Alternative Selection Best Practice 2 – Evaluate Everything

All business operations consume a portion of the organization’s limited resources and each presents its own value proposition. However, the strategic planning process often only considers newly presented initiatives and available resources in excess of those consumed by core business processes and previously approved ongoing initiatives. Such practices prevent organization leaders from considering the return on investment of emerging opportunities relative to those established functions; returns on investment that could be far more significant at equal or lesser risk. In order to recognize and be positioned to act on these truly game changing opportunities an organization’s leaders must evaluate all business operations and initiatives during its alternative selection process.[wcm_restrict plans=”40807, 25542, 25653″]
An Example

One acclaimed case of evaluating the value of all business operations is presented by Jim Collins in his book Good to Great: Why Some Companies Make the Leap… and Others Don’t. Here, Jim presents the example of Kimberly Clark, lead by then CEO Darwin E. Smith (1971 – 1991), who decided to divest the company of its low value-adding paper manufacturing assets in order to pursue the far more profitable paper products market. By evaluating the value contribution of all business operations and initiatives, Kimberly Clark executives positioned the organization to recognize and pursue that which was most profitable for the company. Indeed, Kimberly Clark realized cumulative stock returns that were 4.1 times the general market and significantly greater than its two leading competitors, Scott Paper and Proctor & Gamble, because of this change.

Implementing the Evaluate Everything Approach

Evaluating all business operations and initiatives on an ongoing basis is not as difficult as it might first appear. To do so requires development of a standard evaluation framework, typically that used for alternative selection and periodically updated operation/initiative evaluation forms. Data for the evaluation forms usually comes from the following sources:

  • Ongoing Operations: business financial (cost and revenue) statements
  • Ongoing Initiatives and Projects: project status reports
  • Proposed Initiatives and Projects: business case documents

Valuation of all activities typically occurs with the normal business planning cycle coinciding with the alternative selection process execution to minimize the administrative burden to the organization while still providing valuable insights at the time of need. Additionally, certain compulsory activities, such as those required by law, can be excluded from the evaluation.

Final Thought…

When evaluating ongoing operations and initiatives, care must be taken to prevent an overreaction to a momentary market or performance change. This risk is avoided in part by performing such reviews annually and considering even longer term trends.[/wcm_restrict][wcm_nonmember plans=”40807, 25542, 25653″]

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