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How to use annual plan to set your company for Win !!!


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At the end of the financial year, everyone makes business plans for the next financial year. The process consumes resources, time, and yet often remains a just another ritual to be followed. This paper discusses why annual plans fail to yield results, and what should be done to make it a guiding document for the coming FY.

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How to use annual plan to set your company for Win !!!

  1. 1. Page 1 of 4 Does your annual plan set your company for Win !!! Dr. T R Madan Mohan Abstract: At the endof the financial year, everyone makesbusinessplansfor the next financial year. The process consumesresources, time,and yet oftenremains a just another ritual to be followed.Thispaper discusseswhyannual plans fail to yieldresults,and what shouldbe done to make it a guidingdocument for the coming FY. Come endof financial accountingyear,mostseniorexecutivesandboardmembersare busypouring over what has gone right in the last fiscal and what to do in the coming year. Annual planning meeting often held at exotic locales away from the humdrum of the office settings is expected to achieve twopurposes.First,clarityon the business focus and expected responses from each group within the organization, say sales or marketing or HR. Second align financial objectives, and improvements required to reach the milestones. Annual planning process not only consumes resources,butisalsoa costlyexercise.Industryestimates range from 0.03 to 0.06% of the revenues for anycompany. Companies spend14 to 78 daysto complete acomplete annual planning process. Given the financial and resource implication the annual business planning is a serious affair. Very few companies effectively gain from the annual business plan motion. The intended benefits of drivingcollective decisionmaking,breakingof silosandunifiedvision are notachievedby many. The mostcommon reasoniswhile noeffortsare sparedtomake the annual plan event most glamorous, planningandfollowthroughrequired both at pre-planning ad post planning day is limited. Annual planning process is a multi-stage event involving actors at various levels from different functions. Sales,Finance,Headsof deliveryareas or services, HR, and Marketing do their initial planning from the functional perspectiveandlatercollate to arrive at department and organizational priorities. In large organizations,aseparate businessplanningunit,coordinatesthe data, validates the same and drives common agenda. In most cases, once the broad contours are agreed, key resources from sales,marketing,delivery,HRand finance are invited for a brain storming session. Most companies bundle leadership or general management training sessions along with the business plan to align teams. At the end of the annual plan day, a broad outcome plan is accepted to provide sales directions,quotasforvariousregionsand products/service wisefocus. Based on the same, delivery and productdevelopmentteamsreinforce resources, and align their product roadmap with service expectations. Companiesreiterate the highlevelinputswithinasmall group and a final annual plan issharedwithrespective businessheads.Monthlyandquarterlyresults of outcomes are monitored and reviewedbymanagementtoensure the deliverables are happening within the budgeted time and cost parameters. Multi-period consolidation of historical data is carried out to use for further planning.Smartcompaniesrealize annual businessplanisagreatopportunityto usher in relevance, focus and efficiency across organization. Figure 1 shows the broad stages of annual planning process.
  2. 2. Page 2 of 4 Diligentadoptionof the processitself isnotgoingtoyielddesiredresults. Annual business plans fail to yield results for following results 1. Lack of a grand unifying theme tying all functions 2. Inadequate marshalling of resources 3. Loosely aligned plan and execution 4. Low emphasis on operational control 5. Inadequate validation of sales numbers and quota 6. Limited follow through in improvement to align the business goals 7. Silos driving local optima 8. Poor alignment of Ownership & outcomes Figure 1
  3. 3. Page 3 of 4 Annual Business plan: Best practices Basedon our consultingpractice,practicesfundamental tosuccessful annualplancompaniesare: 1. Planinadvance 2. Involve managersineach divisiontothinkthrough 3. Preparedwithinputsfrommultiple perspectives 4. Annual planmeetonlytoshare numbersandclarityof “focus” 5. Detail individual andgroupplans 6. Communicate monitoringplans 7. Share rewards&systemsindetail 8. Celebrate milestone Common themes underlying companies successful in using annual plans for ushering growth are: 1. Unifyinggrandthesewith a 2 to 3 yearhorizon Successful companies while conscious of the short-term marketplace opportunities and challenges,lookforaunifiedtheme thatwouldmake increase the relevance of their company. They articulate what they need to achieve this year, and tie strategic objectives to the capabilities. Identify the key capabilities that may have to be harnessed further with investment,andcapabilitiesthatmayhave to move towards mooing phase. A trading company withprinciplesacross the world, evaluated the next 3 years options, derived short-term focus areas and detailed the activities and outcomes required to transform themselves to meet the new pole position. 2. Productbreadthand depth Annual businessplancandefinethe varietythe companyplanstohandle.Eliminate low revenue buthightransactioncostproductlines. Low growthproductlinesrequiringspecialized equipmentandsupportmustalsobe relooked. Use annual businessplantobundle products/servicesintopractice areassothat economiesof scale andspecializationcanbe gained.AnIT software companyrealigneditsteamsintoIToperationsandProducts practice to sharpenthe focusof software andservices,andalsobringmore visibilityandownershipwithin each team. Practice areasbrought infocuswithin group,improve customerexperience and innovationstrategiestoreduce cost.
  4. 4. Page 4 of 4 3. Sales:restructuring,operations Sale isthe keyfunctionthatdrivesthe annual planfocusand meetings.Whatsegments toshave off,whatnewsegmenttogo after,how to structure to gaincoverage efficienciesandaccount miningoutputsare commonthemesthatdominate anyannual businessplanmeetings.While structure and allocationsare commonlydiscussed,veryfew organizationsemphasize onthe improvementinsalesoperations andcontrol process.A large engineeringservicescompany discoveredtheirleadtoconversionproductivitycanbe improvedsignificantlybyinvestingina salescoordinationorganization. Annual businessplanevaluatedthe benefitsandimpactand wentaheadwiththe roll outby addressingall concernsinthe openbusinessplanmeeting. 4. Discretionaryandnon-discretionaryspend Successful companiesuse annual planningmeetstoclearlyconveywhere the investmentis neededmostandforwhat capabilities. Usingof zero-basedbudgetingandmanagement committee processwouldeliminate non-strategicprojectstoemerge andproliferate. 5. Cross-functional governance Companiessuccessful inrealizingbusinessplansuse crossfunctionalgovernance structuresto balance companyprioritieswiththe individual businessarea’spriorities.Cross-functional units are notonlyinvolvedinpre-planning,butalsoinconsolidationanddefinitionof common interestareas. AnIT companyrealizedtighterlinkagebetweensalesanddevelopment organizationwouldsave lotsof frictionandbringcommonownership.Annual businessplanwas usedas the backgroundto device appropriate structure,deliverablesandownership. 6. Deliverycapabilityandroadmap While mostbusinessplansdisproportionatelyfocusonsales,notmuchemphasisisgivenon service delivery. Spell putcapabilityimprovementroadmapsthatwouldbe targetedinthisyear detailingthe initiatives,investmentsandownership.A manufacturingorganizationbasedina tierII cityrealizedthe biggestriskonthe deliveryandcustomerexperienceisthe highattrition and pooravailabilityof local talent.The companyinitiatedafellowshipprogramtoattract suitable local candidatesandtrainthemoveryearsto mitigate the resource issue. AnIT companyrecognizedthe leadershipinthe deliveryfunctionwasweakestandinitiatedan empowermentprogramtoidentifyandnurture program.