Throw Out Your 2015 Strategy and Budget Right Now

The arrival of a new year (and the beginning of a new one) brings a flurry of cognitive churning. As individuals, we 1/ reflect on the year passed, 2/ ritualistically write and read predictions for the next year, and 3/ make resolutions and set goals that are intended to inspire us to greatness during the next twelve months.

I’ve come to see this all as distinctly human but also quite strange. 1/ We can’t do anything about what happened in the past, and many of our “reflections” end up being revisionist history. 2/ The predictions we make – at least the most interesting of them – are almost invariably wrong, but we make them anyway as a way to either “exert control” on our world or to show others how smart we are. 3/ Resolutions simply don’t work. Most are actually a mild form of self-flagellation. We list the things we “should” do that we didn’t do during the last year as if beating ourselves up for not having done them will result in a desired behavior modification. My sense is that for most people, little good comes of this, yet we repeat the rituals annually.

Companies go through a similarly strange year-end rituals. In the case of companies, the effort is focused on strategic planning and budgeting. The same reflection on the prior year, prediction of future events and goal-setting ensues and in many cases, with equally predictable results. Companies that simply go through the motions often rationalize prior years results, 2/ Make unreliable and sometimes unfounded predictions about the future and 3/ Set goals and objectives that are “shoulds”, rather than will-full organizational commitments.

I’m in search of ways to have these individual and corporate year-end rituals be more productive. I don’t yet have all of the answers. On the corporate side of the ledger, I know that I’ve seen the strategic planning and budgeting process executed well and very poorly. It really comes down to how the strategic planning and budgeting process inform the Company’s direction during the following year. Getting it right takes patience and intention.

Patience Over Rigidity

Patience is critical. January 1st is one of 365 days we could have chosen to begin our tracking of earth’s orbit around the sun. There is nothing special about January 1st, yet we treat that date as if it is fundamentally different from December 31st, 2014. The whole planning and budgeting calendar gets calibrated around delivering an approved budget by the start of a the new year. There is some merit in having deadlines for sure. But I’ve also seen too many companies rush through the planning and budgeting process because of arbitrary deadlines. I’m not suggesting that the planning and budgeting process shouldn’t have a sense of urgency; they should. But lets not pretend that the arbitrary dates we set for the planning a budgeting cycle are fundamental at the expense of thoroughness and solidarity. A management team must spend a lot of time together before they can gel around a strategy, developing the buy-in that is necessary for unified action. The process or driving organizational alignment doesn’t always fit into or nice, neat planning calendars.

I’ve also seen many occasions where a management team tries to force a breakthrough during the strategic planning process. My experience is that breakthroughs don’t happen during formal planning processes; they happen organically when they happen. Breakthroughs are inherently unpredictable. Companies need to be open to breakthroughs occurring organically outside of the formal planning process, rather than trying to force them according to schedule.

Seeing the flaws in the formal, calendarized planning and budgeting ritual leads me to think of strategy and fiscal management as an every-day activity, not a once a year activity. Strategic planning should come out of its “off-site” conference room hiding place and into the light of the every-day discussions between the members of a management team. When strategy is an every-day activity, the planning process becomes about tweaks and alignment rather than major breakthroughs.When strategy is brought into every-day discussions, there is no need for a forced breakthrough during a scheduled planning season.

The same goes for budgeting. Budgeting is worthwhile because it forces companies to think about resource allocation, that resource allocation needing to be aligned with a strategy. But budgets are of little predictive value. This is why I vastly prefer twelve month rolling forecasts, updated monthly. It is taboo to call each new monthly forecast a budget, but it is also incredibly constructive to take a renewed look at resource allocation every single month throughout the year. After all, there is no way your budget can account for everything that will happen (both within and outside your control) throughout the next twelve months.

I’ve seen too many cases where the budget becomes the numerical representation of the script. The rigidity of the traditional strategy and budgeting process can actually be counter-productive, creating a box that makes it difficult for a management team to navigate the year in a flexibly opportunistic fashion. It is hard to stay true to an intention when the numbers have you in a box.

Intention over Tactics

Intention is hard to describe but easy to identify; but I increasingly feel it is imperative in both a corporate and personal setting. It’s akin to purpose. Some of the best descriptions of intention come from mindfulness practice. Deepak Chopra’s describes intention as follows:

Intention is the starting point of every dream… Everything that happens in the universe begins with intention… An intention is a directed impulse of consciousness that contains the seed form of that which you aim to create.

Powerful stuff. I want some of that in my day-to-day personal life and embedded in every company in which I’m an investor. Imagine what would be possible if a management team went into every work day with alignment on “a directed impulse that contains the seed form of that which you aim to create.”

The formal strategic planning literature would probably refer to this as strategic intent, popularlized by Hamel and Prahalad:

Companies that have risen to global leadership over the past 20 years invariably began with ambitions that were out of all proportion to their resources and capabilities. But they created an obsession with winning at all levels of the organization and then sustained that obsession over the 10- to 20-year quest for global leadership. We term this obsession “strategic intent.”

At the same time, strategic intent is more than simply unfettered ambition. (Many companies possess an ambitious strategic intent yet fall short of their goals.) The concept also encompasses an active management process that includes focusing the organization’s attention on the essence of winning, motivating people by communicating the value of the target, leaving room for individual and team contributions, sustaining enthusiasm by providing new operational definitions as circumstances change, and using intent consistently to guide resource allocations.

What I like about strategic intent is that offers a clear statement of purpose for an organization without delving into the specific tactics that should be employed to achieve that purpose. But it is very hard for an organization to keep its attention on purpose, allowing the tactics to evolve as necessitated by circumstances. But rigidity in tactics is a death-knell in fast-moving markets. And this is the core of my beef with traditional strategic planning; I’ve seen too many cases where strategic planning becomes tactics planning where each and every move to be executed by a company throughout the year is “scripted”. Scripting tactics might work in a 30-90 day window, but beyond that, it is a futile effort. Worse, it is damaging if a management team and/or board feel obligated to have the company follow the script despite changes in circumstances.

Alignment and Flexible Opportunism

I don’t have all the answers for how to build more patience and intention into the strategic planning and budgeting process. But I know the desired outcome. I want a process that results in the organization being aligned on a core sense of purpose and creates a platform for the organization to be flexibly opportunistic. I’m not convinced that traditional strategic planning and budgeting are the right tools for the job. And so my search for the right tools, both in my personal and corporate life goes on.

In the meantime, be purposeful and adaptable in 2015. No matter what your strategy and budget say, the year will end well if you and your organization are purposeful and adaptable each and every day throughout the year.

Throw Out Your 2015 Strategy and Budget Right Now