Getting Strategic Planning and Financial Planning in the Same Bailiwick
Richard Lynch, John Diezemann and James F. Dowling
By partnering with operations on balanced scorecard initiatives, financial managers are helping their companies focus on critical business processes and gain consensus on the critical set of measures to help drive desired business results. In addition, with the explosion of Enterprise Resource Planning (ERP) and e-Commerce systems, financial executives are leading the charge in going from theory to practice by developing a cascading measurement architecture and providing the key linkages to other relevant information (e.g., products, projects, performance plans, and organizational data).
Certainly, the financial community has responded to the 'relevance' challenge that was laid down over a decade ago1. In fact, relevance has been contagious. Already companies are tying balanced scorecard initiatives to leadership and strategy; making sure operating managers are focusing on the right issues and priorities, and coordinating the actions of the company as a whole in implementing those strategies2.
While the role for today's financial managers is quickly moving upstream in the strategic planning domain, the challenge becomes even greater in light of the accelerating pace of change. This reality is quickly rendering obsolete the traditional approaches to corporate governance, such as 3-5 year strategic plans, annual planning and static budgets. In this new environment, financial managers can play a key role in driving the corporate agenda through their sponsorship and support of projects and investments that deliver critical business capabilities. To provide useful financial insight, sooner rather than later, financial managers need to think about business strategy as a process of continuous course corrections, evaluated more like a series of 'real options' than a single projected cash flow3. While the concepts behind real options are certainly familiar to most executives, the trick to identifying, valuing and making strategic choices lies in the complex and often overwhelming task of understanding the linkage between initiatives and changing corporate goals and managing the interaction among projects.
This article provides a breakthrough planning approach for rapidly realizing the business capabilities dictated by strategy and then through the financial lens of 'real options' shows how to time strategic choices4.
Identifying the vision is only half the job
At its core, strategic planning is a process that documents a set of choices made by management of a business describing 'the vision', objectives, goals, and supporting action plans along with the rationale and implications associated with these choices. However, as senior executives seek to realize the new vision, the momentum for change often stalls. As energized and well intentioned as the management teams and project teams may be, they often lack a disciplined approach to orchestrate change within their organizations. To realize the vision, management must be concerned with three key priorities:
*
Developing a set of Business Capabilities to capitalize on the vision
*
Translating Business Capability Requirements into necessary business processes, information technologies, and organizational systems
*
Deploying a process for the rapid, ongoing realignment of key process, technology and organizational elements.
As straightforward as this sounds, most company projects aimed at the vision are often off the mark.
Interviews with over 100 executives in Information Technology (IT) and Operations areas reveal several common root causes leading to strategy execution failure:
*
Rapid changes in technology and business process require a consistent disciplined approach, yet most companies don't have any enterprise-wide strategy
*
Incorrect decisions are made because current reality failed to take into account predictable future events
*
Companies are constrained in the execution of their business plan by past business application choices
*
Key initiatives are often launched from functional silos, lacking alignment and fit with the greater organization with respect to process, technology and/or organization.
*
Financial planning and budgeting fail to take into account the timing and interaction between projects.
Richard Lynch, John Diezemann and James F. Dowling
By partnering with operations on balanced scorecard initiatives, financial managers are helping their companies focus on critical business processes and gain consensus on the critical set of measures to help drive desired business results. In addition, with the explosion of Enterprise Resource Planning (ERP) and e-Commerce systems, financial executives are leading the charge in going from theory to practice by developing a cascading measurement architecture and providing the key linkages to other relevant information (e.g., products, projects, performance plans, and organizational data).
Certainly, the financial community has responded to the 'relevance' challenge that was laid down over a decade ago1. In fact, relevance has been contagious. Already companies are tying balanced scorecard initiatives to leadership and strategy; making sure operating managers are focusing on the right issues and priorities, and coordinating the actions of the company as a whole in implementing those strategies2.
While the role for today's financial managers is quickly moving upstream in the strategic planning domain, the challenge becomes even greater in light of the accelerating pace of change. This reality is quickly rendering obsolete the traditional approaches to corporate governance, such as 3-5 year strategic plans, annual planning and static budgets. In this new environment, financial managers can play a key role in driving the corporate agenda through their sponsorship and support of projects and investments that deliver critical business capabilities. To provide useful financial insight, sooner rather than later, financial managers need to think about business strategy as a process of continuous course corrections, evaluated more like a series of 'real options' than a single projected cash flow3. While the concepts behind real options are certainly familiar to most executives, the trick to identifying, valuing and making strategic choices lies in the complex and often overwhelming task of understanding the linkage between initiatives and changing corporate goals and managing the interaction among projects.
This article provides a breakthrough planning approach for rapidly realizing the business capabilities dictated by strategy and then through the financial lens of 'real options' shows how to time strategic choices4.
Identifying the vision is only half the job
At its core, strategic planning is a process that documents a set of choices made by management of a business describing 'the vision', objectives, goals, and supporting action plans along with the rationale and implications associated with these choices. However, as senior executives seek to realize the new vision, the momentum for change often stalls. As energized and well intentioned as the management teams and project teams may be, they often lack a disciplined approach to orchestrate change within their organizations. To realize the vision, management must be concerned with three key priorities:
*
Developing a set of Business Capabilities to capitalize on the vision
*
Translating Business Capability Requirements into necessary business processes, information technologies, and organizational systems
*
Deploying a process for the rapid, ongoing realignment of key process, technology and organizational elements.
As straightforward as this sounds, most company projects aimed at the vision are often off the mark.
Interviews with over 100 executives in Information Technology (IT) and Operations areas reveal several common root causes leading to strategy execution failure:
*
Rapid changes in technology and business process require a consistent disciplined approach, yet most companies don't have any enterprise-wide strategy
*
Incorrect decisions are made because current reality failed to take into account predictable future events
*
Companies are constrained in the execution of their business plan by past business application choices
*
Key initiatives are often launched from functional silos, lacking alignment and fit with the greater organization with respect to process, technology and/or organization.
*
Financial planning and budgeting fail to take into account the timing and interaction between projects.
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