Francis Wade, Contributor
Too many local companies confuse strategic planning with wishful thinking, as evidenced by the fact that their strategic planning retreat comes long after the end of their budget exercise.
It's not a conscious choice. Business has always required the allocation of scarce financial resources among different departments.
The process involves several rounds of conversation, some old-fashioned horse-trading and no small degree of internal company politics.
Each department advocates its point of view and argues for what it thinks it deserves based on past performance, size or perceived importance. Due to the length of the process, it often starts in the middle of the planning year and occupies several months of executive attention. During this time, other activities get set aside.
There is only time available to schedule the strategic planning retreat when the process is complete.
What's wrong with this picture?
The strategy ends up being little more than window dressing. The most important decisions have already been made, that is, how the money will be allocated.
Once the budgets have been established, no one wants to go through the budgeting process all over again, which means that there is little room to introduce a sweeping, ground-breaking strategy.
For example, based on its music-and-film catalogue, worldwide distribution, history of hardware innovations, strong brand and deep pockets, the company that should have dominated the personal music business was not Apple, but Sony. Intra-department rivalry and a lack of strategic will doomed their efforts to produce the first feasible online music store. Today, Apple is the most valuable company on the planet while Sony is expected to lose over US$6 billion this year, with a stock price that is only 25 per cent of its price in the mid-1980s.
It's likely that they faithfully followed their budgeting process each year and missed the opportunity that Steve Jobs and his computer company seized.
Putting your budget process ahead of your strategic plan is like putting the cart before the horse, and leaves your company unable to see the big picture clearly. Even if the strategy becomes clear, it's almost impossible to reverse an already-allocated budget. Psychologically and politically, it's just too hard.
How can the right order be restored?
1. Look far into the future
A strategy that looks only 10 years into the future is probably sustaining the status quo. It takes courage to look further and think of bigger things, which can only be built with years of sustained effort.
A client of our firm who wanted to enter Latin America in a major way decided that it needed a bilingual workforce. Since the number of employees who could speak Spanish could be counted on a single hand, this goal would take many years to complete, even if every single new hire brought on board were fluent.
Yet, this would be an absolute game-changer, and it takes time to produce them. Short-term plans are only good for small gains.
2. Revise the strategy frequently
Too many executive teams leave their retreats knowing that the plans laid out are second in importance to the true story told by the budgets. They show what's really important, and the arguments that produced them are designed to defend turf, power and influence.
Without a regular return to the strategic plan in order to get the budget aligned, executives make decisions based on what they have been given to spend, rather than on the direction of the plan.
Frequent revisions allows budgets to become aligned.
3. Conduct early retreats:
Instead of dessert, treat strategic planning as the main meal, and conduct the retreat before the budgeting process starts. This would represent a major shift, but it would allow financial resources to follow strategic thinking.
A mid-year strategic planning activity can help set the stage for all the activities that follow, and be used to inform employees at all levels of the direction the company is taking.
These steps would prevent the tendency to give corporate divisions a proportion of the overall budget that reflects last year's priorities. This kind of lazy execution ultimately dooms companies to extinction.
It takes courage to revisit old assumptions, even when it's obvious that their presence is preventing a company from moving forward.
Few executive teams are willing to fight these battles, but they need to be conducted if the internal status quo is to be set aside in order to do the right thing.
Francis Wade is president of Framework