Why a Budget is NOT a Strategy
Last August, we published one of our most popular blogs Why Culture Eats Strategy for Breakfast, highlighting that too often, companies have a strategic plan, but do not have a culture plan. Any company without a culture plan to “operationalize” their strategy, is putting their success at risk.
For most companies, September through November marks “budget season” when they establish budgets plans for the upcoming year. Unfortunately, research ranges from a bleak 3% of companies whose executives say they are successful at executing their strategies, to at best—30% of organizations that integrate its plans into its daily operations with high effectiveness.
Why? Because a budget is NOT a strategy.
There are many reasons most budgets come up short. A primary factor is because we treat budget/planning as an event and over complicate the process. In order to get everyone on the same page, budget and planning should be simplified to a “system of reinforcing activities” focused on two primary areas:
It starts with building a revenue plan customer by customer at the grass-roots level. In order to build a plan you have to know how your customer feels about you. Revenue trends are only part of the story. If you don’t regularly survey your customers through a Net Promoter Score (NPS) survey to measure client loyalty, then you are starting off at a disadvantage. Once an NPS survey is complete, you can cross- reference the data with the following:
Client Revenue Retention: what were your historic trends for both client retention and revenue retention? They can be vastly different. These should be measured year over year and reported on monthly so there are no surprises when it comes to the budget process. Customers that rate you low (<7) on NPS should be addressed immediately to prevent defection.
Cross-Sell, Up-Sell: how will you expand in existing customers? Do you have a key account planning process whereby your team is focused on advancing the relationship by solving new customer problems—customer by customer? Customers that rate you high (9, 10) are your greatest opportunities for cross-selling and up-selling.
New client acquisition: how many new clients will you acquire this year? What is your historical performance? What is your historical win/loss ratio? If you are not reporting on these monthly, again, you are at a distinct disadvantage. Optimism will prevail over historical performance.
New service product and offerings: how much will you sell and what equipment, technology or other investments will be made to secure this revenue?
New office openings: how many, when and where?
Price/rate/margin increases: how much have you historically been able to pass on to the customer and what will you budget for the upcoming year?
Most companies have a financial budget, but do not require a detailed staffing plan to go along with the budget. In today’s ever-tightening talent market, having a detailed talent development plan is a must. A strong talent development plan should always start with the Voice of the Associate (VOA) survey. Now, I am not talking about some 50 question survey. I am talking about administering the same 12-16 question survey annually. Surveying your employees annually will clearly illustrate the level of employee engagement and identify areas for improvement, resulting in lower turnover and higher employee engagement. Once a VOA survey is complete, you can plan for the following:
Turnover: what is your historical turnover and how is it trending? What actions have you taken to affect turnover?
Talent Acquisition: given your historical turnover and growth initiatives, how many new hires will need to be made and to hit the productivity numbers required to achieve budget?
Client Development Training: what training is required to ensure your team retains and expands in existing customers and successfully wins new customers?
Succession Planning: where are the holes in the organization? Where do we have a backlog of top talent? How can we cross-pollenate? What is our process for succession planning? Has it been successfully cascaded down through the organization?
Leadership Development: once succession planning is complete, identify gaps and budget for leadership development both inside and outside the company. According to research, recognition and development are the two areas of gap in most organizations.
Fall is for planning. Client development. Talent development. Surveying both clients and employees annually should be an integral part of the process. Unfortunately, most companies’ budget and planning processes fall woefully short and are focused purely on historical trend lines without truly understanding and addressing root cause.