Filling the Gap
Lear, Robert W., Chief Executive (U.S.)
Making a five-year projection of company revenues and profits is a comparatively easy task. You simply do a spreadsheet starting with last year's actual revenues and project it five years ahead at some double digit rate each year. (Fifteen percent is a good number to use because that brings a doubling in five years.) Then you do costs and expenses, holding them down because of expected efficiencies and volume. The difference, of course, is net income, which soars. Financial analysts, newly minted MBAs, and some CEOs are especially good at developing these figures.
At the same time, operating division heads and product managers have become quite skillful at the same art, but using a more conservative and pragmatic approach. These seers, who are also doers, base their forecasts primarily on those products, processes, and markets already in existence or specifically planned.
Put the two spreadsheets together and you will inevitably find a series of ever-widening, and sometimes alarming, gaps. And that is where the CEO test comes in-filling those gaps.
"What the hell is new and different about that?" an experienced CEO might ask. "For years, I've been hassling my operating people to lift their sights and produce really reaching targets. And for years, I've been giving analysts reality checks on their fanciful future projections for our company. Then, we go out and do the best we can."
In this era of rapid change in technology, technique, and tactics, simply doing your best in the same old way may not be enough. Today's competitive CEO has to ask his planners and doers some very hard questions and to come up with some very different answers. Here are some of the gap-filling questions you might be asking:
Do we have the type of new products under way in our Research Department that will give us the continuous revenue growth we need in the years ahead? What is happening in our industry that is new and scary-and what are we doing about it?
Do we have the distribution to market globally the increased quantities of products shown in our forecasts? Are we keeping pace with the new distributive methods of the Internet, the new types of retailers and chains, the new logistics, the new supply lines?
Do we have the plants and processes that can cope with Six Sigma competition, with the new foreign plants and costs, with the new mergers? …