To run a healthy business, firm owners need to have a good handle on what aspects of their business are actually working well, and where key parts of the business may be trending negatively, in order to implement improvements to whatever is most critically in need of change. But if business owners don’t have a clear handle on the data and Key Performance Indicators that drive the business forward, making decisions about which areas of the business to improve can become unwittingly arbitrary and unfocused. As a result, good strategic planning isn’t just about trying to create the ideal “One Page Business Plan”… more directly, it’s about advisory firm owners figuring out which are the right things to change, to ensure that the decisions they make really do impact the business in the most positive way.
In this guest post, Angie Herbers – Chief Executive and Senior Consultant at Herbers & Company, an independent management and growth consultancy for financial advisory firms – discusses the Key Performance Indicators to track, and the key questions to ask that focus on three principal business planning phases: Strategy, Management, and Innovation (SMI). By examining each of these key areas in sequence, firm owners can develop workable strategies to tackle the most relevant problems that may be impeding business growth.
The phases of the SMI process begin by examining Strategy, which involves identifying the most relevant – and measurable – problems of the firm and the Key Performance Indicators (KPIs) that will be used to measure the efficacy of the Solution to be implemented. The Strategy phase involves choosing a Solution that will fix or mitigate the selected problem, the Tactics to use to implement the Solution, and the expected Trend of how the KPIs should move to monitor the efficacy of the Solution. (A key point, as many firms implement solutions without a framework to track whether they’re actually working to achieve the desired results!)
When assessing their firm’s Management, financial advisors often consider what is most urgent and important in the present moment, but it’s crucial to also recognize the important-but-not-urgent that may be holding them back from really solving the firm’s challenges, including and especially identifying any broken systems in the company’s infrastructure. By addressing issues that detract from a well-run Management system, the firm will be able to effectively focus on the other phases of the business planning process.
Using Innovation to improve the business begins with identifying the firm’s competitive Advantage in client service, generating Ideas to win with the firm’s main Advantage (as in practice, most advisory firm innovation is about doubling down on what the firm already does well, not creating something entirely fantastical and new!), and then selecting one – and only one – idea to implement. For some ideas that are more complex or potentially expensive, the firm may also need to conduct some degree of market research to choose a Delivery process to execute their ideas most effectively.
Once the firm has reviewed their SMI elements, the next step is to take the information gathered from the process to develop the right goals for the business. Goals for each phase of SMI can be identified and monitored, and once those goals are accomplished, the firm can then revisit the process to reassess their SMI areas to identify further areas of focus.
Ultimately, the key point is that business planning with the SMI model can help financial advisors choose the right problems to target and strategies to implement in order to improve their firms, by guiding them through a systematic process to outline objectives for where they are now, where they are trying to go, and how they are different. And by identifying the most salient problems and establishing the right goals for the firm, advisors can facilitate efficient growth and ensure that their client service continues to operate at a high level!
Business planning is an important exercise for every advisory business; there’s no other way to approach building a successful firm than to know where to put your focus to improve your growth.
But with that said, not all business planning is created equal — and there are a lot of business planning tools out there. Some especially popular approaches include the Entrepreneurial Operating System’s Traction method, where a business attempts to become great at executing a shared vision and tracking milestones, and the one-page business plan that has been described in places like the Harvard Business Review, which succinctly establishes a firm’s strategy for growth.
While both of these tools can be very beneficial for advisors who want to grow their businesses, they don’t really get to the core of a business and their “why”. At Herbers and Co., we believe that asking the right questions to get to the root of “why” is a better way for a business to decide where it needs to focus in order to achieve growth.
Financial Advisors Can Improve Their Company’s Performance By Assessing Strategy, Management, and Innovation (SMI)
Great business planning revolves around a series of questions. You have to know the right questions to ask yourself so you can understand what’s happening in your business. Once you understand what’s happening in your firm, you can then begin to make improvements, solve your problems, and expand your growth.
Through decades and countless hours of helping advisory firms scope out their growth, we have determined that the combination that leads to sustainable growth is asking questions in three business planning areas. Those three areas are Strategy, Management, and Innovation. Over the years, our clients have come to know it as “SMI”.
Understanding the best way to go about business planning is especially important in today’s environment because the wealth management industry is in a state of rapid change. Advisors who don’t understand how to position themselves within that change will find it harder to attract new clients, and even to keep the clients they currently have.
Today, many firms are already reinvesting in themselves to get bigger, better, and even more competitive than they already are. If firms want to compete in higher tiers, they’re likely going to need to plan their business to operate better than how they work today. To help you think deeper about your planning for the coming year, here are the essential questions included in SMI.
To begin assessing how best to identify a company’s focus for growth and/or improvement, we look at a firm’s Strategy with a simple grid, like the one below.
This grid guides us to ask the right questions for growth.
Major Key Performance Indicators (KPIs) Evaluate Company Performance
We begin with KPIs, or Key Performance Indicators. As the name implies, KPIs are the firm’s key data points, amidst a sea of available data, that can be used to quickly assess the key aspects of company performance.
In other words, KPIs are the metrics used for tracking and understanding movements in revenue, profit, gross margin, capacity, retention, lead flow, etc. There are others, of course, but the ones mentioned are a good starting point. The health of these metrics – profits, margins, capacity, retention – can quickly provide perspective on the overall health of the business.
From a strategic planning perspective, the first question to answer is which of these areas are experiencing problems? It could be that the firm is experiencing falling revenue or a low lead flow. Whatever it is, the first step is to determine what KPIs in your firm are moving in the direction that you don’t want them to go… and then to determine how to change the direction they are going.
When doing business planning, we start with the numbers because we want to create logical solutions that are measurable for what we are trying to accomplish. Many advisors don’t look at the numbers at their own peril. They operate off their intuition, thoughts, feelings, and gut instincts. While those can work sometimes, particularly when a firm is smaller and the advisory firm owner directly touches every aspect of the business themselves, personal intuition insights break down as the business gets bigger. And they simply aren’t as reliable as looking at cold hard facts.
Additionally, we also have to solve problems in a business with an understanding of what our drivers of growth are, and what they’re doing in a given time. If you have falling revenues, for example, we need to find solutions to move this KPI.
Solution Identifies The Primary Area Of Focus To Improve The Business
That brings us to Solution. Falling revenues may be indicative of low lead flow or of clients leaving. We may need to increase our lead numbers by adding a more comprehensive marketing strategy and/or increasing our client service to generate more client referrals to reverse the trend of clients leaving the firm.
There are hundreds of solutions to solve the problems but, to begin, we must first determine where the problems are, so our solutions can impact the actual problem we see in the data.
As I have written many times, there is rarely one Solution for every problem. Once an advisory firm finds the problem, it’s important to list out all the solutions. Once you have a comprehensive list of solutions, you will have a broader perspective on which of those available solutions are the most reasonable and realistic to implement.
A good example is increasing revenue. You may not have the capacity and resources in your firm to implement a robust marketing plan. But the good news is that there are hundreds of other solutions out there that might make an impact on increasing revenue, all without relying on a marketing program! Some of these solutions may include expanding connections with Centers Of Influence, finding a referral partner, asking clients for referrals, etc. When looking for solutions, the goal is simply to list all the solutions and then pick one. For the purposes of this article, let’s assume we are going to build a marketing plan.
Tactics Define The First Step To Implement The Solution
Once you have picked Solution(s) to address the KPIs representing your primary problem(s), the next step is getting started. To get started, you'll move your business planning into the Tactics phase.
In this phase, list the first step of getting your Solution implemented. What is the first step — not all the steps — that we need to do to get our Solution in place? If you determine your first step truly is marketing, writing a blog might be the first action identified in the Tactics phase.
A common mistake many firms make in business planning is trying to map out all the steps at once… and then trying to do them all at once. When you do this, the business planning never tends to get in motion.
Therefore, while the inclination may be to map an entire plan of action, the goal simply is to get started. Picking one step – the first step – will get you going. From there, you are building onto the solution as you implement it. This keeps the business moving forward instead of becoming stuck in planning and getting nothing done.
Trends Measure The Efficacy Of Chosen Tactics
After the first step is identified in the Tactics stage, we then finally determine how we want to track the Trends that will influence how our KPIs will move.
If we identified falling revenues as the major KPI tied to our firm’s main problem and decided our Solution was to address marketing by implementing the first Tactical step of writing a blog, then we would also want to identify the Trends to track the impact of the blog.
In this case, we can examine the marketing Return on Investment (ROI) of the changes we are making. How much will writing a blog move the revenue, and how many clients do we think we need to get from that trend? To increase revenue, we may anticipate that the lead flow of prospects would increase by 10%. This would be your best guess, of course, but it gives you a starting point to measure progress. It also gives you an opportunity to confirm your “guess” with outside data.
In the case of a blog, the lead flow increase is likely going to take time and, after doing some industry research, you might find that starting a blog will likely only increase your lead flow by 9%, assuming you did it consistently for eight months. This helps you gain a deeper, more realistic perspective of the impact you may be able to make on revenues.
Strategy questions are an important first step to your business planning, but you can’t focus on Strategy alone — after all, you have an existing business to manage! You need to continue to manage it and carry on with daily responsibilities. The next part of business planning, Management, helps you do that.
The Management phase answers the question, “What is most urgent and important right now?”
In other words, assessing the company’s management helps us to see what’s holding us back from dedicating 100% of our time to any strategy established in the Strategy section. It helps you create space for more strategies to be added to your business by identifying the core infrastructures in a firm that may be broken.
The questions that make up the Management phase of Business Planning look like this:
SWOT Analysis Helps Identify The Most Urgent Management Issues
Let’s look at the past year we just experienced as an example. If we do a SWOT Analysis and ask what was most urgent, every firm would most likely identify the same weakness as the most important issue impacting Management: Dealing with destabilization caused by COVID-19.
Immediate Needs Reveal What Needs To Be Done To Address Management Issues
The Immediate Needs that had to be addressed due to COVID-19 were to update continuity plans, develop remote work protocols, and get employees set up to work outside of the office. These were the most pressing needs identified as keeping the firm from dedicating time to execute the Solution identified in the Strategy phase.
In tandem with addressing these needs, many firms were re-establishing their client journeys to take place in a fully digital world instead of one that involved in-person human interactions.
Fixing Broken Structures Allow Firms To Focus On Strategy And Innovation
After a SWOT Analysis is completed and the Immediate Needs are dealt with, the final question is, “What Structures were revealed as broken?”
In response to COVID-19, those Structures were overwhelmingly related to continuity plans and remote work. In the case of COVID, the immediate need was to execute the continuity plan already in place and get remote. But it’s likely you learned important lessons in executing the continuity plan you had. Therefore, structural changes are updates to the continuity plan based on what did and did not work. For example, many firms may have had cybersecurity protocols in place that would have gotten them through a short-term disruption in the office, but far fewer had robust plans in place to move their businesses to each employee’s home for the duration of the year.
COVID-19 was such a destabilizing event that many firms spent all of 2020 working on Management issues and putting their Strategy phase on the back burner. While all of us want to be strategic in our business, the harsh reality is that we must evaluate Management based on what is happening today. Business Strategy tends to be forward-thinking, but effective business Management deals with the issues happening today.
Once a firm can deal with what it has going on today in the Management phase, it will then be ready to go deeper and innovate.
In the popular consciousness, ‘innovation’ might mean something that has never been seen or done before. But, in wealth management, the word doesn’t mean exactly the same thing. For an advisory firm, Innovation can simply refer to something that has not been done in the firm before.
And most often, it is all about improving and going deeper into client service. In fact, when we work with firms on Innovation, we often focus on how they can expand and improve their client service. Once you’re ready to Innovate, you should be asking yourself these questions:
Competitive Advantages Are What Sets A Firm Apart From The Others
When it comes to Innovation, every firm is quite different. To begin, we must determine your Advantage – what truly makes you different?
Is it how you do tax work, how you approach client values and goals, and/or is it your holistic process? There are thousands of possibilities.
Selecting One Single Idea At A Time To Leverage Your Advantage Helps Firms Focus On Improvement And Growth
Once you determine your Advantage, you can then start to list the Ideas to improve your Advantages. A big mistake that most firms make when business planning is trying to create something brand new instead of Innovating by iterating on what they already do well.
If you identified the outstanding tax work you provide to clients as your primary Advantage, do you really need to add a 401(k) plan management service, or could you generate more growth by expanding your tax planning services by offering in-house tax preparation for clients integrated with the financial planning process?
Most advisory firms are not short of ideas to improve and grow. However, many firms are not focused enough for their Innovations to make an impact. Therefore, once you list out all the ideas you have, pick one. Yes, one.
Research Is Sometimes A Crucial Step TO Execute Complex Ideas
Once you pick the Idea you want to implement, you may need to do Research. Not all Innovation Ideas will need market research, such as innovating by adding in-house tax return preparation to an existing tax planning service.
But the big ones, like investing in the creation of proprietary technology to make your client experience more accessible, would certainly need market research. As a general rule of thumb, the bigger the project and the more expensive the innovation costs, the greater the need for market research will be.
Planning A Delivery Process Helps Firms Implement Their Ideas
But, let’s say you are simply going to add tax preparation services. The final question is, how do we Deliver it?
The simple answer to delivering it is simply doing it! But because many firms have a hard time executing their Innovations, the easiest way to start delivering is by writing down the first step.
Just like with the Strategy questions, to get started, all you need to do is write down the first thing you need to do. And, in this case, the first step would be looking at your organization and determining what talent you need to have to create a tax preparation department. I will assume you don’t have it, so the first step is hiring a CPA.
Pulling All Of The SMI Elements Together
Once your firm has created a Strategy, dealt with your current most urgent needs with Management, and decided what you want to Innovate, then you are ready to establish goals based on what you identified through your SMI business planning process.
By asking yourself the right questions, you get better answers to identify the right goals to tackle, and how you can improve your firm strategically and prepare for enhanced growth. And if you start with the right questions, you often get better answers to solve, enhance, and expand growth.
To make this even simpler for you, here are the questions you can always be asking yourself to stay focused, no matter what size your firm is today, and to identify the right goals for you to establish.
- What is the problem?
- How are we going to solve the problem?
- What are the steps we need to take to solve our problems?
- In taking these steps, how will our firm’s KPIs move?
- What is urgent and important?
- What is holding us back from dedicating time to our strategies?
- Are there any core infrastructures in our firm that are broken?
- What is our competitive Advantage in client service?
- How do we win, even more, with our competitive Advantage?
- What research do we need to validate we can win?
- How do we expand our market and/or serve more clients with our competitive Advantage?
As an example, once a firm’s SMI issues have been assessed, goals can be established within each of the SMI categories. Using the examples that we’ve discussed in this article to summarize the previous three sections, we can create a(n oversimplified) table to show how the firm’s goals might be organized.
Goals might look similar to this:
Once you’ve accomplished these goals, then it’s time to re-analyze your business plan and set new goals, building on what you have already accomplished. What has changed, what has worked, and what do we need to do next?
Why Strategy, Management, and Innovation (SMI) Business Modeling Works
No business can run without realizing that there are elements within it that can be improved. But too often, advisors come up with things to ‘improve’ that are based on no Strategy, Management, and/or Innovation considerations at all, or simply because another advisor they know is doing it. As a result, they end up taking actions that don’t really help their business.
On the other side of that, is the ease with which an advisor can get stuck on what’s immediately in front of them. It’s all too easy to get stuck in everyday management needs, and to delay and procrastinate because of the amount of work there is to do in serving clients… and never get around to the long-term strategic needs that actually move the business forward in the long run.
The SMI model can help us from getting stuck by guiding us through a systematic process to outline the objectives for where we are now, where we are trying to go, and how we are different. It compartmentalizes the parts of an advisory firm to give its leadership a broader perspective of how they are running and guiding their businesses.
When you use SMI as a cornerstone to your thinking and business planning, you ask yourself questions that help you get workable solutions. Done correctly, you give yourself a clear leadership view into the parts of your firm that are stuck or not moving in the direction you want. And from there, you can determine where your attention is most needed so you can grow your business and keep your client service operating at a high level.