Thursday, July 20, 2006
Before You Start Planning for 2007...
I've always found it interesting that companies will use the words "budget" and "planning" as if they are interchangeable. I've asked printers and suppliers "do you have a plan?" and then they tell me about their budgets, and nothing else. While budgets reflect how resources will be expended, they do not explain the reasons behind the deployment of those resources. These need to be expressed in words. Budgeting alone is not enough. Without a good planning process, companies, especially small ones, often get into a habit of working on an incremental basis, going from problem to problem, opportunity to opportunity, and don't have a true plan which is especially needed for businesses today.
Now, I'm not one for those bureaucratic processes that some companies call "planning." It's often a process of filling in boxes on papers with numbers created to get through an approval process, rather than the result of an introspective and proactive process. Planning sometimes includes the writing a high-sounding mission statement that no one really cares about. These are easily recognized because they include words like "mutual," "environment," "community," and uses the words "profits" in a manner that makes it seem like a secondary objective, or even less than that.
Most small businesses do not need a sophisticated plan; one sheet of paper will do. The owners of small business always have their reasons for being in business well-etched into their heads. It's more that others in those businesses need to know why things are done the way they are done. These small business owners must be sure to display that plan in the open, for all to see. Many family companies don't do this, and when they need employees to rally around their company, employees wonder "why do they talk to us only when they are in trouble?"
All plans are based on assumptions, and sometimes what was a reasonable assumption at an earlier time will not be at another time. When it doesn't make sense, change it; just don't fall into the "strategy of the month club." That can only make things worse.
In larger companies, the planning process sometimes becomes intensely political. Not that politics in organizations is bad, because those informal structures called "politics" are often quite efficient at getting things done, and must be there. Effective companies have strong political infrastructures that are directed toward shared goals. That's one reason why some companies do better in crises than others.
I'd be worried when politics goes bad, and includes the denial of obvious realities, the promulgation of odd expectations, or the underestimation of competitive action. All of these get companies into trouble. "No, you can't put that number down," I've heard in planning meetings, "because Executive X has already promised that it would be Y% higher." "Competitor A just underprices everything," I hear, only to find out that Competitor A makes money at those lower prices, and has managers who are decisive and are great implementers of tactical actions.
Many companies fail to separate goal-setting and true planning. They're not the same. I've seen too many situations where sales people are given high goals and told to "make it happen," only to find that they have no resources and no training to do so. Worse yet, that impossible Herculean performance was put in the budget as fact.
Basically, budgeting focuses where dollars go over a fixed, and relatively short, period of time. Yes, even five years is a short period of time in the history of a company. In a greater sense, planning documents determine where something more precious than money, time, will be expended, by whom and for what reasons. Time, it has been said, is the only non-renewable management resource. Once it is lost, it is gone forever. Planning exists not because dollars are scarce, but because time is scarce.
Go into planning for 2007 with these concepts in mind: the difference between budgeting and planning, and the difference between planning and goal-setting. They all work together, but confusing them only creates problems greater than any plan can solve.