It’s that time of year; time to plan next year’s budgets and set the strategic, tactical and operational direction for the business. The big question is how to get the process right to make sure business units are aligned and how to set a course compatible with the overall vision, mission and targets of the company. One of the most interesting topics is the discussion about top-down or bottom-up processes, i.e. should the Board set the targets and let the units plan how to meet them or should the units report in what they think is possible to reach?
I believe the answer is somewhere in between (as its most often the case in the real world) so allow me to present my view on a sound and effective strategy process:
- If you don’t know where you’re going, any road will take you there! All strategy and planning processes must start with the Board of Directions / the company’s top management being clear and concise about the overarching vision and mission of the company – i.e. the reason for the company doing business in the first place. This will govern downstream strategic decisions and align units and departments in the strategy planning efforts
- Setting the ambition for the next strategy period. With the above in mind, an analysis of the markets the company is in, past performance and an internal capabilities analysis, top management should formulate overall revenue and profit targets (and other financial as well as non-financial targets) that the company should reach during the next strategy period. This also includes discussing each unit’s contribution to the targets as you may have to sacrifice profits in one unit to achieve growth and long-term profits – and this investment must be earned from another unit
- Discussion with unit management. Now It’s time to present the targets for the unit management and ask them to suggest what actions / strategies will enable them to reach the targets. This should be an iterative process where the unit management will revert with their suggestions as to whether the targets are realistic and how they can be achieved. If there’s a discrepancy between the desired targets and what the units believe they can deliver in total, top management discusses this with the units and settles on a realistic, cohesive strategy for all units
The mix between top-down and bottom-up happens in 3) where the final strategy and targets are discussed and based on the top management’s ambition for the company and unit as well as the unit managers’ assessment. This mix ensures the Board / top management sets a strategy with targets that are realistic and achievable for the company to reach
Once the strategies have been approved, the unit managers will take on the full execution responsibility as well as the responsibility of calling in top management in case of events that will affect the unit’s ability to deliver on the targets. This enables top management to decide on corrective actions and maybe even change the targets / strategic priorities of other units to mitigate the strategy adjustments and expected results
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