Enabling Performance Management Part Two: Strategy to Execution ...

From Malcolm Faulkner

Corporate performance is measured?in financial years. However, strategic plans more often span multiple years while containing shorter-term targets that map to the performance sought in the current financial year. The development of a long-term strategy might take anywhere from six to nine months for a large enterprise. Once in place, the annual planning that precedes each financial year is a much?shorter, affair (one to two months).

?Regardless of whether we?re embarking on a new strategy or tweaking an existing one, the lifecycle?looks much the same. There are essentially three phases in the strategy-to-execution lifecycle:

• Step 1: Strategize and prioritize?? strategy is developed and set
• Step 2: Plan and execute??? financial and operational?plans and budgets are established
• Step 3: Model and optimize??? performance is analyzed, different scenarios are tested, and information for the next step is collected

Report and monitor isn?t listed as a phase here (although some models show it as a separate step), as it?s ongoing ? we never stop monitoring!

Fig 1 : Strategy to Execution Lifecycle

Strategy-to-Execution Lifecycle in Practice

• Prior to the next of strategic planning cycle, the finance department (primarily) is tasked with gathering a ton of information to update the strategy
• Executives disappear on a retreat to plan a new strategy or revise the existing one
• Business units develop their own plans for supporting and aligning their activities to the corporate objectives defined in the top-level plan
• Later on, finance develops the budget that determines the next year?s financial targets and spending on operations, capital investments, headcount, and discretionary (strategic) programs
• Periodically throughout the year, teams conduct strategic and operational?reviews to compare performance against budget and take action or adjust the strategy as appropriate
• Towards the end of the year (or soon after), HR launches the annual performance review process, where employees and managers update objectives?and performance reviews,? and bonuses, promotions, and pay increases are decided

In the ideal world, after defining the strategic plan, companies would carry out detailed planning and budgeting and tie these plans to strategic objectives. After all, if you don?t know what the objectives?are, how can you really determine?how to allocate discretionary spending? This might seem obvious, but it often isn?t the case.

A decade ago, Drs. Kaplan & Norton?found that 60 percent of organizations fail to effectively link budgets to strategy, and it remains an issue for many companies today. So, it?s not surprising that little consideration is given to longer-term strategic objectives, which tend to be more of an afterthought than an integral element in the planning process. There?s nothing wrong with the model. The problem is that even with a good strategy in place, organizations resort to business as usual, with tactical challenges and short-term financial targets absorbing all the time and resources. Hence, the effort to meet near-term targets comes at the expense?of long-range objectives.

Financial planning and budgeting is an arduous task; and given that finance is overworked, it?s not much of a revelation that they don?t have the time to develop a more strategy-focused approach. This alone is justification to make financial planning more efficient in software applications.

While many organizations are taking this first step, many stop there and don?t make further investments to improve efficiency and effectiveness in peripheral finance processes ? namely the strategize and prioritize and model & optimize phases that should feed into and out of planning and budgeting. This shortsightedness is a mistake. Organizations would do well to broaden their horizons when it comes to enterprise performance management applications and not limit themselves to only making financial planning more efficient.

In part three of this series, I?ll discuss best practices in developing key performance indicators

Like this:

Be the first to like this.

Source: http://cfoknowledge.wordpress.com/2012/07/23/enabling-performance-management-part-two-strategy-to-execution-lifecycle/

where the wild things are josh smith birdsong teresa giudice atlanta hawks flyers 2012 white house correspondents dinner