As one year draws to an end and another one begins; we, in our personal lives, often engage in a favorite annual pastime of making new year resolutions. These resolutions – which are forgotten soon after we make them – are hardly backed by any concrete plans, leave aside probability of them having any strategic bearings! But, in our corporate lives, we need to be much more serious about this game of making new year resolutions as it impacts monetary returns to our investors, liquidity of the lenders, and the livelihood of our employees.
There is enough literature on what a business plan should contain (and avoid). But, very little is said about the best practices for creating a strategic plan. After many years of corporate finance career, I still remain puzzled by the cavalier attitude we display in creating a roadmap to an uncertain future. In a corporate environment that is otherwise full of paranoia, when it comes to the exercise of creating strategic plans, we take careless creative liberties by citing the famous quote of John Maynard Keynes: “in long term, everyone is dead”!
Admittedly, one cannot present a high-resolution photograph of the future but we can surely strive to create a beautiful impressionist painting!
Here is an oversimplified yet useful roadmap of the way how I would do it …
- I will begin with sketching a bottoms-up picture of the near future – one should begin by trying to predict future period for which you have considerable visibility and build a financial picture with considerable details.
Never begin with sketching a long-term top-down BIG PICTURE … you will end up lying to yourself!!!
We humans are generally much more truthful in making short-term predictions about what you can and cannot achieve since we know that we can be held accountable for them!
- I will also come up with my definition of success – the Metrics of Success Parameters– as you sketch the near future, decide how would you like to recognize that you are successful or not. Is it number of customers, revnue, EBITDA, EPS, and/or something else.
It is OK to have different short term and long term success parameters.
But I prefer clearly defined metrics with three or less dimensions each – short term and long term. May be it is just my mind’s inability to focus if confronted with more than three dimensions. But I suspect, I can qualify as a person with average faculties!
- Once I know what ‘success’ means and how my near future looks like, I will identify key drivers that can be manipulated to impact my Metrics – I will brainstorm strategy with my colleagues across the organization to see how modifying these key drivers to increase success probabilities, accelerate them and positively impact the metrics.
- Now, I will feel comfortable visiting distant future and create a long term strategic plan using bottoms-up approach for period beyond the good-visibility period. Distant future periods might be difficult to predict but I will be skeptical about any strategy for which I cannot foresee its possible consequences in next 24-36 months. I am not OK with throwing up my arms and being inattentive about my medium term forecast.
This, of course, is how I would do it and in no way, my way is the only high way! So, feel free to search your own path to the successful strategic planning and have a very successful 2017!!!
Happy New Year!