I first of all want to thank all those persons that contacted me to comment and discuss the previous Blog Article on Micromanagers. From all the feedback we received we seems to have a 2nd pandemic in Malta, besides COVID-19, which is related to the micromanagement virus.
This week I took part in a Webinar and mentioned that in times of extreme uncertainty, as we are all going through, we need to increase our planning efforts rather than conclude that they are useless due to this uncertainty. However for such planning and budgeting to be effective, businesses need to make a clean break with what always happened in the usual budgetary process and go for a more agile approach. I can give you some pointers of how this could be possible.
- Change the purpose of planning and budgeting. Most planning and budgeting systems are designed to help business leaders predict and control and to execute detailed plans that will add up to the desired total. Then rigorously control activities within each silo to make sure people conform to plans and deliver required results. I believe using a planning and budgetary process to achieve the above is ineffective in periods of constant crises and black swan events like a pandemic. In a world of unpredictable and accelerating change, long-term forecasts will be increasingly unreliable and commanding people to stick to flawed plans will grow more dangerous. Hence in such circumstances the focus of effective planning and budgeting should focus on improving outcomes for customers, employees and shareholders, not on hitting some budgeted target. Hence the focus should be on learning, adapting and growing — not on trying to predict the unpredictable.
- Shift the focus from financial precision to strategic success. Typically, the planning and budgeting processes is kicked-off by having the chief financial officer issuing financial targets and spending guidelines. A better approach is to turn the targeted outcomes developed in step one (above) into strategic guidelines that drive the budgeting and adaptation process. These guidelines force discussions that allocate resources linked to the strategy, rather than from individual projects up. Here are some typical questions strategic guidelines might raise:
- What are the outcomes that will be most important for strategic success?
- In light of these priorities, where should resources go? For example, how much of our resources should go to running the business (operations) versus changing the business (innovations)?
- How much should go to various customer segments?
- How much should go to different sales and distribution channels, business units, brands or product lines?
- How much of our technology resources is properly spent on keeping current systems running versus developing new needed digitilisation features?
- What hypotheses must be true for these resource allocation strategies to work, and how can we test them most quickly and efficiently?
You will be surprised that by linking your planning and budgetary process to strategy that there are stupid things staring you in the face that you never considered. Like for example what you considered to be a growth opportunity until recently will likely lose you focus and resources from driving innovation and defending market share in other areas of your business. Or that the vast majority of your budget for IT is going on fixing legacy systems, while the much needed investment in the online channel preferred by key customers may be low or non existent. By properly aligning resources with strategic priorities, companies can better see the tough tradeoffs that should be made but aren’t working — either because of neglect or because decisions are being made by the wrong people. This has only become more important in the current turbulence.
- Plan faster and more frequently. If budgets are inflexible and a crucial forecast can’t be adjusted, the person making it naturally obsesses over its accuracy. Left untouched, even small mistakes can compound over time and make a mess of plans. However, if we can adjust a long-term forecast every quarter, month or week, we can continually improve its accuracy in far less time and with far less effort. Setting bold, challenging objectives and then adjusting plans to incorporate valuable lessons learned is the best way to improve.
For most companies, traditional planning and budgeting has a comfortable certainty built into it. Managers like knowing what is expected of them. CEOs like the control it gives them. It’s hard to give that up. However in all this chaos we need plans that are flexible enough to focus on what truly creates value. We have no time to waste.