Part Three of a Five-Part Series by ActSeed’s Dan Jacobson
In my previous article I highlighted the importance of a structured planning process. This article includes tips on the mechanics for creating strategy and setting goals by business function. This exercise will create the level of detail and consensus required for effective operational and financial modeling.
Function planning has traditionally taken the form of bottoms-up activity-based modeling. The premise was that a set of operational and financial goal were provided to a functional manager, the manager identified general resource requirements (people, equipment, infrastructure, capital, and technology) to meet the unit output and cost goals. By setting the fixed and variable costs of each requirement, the manager could produce an operational model. This model could then be tweaked to reflect revisions in goals and cost assumptions.
The traditional approach is still relevant, but the new options for technology and delivery chain procurement and management require a more dynamic and creative approach. Recent history is full of examples where someone in an industry changed the paradigm by modifying their production, sales, or delivery chain. Often turning on a dime. Are the shorter business cycles and plethora of options a reason not to plan? Quite on the contrary, it is a reason to plan creatively.
Too often people get confused when thinking about the relationship between goals, objectives, and strategies. I’d like to keep it simple by using an analogy.
Get your leadership team into the mindset of developing a battle plan. You’ve already begun by setting some primary direction for your company and products. Your next step is to operationalize this direction by major company function. This will allow you to make actionable plans that have associated activities, costs, and timelines. The example provided in the graphic “Functional Goal Setting” first addresses the difference between goals, objectives, and strategies. GOALS asks the question “where are we headed?”. OBJECTIVES asks the question “how can we put some numbers to this?”. STRATEGY asks the question “what do we need to do?”. After addressing goals, objectives, and strategy, your team’s next challenge should be to consider alternate approaches to execute, monitor, and adjust. LEVERAGE asks the question “how can we take advantage of internal strengths and external options to be better, faster, or cheaper?”. RISK asks the question “what can we do to improve the likelihood of reaching our goals?”. For each major functional goal you will likely have subsets of objectives, strategies, leverage options, and associated risks. For example, you may choose to outsource a set of functions but you may at the same time be giving up some control over execution. Ultimately the greatest benefit will come with your leadership group’s spirited debate on how they will work together to execute and fine tune, within their spheres of control, to achieve your corporate level imperatives.
Using the battle plan analogy, think of the Army, Navy, Coast Guard, Marines, and Homeland Security executing a coordinated and responsive field campaign. Each has resources and executable orders. They may also be working with NATO forces (your channel and supply-execution chain partners). Don’t hesitate getting your team leads into discussions with these third parties (assuming you have a reasonable level of trust and non-disclosure in place). They may provide you with options or examples that your own group may not have considered. Also, their ability to coordinate and work with you will be enhanced if they understand your execution model. Each party need to go into battle expecting that their best, most detailed plans will be refined and adjusted. But their shared understanding of the end game and functional game plans can only make these changes more efficient. How many business school case studies have been based on a company with a great product idea and no ability to execute? Was it because they weren’t smart enough or didn’t understand their market? Sometimes, but not often. Typically the problems compound from day one due to the lack of a coordinated execution plan. What do investors look for now more than ever? Ideas and talent, as well as a thought-through, creative, and achievable execution plan. Now I’ll get off my soap box.
Finally, don’t provide some vague instructions to your team and expect them to come back with high quality functional plans. Spend some time and provide them with a format of the topics you’d like them to address, a common deliverables format, and some examples for discussion. It may also be helpful to provide some basic and general assumptions – such as the rate to be used for labor overhead or the costs for contracted personnel or services. Don’t prematurely ask your team to develop a detailed financial model. Have them focus on outcomes, activities, cost drivers, and alternatives.
In the graphic I’ve provided a few simple examples. Make sure your functional leads have a clear understanding of the deliverable. Assure them that you want them to be creative, but at the same time not waste time on esoteric analysis. Your team will likely find this exercise to be a bit tedious at first, but will find it much easier and efficient if they work through an example and finally “get in the groove” to start populating the deliverable. This exercise is also a great way to gauge the facilitation and analytic skills of your team members. Functional planning and coordination can be an important component of your performance management process.
In my next article I’ll provide some perspective on translating your planning deliverables into refined financial and metrics models.