I like to ponder this question because PCO Associates is meant to build better businesses with a focus on people. In fact, I ponder the question often. Here’s what all this pondering is boiling down to: Continue reading What is a “Better Business”?
Quoting from Vault / CNBC yesterday, “At a recent Conference Board event for marketing executives, Zappos’ CEO Tony Hsieh gave a controversial presentation in which he opined that innovative and collaborative company culture should trump profits.” Continue reading Precisely My Point!
Implementing successful and sustainable change is tough, strategic change initiatives fail two thirds of the time in North American business (Kotter, 1996, and McKinsey, 2009). How can your organization succeed? You can succeed by making change personal! Continue reading Change – Make It Personal
The next step in drilling down to the actual tasks that people perform is developing the Annual Operating Plan or AOP. If you have done a good job on the Long Range Plan and the remainder of your Business Plan, you should have several solid objectives ready to be divided into more detailed short term team and individual objectives that can be completed in less than one year. Now your planning process will shift to subdividing those LRP objectives.
Think of the AOP as scaling down the LRP into what can be accomplished in the next year. The LRP was an opportunity to evaluate the big picture and focus on risks with some attention given to what might serve as measures. Conversely, the AOP is an opportunity to detail near term elements of the LRP and focus on detailed measures of performance and results with some attention given to monitoring risks.
In the process of developing your AOP, you will also be developing key components of your annual capital and operating budgets. It is important to let your long range and operational goals drive your budget and not let the budget drive your goals. Remember, money is a resource and a measure of success. Profit is your reward for achieving your annual and long range objectives; it is not the purpose for your organization’s existence.
The detailed objectives in your AOP may consist of sales goals, marketing plans, production goals, new buildings and equipment, revenue and expense targets, employee counts, new and changed processes, or particular activities in your start up process if yours is a new venture. They may include implementation of new processes or specific annual projects that produce results and align with your business philosophy including community relations and environmental stewardship. All of them should relate to a specific LRP objective, and to the business plan components we defined earlier. Again, these objectives must be SMART; Specific, Measurable, Achievable, Realistic and Time-bound, like the LRP objectives discussed in the last post, but even more specific and short term; less than one year.
All of your AOP objectives should include clearly defined measures both of process and results, as well as methods for reporting. The measures associated with these goals may be lagging measures reporting the results of your operations. However, as these AOP objectives are further clarified by enterprise, department, branch, team, and individual goals; remember that goals at this level are very process oriented and must include leading measures or indicators. Without integrating leading measures within processes you will not have advance warning of processes drifting off target that could end in failure to achieve the desired results.
When you have worked through all of the objectives in the LRP and committed them to your AOP, you still have to address the ongoing activities that keep your business running. There are always things your organization does every year that must be done to keep the doors open and the customers served. Those activities may not have been directly addressed this year by long range objectives; that doesn’t mean you stop doing them! To steal a quote from John F. Kennedy, “we choose to go to the moon in this decade, and do the other things…” We didn’t put the rest of government on hold while we went to the moon.
Landing a man on the moon in this decade (1960’s) was one whopper of a long range plan; parts of going to the moon were inserted into the AOP each year, along with “the other things”, and we landed two men on the moon on July 20, 1969. When Kennedy established that goal it had only been four years since the Russians orbited Sputnik; by 1961 all we had in orbit were a few communications satellites. But we had a robust government going (some would argue a little too robust) that still needed attention! The “management team” took on all those details.
The point; plan and budget for all the day to day activities of your organization, but highlight in the AOP those that relate to the LRP and make sure they get special handling to avoid losing them in the shuffle of your daily work. When your annual operating plan is complete you will have a roadmap of your entire route from January 1 to December 31. You’ll know the mile posts you need to pass, and you’ll have that dashboard telling you everything you need to know to gauge progress and results through the year.
Now your management team will need to put that plan into action. Every Division, Department, Branch, and Work Team will need to figure out all of the tasks and activities needed to achieve the AOP goals. They’ll need to sit down with their teams and figure out the deliverables, timing and budget objectives and the incentives and consequences needed to keep everyone on track. While they’re doing all that work they’ll need to keep in sight the key components driving all of their activities, the objectives of the LRP and AOP.
I’ve tried not to get too detailed but to give you just enough about this particular business basic, this piece of common business sense: plan your work and work your plan. Larry Linville’s character, Major Frank Burns (M*A*S*H, CBS, 1972-1983) put it better than anyone else while digging foxholes all over the camp in preparation for the potential air raid when he said, “prior planning prevents poor performance!”
Of course, even the best laid plans can be co-opted or sabotaged when people are not all on the same page; as Frank found out the instant he dove into his foxhole outside the “Swamp”; the one Captain B.J. Hunnicutt had conveniently filled with water just before hollering “AIR RAID!” And that sets up the subject of my next post, get your people aligned!
Long Range or Strategic Planning can be intimidating whether you are a new entrepreneur or a director on a corporate board. The key is to keep it simple and let yourself and your team be guided by two ideas: convert your vision into goals, and make your goals SMART! Those goals become the source of the details for your annual operating plan. By the way, it’s a good idea to have someone with a gift for strategic planning work with you because each goal will need to be divided into team and individual tasks. The process of drilling down requires a fair amount of organized thinking.
How long do we plan for? The cliché that a goal is a dream with a deadline is true for long range plans. The starting point is your dream or vision statement, supplemented by your purpose or mission statement. Focus your thinking by setting the horizon for your LRP, typically three to five years; and you’ve just put a deadline on the dream, or at least part of it!
Arguments are made for different time spans with three years often preferred due to the pace of change. Five years is more traditional with longer times like ten or even twenty years set for slow moving and massive changes like building aircraft carriers or reclaiming and protecting large wildlife habitats. Pick a horizon that makes sense for your organization’s vision. And remember, you don’t have to achieve your vision in three years; you just need to decide what the organization is going to do over the life of the LRP to move toward the vision.
Speaking of the life of the LRP; think of it as immortal. The LRP needs to be updated annually. Each year you can add new long range goals that feed the annual operating plan, assuming that you’re achieving your older goals and they’re rolling off the plan into maintenance mode. The three or five year horizon is that “rolling” horizon that is always a few miles ahead of your car out on the highway. The new goal is the milepost way out on that horizon and the horizon always appears to be moving, but the mileposts beside the road identify the previous long range goals you established.
What should we include? Use the business plan outline as a guide and ask, “What will it take in each of these areas to achieve the vision?” Remember the first point in each component of the business plan: approach, risks and measures. How will your approach contribute to achieving the vision? What risks need to be addressed to enhance the chances for success? How will you know you are succeeding?
Identify the most significant goal with the greatest benefit for each business plan component and quantify it. Make it SMART: Specific, Measurable, Achievable, Realistic, and Time-bound. Make it specific so you can break it down into tasks to be tackled each year. Make it measurable, you need indicators of progress and results to recognize success or the need for corrective action. Measurable includes not only the desired result, but also rough estimates of resources and timing. Make it achievable and realistic; nothing is more frustrating than trying to do something that cannot be completed in a reasonable amount of time. Make it time-bound; the assumption is that the goal will be achieved within the three year span of the current LRP so specify the date.
You might have noticed I didn’t mention Strength Weakness Opportunity Threat (SWOT) analysis until now. I mention it now because although it’s a step up in complexity from what I consider to be better business basics and common business sense, it is a very helpful approach to evaluating opportunities and related risks (threats). It’s also useful for sizing up your core competencies and resources (strengths and weaknesses), key considerations in developing a workable LRP. There is plenty of guidance available on using SWOT analysis so I won’t elaborate on it here.
One last thought on long range planning; don’t over-analyze or over-plan. It’s too easy to become the victim of analysis paralysis, a business disease that will keep you from doing anything big and increase your risk of failure. Learn to know when to say, “That’s good enough!” It keeps you moving forward and cuts back on those perfectionist tendencies (I speak from a great deal of experience in this area)!
What do we do today? You’ve come this far; take a breather; building a long range plan is hard work! Next you’ll need to break down each goal into stages with shorter deadlines of one year or less, and actual tasks that can be completed in the shorter stages. In other words, you convert your LRP into an annual operating plan (AOP) defining what you’ll do this fiscal or calendar year.
But that’s the subject of another post…