Are Strategic Planning Exercises useful?

A survey by the EIU for Marakom published in late 2005 indicates that traditional planning fails to influence most companies' strategies because the process clashes with the way executives actually make important strategy decisions, which are neither constrained by the calendar nor defined by business unit boundaries.

A recent study by Cartesis confirms that there is a strong disconnect between the vision a company has and how it will implement it. Although global businesses appear to understand the importance of linking execution to corporate strategy, they are failing to achieve this alignment with 76% of companies worldwide responding that they need to better tie operational execution to corporate objectives.

According to the Chartered Management Institute and the Advanced Institute for Management Research, strategic workshops can have a positive impact on business development. They also found that workshops can significantly improve internal working relationships and the overall understanding of corporate values. Fifty percent of organisations use workshops to challenge existing strategy and the other fifty percent to generate new ideas.

In recent years the Beyond Budgeting Round Table (BBRT) has claimed that organisations can be more 'adaptive' if they abandon budgetary control, and other management systems involving fixed absolute targets, and adopt different practices. The BBRT have reported many fascinating case studies of companies that have stopped using fixed targets. (The Beyond Budget "model" is a collection of generalisations about the case studies expressed as principles, but these cover a wide range of practices.)

In a typical company the strategy targets and resource allocations are set annually and rarely adjusted. In between target setting other things can change, but not the targets or resource allocations. If targets and resource allocations are allowed to change more frequently then the scope for the monthly or quarterly deliberations is increased and the time taken is less because the issues are fresh in everyone's minds and changes tend to be fewer and less dramatic.

There are many reasons for the dissatisfaction with the budgeting and planning processes. In addition to the issues of cost, in particular the large amount of management time that goes into the process, there are businesses that question their point, especially when faced with fluctuating exchange rates, cyclical prices, variable growth rates and high inflation. The planning process can also lead to dysfunctional behaviour when the budget becomes the target for expected performance. Budgets lead to gaming like negotiating down revenue targets and other behaviour that can destroy value, for example "fudge factors" and a mentality of "use it or lose it".

Implementing a rolling forecast model means that executives are always looking the same distance ahead (typically 12 or 18 months) and expenditures can be reviewed and approved on a quarter-by-quarter basis giving budget holders the flexibility to put forward requirements that they could not anticipate when preparing their annual budget. Monthly reporting is more meaningful as it measures performance against the most recent forecast instead of a monthly split of the budget. This does mean training the Board and the shareholders as well as the managers and this could be a time-consuming activity in it's own right.

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