First, an analogy. There are a couple of ways to travel. You could meander along with no end destination in mind, taking in the sites along the way (both good and bad) and all the surprises that come with it. Alternatively, you could target a few key destinations you've always had heart set on, plan your route to get there and your itinerary for the trip. Neither is better or worse but two things are certain if you choose to meander: 1. It will take you longer to get to any specific locations you may have your heart set on, if you ever do arrive, having spent resources on the aimless journey in-between. 2. If you are not undertaking the journey alone, those accompanying you will have a frame of mind to "just enjoy the ride" versus being encouraged to expend energy on any specific outcome. Your travel partners may come and go and you will be left to steer the journey. I firmly believe business is no different. All businesses have finite resources (essentially money and people) and if you do have business goals its important to get the most out of those resources to achieve your objectives. Strategic and operating planning is about just that.
So its the beginning of the year again. Your business may still be finalizing the results of the prior year and its time to start thinking about the next. Your goal in strategic and operating planning should be to create a meaningful vision of the future and a realistic plan for how to achieve it. These plans will enable 2 things. 1) The ability to push goals down to all levels of your organization...get everyone moving in the same direction. As your business grows the demands placed on a business owner grow too. What was once possible for the business owner to get done and handle him/herself can become a major factor in limiting the growth and competitiveness of a company. A growing company needs to spread responsibility throughout its organization but it can only do this if everyone has a clear picture of their expectations. It is best that those expectations align with your long-term (strategic plan) and short term (operating plan) visions for your business.
The second thing a good strategic and operating plan will enable is 2) the ability to hold your people accountable for their performance and/or make adjustments to either your resources or your plan going forward. One of the top challenges I hear from business owners is regarding resources... High employee turnover, inability to find talented or qualified people as well as concern in removing resources who have proven incompetent or unqualified. In small middle-America suburban communities, talent will be hard to find...just a fact. This means that the modern small company has to find ways to get the best out of the talent they have and when rotten apples do surface they have to be capable of removing them. Doing this requires management to document measurable targets and clear timelines for employees and review progress against those goals with feedback on how they are being achieved. Of course, management can do this without a strategic and operating plan, and I even know some that let their employees make up their own goals with no understanding of the company's strategic or operating vision. This tends to result in frustration on both management and staff parts. Alternatively, having employee goal setting and review processes that track with the goals and performance of the company, have a way of making every employee feel a vested part of the company because they understand their contribution to it. It also gives management a tool to highlight and reward exceptional performance which just reinforces performance again.
4 interesting facts about small business financial planning and employee engagement:
1. 61% of small businesses did not create a budget in 2018. (Clutch 2018 Small Business Accounting Survey)
2. A mere 7% of employees today fully understand their company's business strategies and what's expected of them in order to help achieve company goals. ( Robert S. Kaplan and David P. Norton, "The Strategy-Focused Organization," Harvard Business School Press, 2001 )
3. "Gallup research suggests that setting clear expectations may be the most foundational element" of employee engagement.
4. Gallup's latest meta-analysis shows that business units in the top quartile of employee engagement are 21% more profitable, are 17% more productive, have 10% better customer ratings, experience 41% less absenteeism and suffer 70% fewer safety incidents compared with business units in the bottom quartile.
So just to recap, a good strategic and operating plan has tremendous benefits to your business:
1. Increased operating margins
2. Higher employee engagement and lower company turn-over
3. Quicker strategy execution
This blog was about why it is important to have a good strategic and operating plan.. we'll cover the how and critical components of a "GOOD" strategic and operating plan in the next blog.
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