Building a business around strategic commercial objectives

Building a business around strategic commercial objectives

Knowing when to stop something may be one of the most important life skills anyone can acquire. It can however be difficult for many of us to admit that the time has come to draw a line under certain activities whether it be a sales prospect, a sunset product we are unwilling to say goodbye to or a project that we have committed time, energy and resources to.

If we are given the opportunity to listen to somebody discussing the challenges they are experiencing cracking an account, watching sales of a product in freefall or dealing with a dysfunctional project, most of us would advise them to step back, review things in detail and avoid committing more time and/or resources until they have completed the review.

The prospect of being seen to give up on something goes against the grain for many of us. This is probably because there is a script in most people’s heads that says quitting amounts to failing when they are in fact very different things that only overlap some of the time.

 

Rationale and diminishing returns to scale

We are meant to behave as rational actors but few of us do. We all have inherent biases and often persist with ventures for no logical reason. While credible scientific research is designed to avoid confirmation bias, in business, we frequently witness otherwise rational actors seeing what they want to see in the numbers and ignoring evident, inconvenient truths in the process.

JS Mill, the 19th century philosopher and political economist talked about homo economicus, the so-called economic man that is directly influenced by incentives and disincentives and adjusts his economic behaviour accordingly. The difference between quiting and failing very often lies in how far our actual behaviour veers away from such rationality. The great failures we hear about typically revolve around people that do not act decisively when dealing with evidence that a venture’s prospects of achieving its objectives appears to be irredeemably weak and the case for continuing at any cost simply makes no commercial sense.

 

Prioritising core business objectives

Much of this expended energy, emotional and physical is avoidable.

There are three universal principles that should be applied to all business activities (to varying degrees of detail depending on the context) and they all relate to the relentless implementation of the commercial strategy for the business. The principles are:

Focus on the business plan: the rhythm of the business should be built around the delivery of the strategic commercial objectives of the business.

Actively manage risks: the vast majority of the risks being managed should focus on mitigating the risk of not achieving the commercial objectives of the business. Whilst there are other risks that can be materially important, most if not all ultimately relate to threats that have the potential to prevent the organisation from achieving its objectives.

Strong governance over execution: regular planned oversight of the key strategic initiatives and of steps being taken to mitigate risks to achieving the commercial strategy keeps the focus on the objectives that both matter and make a difference.

 

Fostering a decision making environment

When these three principles are embraced and systematically feature as part of a company’s management ethos, objective results rather than subjective sentiment drives how company resources are deployed over the long term. This helps to avoid the kinds of situations where it becomes necessary to stop a project or close a product because these decisions get taken earlier and on the basis of business strategy.

Some of the great successes in business have come from people following an instinct or by accidents. What should never be overlooked however is that success followed for these businesses. We rarely dwell on the innumerable examples where events have played out less happily. For most small and medium sized businesses, outlier examples rarely constitute the basis on which to plan for sustainable, long-term growth. This is why knowing when to draw a line under something is just as important a measure of sound business judgement as the more lauded traits that tend to be more commented upon.