12

IMPLEMENTING THE PLANNING FRAMEWORK

In this final chapter, we will look at the challenges of implementing the planning framework and make suggestions on how this should be appproached.

PLANNING AND THE ROLE OF THE CHIEF EXECUTIVE

Chief executives are typically appointed with one role in mind: to lead the organisation in achieving its purpose. They are expected to do this ethically, within designated constraints (for example, costs incurred and investment required), and by operating in a manner that demonstrates desired beliefs, values, and attitudes.

It is a role the chief executive cannot do alone, and so he or she must look to key people for ideas, guidance, and support. The chief executive’s role, along with his or her executive team, is to answer the question, ‘Where do we want to go?’ That involves strategy formulation. However, what this book is about is how to answer a second question: How are we going to get there? Strategy execution requires plans, initiatives, process improvements, resources, and the many other factors described in this book. A strategy is never static, but rather, dynamic, as it must be adjusted in response to external factors and new ideas. Hence, flexible and integrated planning is needed.

Those who work in finance have the potential to be amongst the strongest allies of the chief executive, as they are the custodians of the organisation’s financial resources. Ensuring that these are allocated in ways that support the mission and then tracking the resulting performance must surely be one of the most valuable services to the chief executive.

The challenge for all chief executives, particularly those who have just been appointed at a new company, is to make a difference that counts. It is all well and good to have big ideas and to talk about how the organisation should adapt to changing business conditions, but to do this in a manner that is acceptable and within reasonable timescales can often prove impossible. This is often due to a number of real and imaginary barriers that work against change, as discussed in the following sections.

Entrenched Beliefs Concerning Performance

To begin with, established organisations already have a way of doing business. They will have existing business processes that consume resources to produce outcomes that are aimed at achieving the stated mission. To go with these processes will be assumptions on what can be accomplished that are often not based on fact or on what the true potential could be if things were to change. Against this background, change is seen as unnecessary. These organisations believe that all that is required is patience and things will work out in the end. Either that, or management must lower their expectations concerning future goals.

Organisational Culture

Closely connected with the last point is the prevailing culture that exists within any organisation. Culture exhibits itself as the standards that people work to and, ultimately, that govern their behaviour. These are built up over time and are not easily changed. It affects the way they treat customers, line managers, partners, and senior executives, and affects the diligence and quality of their work. In short, culture can bring an organisation down.

Those at the top of the organisation set culture and thus its impact on the performance of the business. For example, if there is no clear link between strategy and everyday departmental actions, then strategy will be seen as the preserve of senior management who do not really understand what is going on at the ground level. No matter what kind of change a new chief executive may make, the belief will be that it is unlikely to have any effect, and so the actions necessary to make it happen will be done half-heatedly.

When strategy and change is seen as a wish list that is divorced from day-to-day reality, no one is committed to putting it into action. To make matters worse, no one is held accountable, and so failure is inevitable, which reinforces the belief that management does not understand the business.

The Unwritten Rules of Budgeting

Budgeting plays a vital role in ensuring that resources are allocated to the right programmes. Well, that is the intention, but so often the budgeting process is broken. Part of the problem is what Dean Sorensen calls the ‘unwritten rules of budgeting’ (that is, the way people believe they must behave in order for budgeting to be successful). These rules are usually the result of previous experiences and include the following:

• Never submit your real budget the first time and always inflate costs and suppress revenues. The underlying belief is that budget allocation is not fair. Budgets will always be cut irrespective of whether it is reasonable or accurate.

• Always under promise and over deliver. The underlying belief is that organisations value individual heroes and not team players.

• Always make your budget. People are rewarded for optimising financial performance and not enterprise performance.

• Protect your budget. Power and reference is based on the number of people or the amount of resources commanded. Losing these means a loss of power and influence.

• Always spend your budget. Resource allocation is not fair. Managers are unlikely to get the budget back if it is not spent.

• Only accept responsibility for measures that can be influenced inyour department. People are not rewarded for driving cross-functional performance improvement.

Of course, these rules are crazy, yet we still see them at work as they conspire to circumvent change.

Rewarding Bad Behaviour

It has been said that organisations get the behaviour they pay for. When bonuses are tied to the budget, the budget process focus is turned away from organisational performance and toward personal rewards. This leads to game playing during the budget process. For example, those with revenue responsibility will try to suppress revenue goals, and those with cost responsibility will try to inflate their budgets. Both activities work directly against what the organisation is trying to achieve, which calls for the efficient deployment of resources based on what is happening in the business environment.

Failure to Execute

If planning is one half of managing performance, execution is the other. In fact, it could be argued it is more important than planning. After all, planning is about guiding the organisation through the business landscape, avoiding pitfalls, and making the most of its limited resources in order to achieve the mission. If the plan cannot be executed, then what is the point in developing one in the first place? Without a plan, organisations are at the mercy of both customers and competitors that will lead it away from achieving corporate objectives.

Organisations find it hard to execute. Forbes magazine reported that less than 10% of all organisations successfully execute their strategies.¹ The Conference Board, a global, independent business membership and research association, reports that "Many CEOs rate consistent execution of their firms’ strategic objectives as a major concern".²

For most organisations, setting strategy is the preserve of senior managers in conjunction with middle management that provide feedback on what is going on in the marketplace and where they think it is heading. However, execution is typically delegated down to junior management and the front-line workforce who interact daily with customers and suppliers. Their alignment of activities with strategy is essential, as is the feedback on whether the strategy is working and any adjustments that need to be made as a result of actual and forecast results.

The key to overcoming these barriers to change is to confront them. This can be accomplished first by admitting that they exist. Second, by using the planning framework described in this book as a discussion on what really drives value and the role that planning should play in enhancing organisational value.

IMPLEMENTING CHANGE

The business planning framework is the culmination of many years of working with multiple organisations, both big and small. It is highly unlikely that it can be implemented in one go. Instead, an incremental approach is recommended that gradually moves an organisation from its current methods to one that is more relevant for today’s business environment.

The following sections include suggestions on how this can be done that will also help overcome the barriers to change.

Agree on the Role of Planning

As mentioned in chapter 1, ‘Planning Fundamentals’, every organisation has a purpose and a set of business processes through which it hopes to achieve its aims. For the organisation to be successful, management at all levels should understand a number of key aspects of the business. This is because they will be required to work together, and without that shared common knowledge they will end up working against each other. In our experience, quite often, the knowledge that should be common is anything but common or understood.

The following are a number of key questions that all managers should know how to answer:

• What is the aim of the organisation? How is it quantified, over what period, and for what business environment? This knowledge sets the aspirations of the organisation on which management need to focus.

• Are the business processes the right ones for now and for the future? Do managers really understand how the organisation adds value for its intended customers and the role their area plays? Knowing how their responsibilities contribute to overall goals gives meaning to actions they perform and the resources their department consumes.

Having established answers to these questions, managers will then need to agree on the planning processes required, for what purpose, and the supporting planning models they need. This is where the planning framework can help by suggesting what these, from which discussions can be had and an agreement reached.

Model Existing Processes

There should be an acknowledgement that the only things that can be truly managed are the business processes that deliver outcomes for customers, the workload that departments should carry out for each task within a business process, and the resources that the workload consumes. To establish the current state of the business, an operational activity model (OAM), as discussed in chapter 5, ‘Operational Activity Model’, should be developed that associates resources with activity workload and outcomes. This need not be at a detailed level to begin with. What we are trying to do is to get an idea of where resources are being consumed today and the outcomes that are being generated.

Once this has been done, get senior managers together to review the reports produced by the OAM, to discuss questions such as the following:

• Are the short-term business goals in line with our long-term aims?

• Are the business process outcomes sufficient to deliver the business goals?

• Is the workload reasonable in producing the outcomes for each business process?

• Is the cost worth the workload effort?

• How does current and projected performance compare to peer organisations, competitors, and market expectations?

In reviewing these results, it is not a question of establishing which departments are doing a good job and which managers are failing. The focus should be on what the management team believes it needs to do to achieve organisational aims. By knowing the current state of performance, it is easier to target where performance can be improved.

Establish Improvement Themes

It is rarely possible to make sweeping changes, as this often proves disruptive to the day-to-day running of the organisation, resulting in even worse performance. The McKinsey article ‘Managing CEO transitions’³ emphasises the need to concentrate on just a few things, otherwise managers will become confused and focus will be lost. Organisations that have successfully managed change articulate those changes with a few simple themes (for example, quality and throughput or superior customer relations). These themes set what is important and provide the context for any changes that are made.

The article also goes on to stress the importance of balance between short- and long-term objectives. Too often, organisations focus on immediate emergencies, with the result that the long-term (and hence strategic) goals are nothing but dreams. One crisis leads to another, and direction is set by short-term needs rather than serving the long-term purpose. In this landscape, management will assume that strategy does not really matter and that the promise of a better life ahead is false.

To this end, change programmes must look at providing for short- and long-term goals. By expressing short-term pain in regard to a better future, managers are more likely to take on change with more enthusiasm.

Plan-and Resource-Specific Change Programmes

Managers are those people who have reached a level of maturity concerning the purpose of the organisation and the way in which it can reach its goals. As such, they are given responsibility over its resources and activities. Their rewards and future success depend on how well they support the organisation in its mission, and over time, they will acquire detailed knowledge about what works and what does not within a given business environment.

To get managers on board with change, one way would be to ask them for suggestions on particular programmes that are linked to the improvement themes previously set. Better yet, accept their ideas and the related measures that indicate progress to provide them ownership as well as to hold them accountable to.

This could be supported by a strategy improvement model (SIM) to collect details of proposed programmes, which can be assessed with others to see the combinations that have the best overall effect. As the SIM is connected to the OAM, changes can be seen in the context of current operations and budgets can be apportioned accordingly to what makes the most sense.

Monitor Implementation

There is nothing worse than not monitoring change. After all the effort of analysing the need for change and making convincing arguments, to then not monitor its impact gives the impression that no one was serious at the start. The areas that need monitoring include answering the following questions:

• Are the implementation milestones being met?

• Are the resources being consumed in line with what was planned?

• Is the workload and outcomes at the planned level?

• Is the change having a measurable impact on business process performance?

The last point may be difficult to gauge, as any increase (or decrease) in performance may be down to the change, the current operations excluding the change, the impact of previous actions whose affect was delayed, other factors, or just luck. However, knowing that many factors may be involved, it is still useful for management to discuss the level of performance being achieved and to come to a shared view of the reasons.

As well as looking at what happened, it is vital to forecast answers to the same questions, only as viewed in the future (for example, will the future milestones be achieved? Will the planned resources be sufficient?). The reason for doing this is to determine whether the change can continue to run as present or whether it needs to be adjusted, cancelled, or replaced.

Use Technology to Support Change

Planning technology is there to support the organisation. That means it should enable plans to be created and adjusted in the way you want to work and not the other way around. To set up this framework in anything other than a simple company will require enterprise-planning technology. As mentioned in chapter 11, ‘Latest Developments in Planning and Analytics Technologies’, enterprise systems are undergoing rapid change as they seek to support planning in an unpredictable business environment. They need to support continuous planning and allow organisations to manage business processes, which for many of them is very different from their original design.

If you need to look for a new software solution, make sure the capabilities outlined in Appendix II can be managed easily within the solution being considered.

Continually Develop the Planning Models Within the Framework

The last point is that the development of the OAM and its supporting models never stops. Managers should continually challenge not only their business processes, but also the way in which business processes are measured and resourced. There is no simple answer to managing performance—f there were, then someone would have thought of it before now. The reality is that the business world is far more complex than any model can cope with, and even if one model did, its impact would be to change the business world, and it would no longer work.

For this reason, it is important not to make the models too complex. Their purpose is to provide a basis for a shared discussion on what drives performance and ways in which that performance can be optimised. They are a management tool to help communicate knowledge and intuition about the future, but are useless if that knowledge is absent.

In these last few points, we have described a few initial steps for using the framework. Once the OAM and SIM have been developed, the next logical steps for management reporting are to add the detailed history model for selected accounts and the performance measures model. If your initial purpose is to support budgeting, then maybe the target setting model followed by the detailed forecast models are next.

Rather than give you the order, it would be best for the management team to agree on the priorities of what models need to be developed. Initially, these can be at a summary level, with more detail being added once they are operational.

Well, that is it. Hopefully, you have found the book interesting and we have given you some useful ideas on how to improve the planning process where you work. Common issues with any book are that some of the text can quickly become out of date and that it is not always possible to illustrate examples in detail. For these reasons, we have set up a website where you can get updates and share experiences with other planners. To access this website, visit www.BusinessPlanningFramework.com.

Endnotes

¹ www.forbes.com/sites/larrymyler/2012/10/16/strategy-101-its-all-about-alignment/

² www.conference-board.org/publications/publicationdetail.cfm?publicationid=1888

³ ‘Managing CEO transitions’, Tsun-Yan Hsieh, Stephen Bear, McKinsey, May 1994.