting all loads offered. For many trucking companies that’s quite an ambitious objective.

How would you accomplish it? One tactic could be to give dispatch more detailed and specific information on the status of current loads by installing a vehicle locating system or by making sure that you have two-way message or voice communication with your drivers. Better mobile communications might allow you to accept more loads with existing equipment. Another tactic might be to keep one or two trucks — and drivers to fill them — in reserve at any given time. Or maybe you choose to broker excess freight to independent owner-operators or other small fleets.

To achieve 99.8 percent delivery without damage or loss, perhaps you invest in the newest reefers or sophisticated trailer tracking products that let you monitor temperature and humidity. Or maybe you train drivers to monitor climate frequently and award monthly or quarterly bonuses to drivers who had no cargo losses.

Each tactic has a benefit and a cost. In general, you want to choose the least expensive tactic that achieves the objective. If, for example, cellular telephones will be just as reliable and effective as a more expensive satellite locating system, maybe that’s your best option.

But you should assess each tactic’s costs and benefits broadly. Cellular telephones, for example, might be the most cost-effective locating technology for dispatch. But if another objective is promoting your reliability, you can accomplish that goal in part by giving shippers the ability to check load status through your website. If the marketing benefits are great enough, your best choice may be a vehicle locating system that will allow shippers and receivers to request status reports.

Similarly, make sure that the tactics for different objectives don’t conflict. You can save money on financing costs, for example, by extending your trade cycles. But that decision might drive up maintenance costs and — more important for your strategy — cut into vehicle uptime. And older equipment might work against the perception of reliability that you are spending so much money to promote.

Although you should be aware of the general costs associated with each tactic — including any additional personnel you will need — it’s not necessary to fix exact costs at this stage of your strategic planning. As you translate your strategic plan into a budget, however, make sure income and expenses balance. If the total cost of all your tactics plus your normal operating and financial costs exceeds your projected income for years to come, then you will need to make some adjustments.

Assess personnel needs
You have defined your company’s work for the next two or three years. Now you must ensure that you have the resources and management systems in place to complete the work. You already have estimated roughly how much money you need; as you complete your business plan, the financial picture will be clearer. But your business plan isn’t just about money; it’s also about management.

You need an organizational chart. Whether or not you have a formal organizational chart now is irrelevant. With your strategic plan, you are, in effect, creating a new company. You must assess your management and personnel requirements in those terms; you need an organizational chart for that “new” company.

Look at each tactic and objective. What managers and employees do you need to implement each, both initially and on an ongoing basis? Obviously, if you are developing an entirely new line of business you will need at least one new manager and some employees.

For tactics that are mostly an expansion of an existing department’s responsibilities, estimate the person-hours each task requires per week. Establish a reasonable workload for each position. Maybe it’s more than 40 hours a week, but certainly it shouldn’t be 80 (except maybe for you and others with equity on the line). Then divide total person-hours by that number. That’s the number of managers and workers, give or take one or two, you will need. (Depending on your operation, of course, your upper limit for driver hours probably is set by federal hours-of-service regulations.)

Taking into account the personnel requirements for your strategy, prepare an organizational chart. Better yet, consider asking someone who doesn’t know your existing structure to prepare a chart; even in the context of strategic planning, it’s difficult to conceive of a different structure than the one you have used for years.

Once you have a preferred organizational chart, compare it to your existing structure. How close are they? Does the new chart require more people or fewer? If you are even marginally profitable now as a small trucking company, the new chart probably will show more people. Because each truck needs a driver, trucking inherently tends to match personnel resources with revenue — at least when you are small. As you grow, the challenge becomes knowing the appropriate number of managers to put between yourself and your rank-and-file workers.

If the new organizational chart shows the same number of or fewer people despite the fact that you plan to grow, you may have a productivity problem. Maybe you have too many managers on payroll or your equipment utilization is poor. If you are making money despite these inefficiencies, perhaps you don’t care today. But if you don’t improve productivity as you grow, it will be difficult to make money.

Follow through
You can’t be sure that you have succeeded with your strategic plan without measuring your performance. Following through on your strategy means adopting a management process that measures your progress in completing the tactics and objectives. Establishing a chronological action plan (discussed in Chapter Eight) will help you stay on top of not only what must be done but also when it must be done.

Judge the performance of each department, manager and employee in terms of how much it or he has helped you achieve those objectives. Any bonus program, for example, should reward individuals for helping achieve each tactic.

SCU Trucking might reward drivers for eliminating operator-induced cargo losses and for on-time delivery. It might reward dispatchers as well for on-time delivery and for accommodating all loads. The company might give bonuses to mechanics if the fleet experiences no vehicle breakdowns or reefer failures during a particular period.

Although monitoring tactics is essential, you must measure progress in achieving objectives. Suppose you achieve 100 percent compliance on your tactics but still didn’t achieve your objective — 97 percent on-time delivery, for example. That says that your tactics weren’t sufficient to deliver the objective — or perhaps that the objective itself was unreasonable. Either way, it’s time to re-evaluate your strategic plan to see whether other tactics will help you achieve your objective or whether you need to adjust your objectives.

Finally, you must determine whether meeting your objectives has been sufficient to guarantee success. Have you generated new business? Have you retained business you previously considered to be threatened? Are you more profitable now than you were a year ago? If you are no better off — or even worse off — today than you were before you implemented your strategic plan, then you need either stronger objectives or a different strategy.

The strategic planning process

In Summary
Strategic planning is a vital first step in preparing your business plan, and it’s a great management tool at other times. Ideally, you should pull together representatives of your entire company to assess your strengths, weaknesses, opportunities and threats. Then you must define your company’s mission and determine the steps to complete it. Monitoring your performance in carrying out your strategy helps you determine whether your strategy is correct.