No Moderat Substan

50 Red Flags for Concern e tial

1 2 Concern 4 Concern
Growth Stalls 3 5
1. Our earnings growth rate has outstripped our
revenue growth rate for five or more years.
2. Cost-cutting and/or productivity improvements
account for more than 50 percent of our year-on-
year earnings growth.
3. More than 50 percent of our revenues derive from
“formula roll-out” businesses that are five years old
or more.
4. [If publicly held] Our firm’s PEG rate (price/earnings
to growth) is 1.0 or under.
5. Our core business reinvestment rate (R&D + CAPX +
advertising divided by revenue) falls below its
historic range.
6. We rely on acquisitions to meet current-year revenue
growth targets.
7. Our dividend payout ratio exceeds 30 percent.
8. Our revenue projections for our three- to five-year
planning horizon do not explicitly link back to our
one- to three-year operational plan.
9. We have no formal corporate-level strategic planning
function.
10. Our strategic planning function’s budget and staff
are in multiyear decline.
11. Time and resources meant to be allocated to long-
term strategy and top-line growth drivers are
routinely diverted to annual planning and near-term
earnings concerns.
12. Our core assumptions and beliefs about the
marketplace and about the capabilities that are
critical to support our strategy are not codified or
otherwise written down.
13. Major issues relating to our strategy are “off the
table” for consideration; executives have intimated
that dissent is unacceptable.
14. We haven’t revisited our core market definition
(and, therefore, our list of relevant competitors and
calculation of our market share) in several years.
15. We have not revisited or refreshed our overall
company performance metrics in the past two to
four years.
16. We describe our core market as “mature”—a source
of earnings or cash flow; growth comes elsewhere.
17. We are not actively exploring new business models
within our existing core businesses.
18. Our organizational structure hinders us when we
need to adapt quickly to an external market or
competitive development.
19. We test only infrequently for shifts in key customer
groups’ valuation of product or service attributes.
20. Key customers are increasingly unwilling to pay a
premium for brand reputation or superior
performance.
21. Our executives lack effective (immersive,
experiential, or otherwise visceral) mechanisms to
directly engage with emerging customer and
product trends.
22. We do not formally track the trajectory of emerging
technologies with the potential to disrupt our core
businesses.
23. We do not track customer perceptions of the quality
differential between our offerings and those of low-
end and emerging competitors.
24. New entrants with new business models or
disruptive technologies are garnering an
accelerating share of the total market value of all
companies in our sector.
25. Market research and R&D do not have close, regular
coordination of their activities and agendas.
26. We are less effective than our competitors at
translating customer insights into new product and
service categories.
27. We’ve recently cut our R&D budget well below its
historical range and below that of competitors.
28. We lack adequate visibility into the business unit–
level R&D bets being made across the company.
29. R&D spending is so decentralized that we struggle
to direct sufficient resources to significant
opportunities for differentiation and growth.
30. We view many market opportunities as "subscale": our
R&D shop and innovation processes are geared for larger,
more complex customer problems and opportunities.
31. We are terminating too many product or service
initiatives because their “time to material impact” is
too long.
32. Too many of our new product or service
introductions fail to achieve expected returns, due
to volume and/or pricing shortfalls.
33. We have not been able to synchronize our internal
innovation cycle with the requirements of the
external marketplace.
34. More than 70 percent of our sales are dependent on
a single, dominant distribution channel.
35. More than 25 percent of the sales growth in our
industry over the past three years is through a
product/service category or distribution channel we
do not currently utilize.
36. We are largely unable to self-cannibalize existing
revenue streams in favor of new products and
services.
37. Our new product and/or service sales are slowed by
housing them within existing business units.
38. We have a stated or unstated bias to promote from
within that disadvantages highly qualified external
candidates.
39. Our formal HR systems (e.g., job descriptions,
competency models, and promotion criteria) lag our
emerging strategic and operational requirements.
40. In identifying our high-potential employees (HIPOs),
we overweight current business model
competencies and underweight required future
competencies.
41. Employee engagement scores (or other proxy for
employee commitment) for our most critical talent
groups are low and/or declining.
42. Our future success is highly dependent on the
continued productivity and contribution of a core
group of specialized, hard-to-replace employees.
43. More than 60 percent of our senior leaders have
twenty or more years’ tenure with the company.
44. Our leadership team has been stable for many
years; all but a few members of the group have
worked together now for years—if not decades.
45. We are not effective at recruiting/on-
boarding/retaining senior hires with new skill sets
and profiles.
46. Our CEO has such force of presence and influence
that his or her views on strategy tend to discourage
discussion and debate.
47. Our board does not include strategy challenge and
assumption-testing in the list of risks it manages.
48. Our board considers only financial objectives, and
not attainment of strategy goals, in performance
management and incentive schemes for senior
management.
49. Our board lacks sufficient market knowledge and
diversity of experience to challenge our strategy.
50. We do not actively identify and manage gaps
between our stakeholders’ expectations and their
current perceptions of our operations, policies,
products and markets.
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