Every organisation seeks to improve its business performance, and the way in which they set out to do this is through planning. However, the Internet has revolutionised the way business is conducted, which has resulted in a world that is both fast moving and unpredictable. And yet senior managers are still expected to navigate their organisations through these challenges. So how should organisation’s plan when they can’t predict the future, and what’s the best way of ensuring that their limited resources are allocated for maximum effect?
One thing is for certain, because of this unprecedented business environment, the planning process must also change. It must adapt to a future that is unpredictable and that allows management to continually adjust the allocation of resources to maximum effect. This requires organisations to rethink their approach to planning, budgeting and monitoring business performance. An approach that involves understanding the reason why organisations exist and then planning for those things under management control.
The basis of all business planning
All organisations have a purpose. For commercial companies this is typically to make a return for its owners; with not-for-profits the purpose is to achieve the stated objects or ideals; while for governments one of the goals is to provide a safe environment where citizens can prosper.
The way organisational purpose is achieved is through a series of interconnected business processes that consume resources to produce directly related outcomes. For example, a commercial manufacturer will produce goods it can sell for a profit (outcome) by taking raw materials (resources) and adding value by shaping, combining and transforming them (business processes) into things customers are prepared to buy. For a service organisation this could include training people (business process) in skills and techniques (resources) that enable them to pass knowledge onto clients for a profit (outcome).
The function of management is to ensure that all three areas – business processes, resources, and outcomes – are aligned and operate in an acceptable manner to achieve the purpose of the organisation. However, management must also realise that the success of these areas are subject to the prevailing and constantly changing business environment. This environment is typically outside the control of management that can include market trends, inflation, and the supply of finance. It may also be unknowable until too late, such as when a natural disaster occurs or a competitor does something that impacts an organisation’s purpose.
One way to visualise the interaction of these areas is to consider a jet engine. Its purpose is to move an aircraft forward. It does this through a series of compressor fans (processes) that consume fuel (resource) to produce thrust (outcome), which moves the plane forwards.
The business environment: Management control vs. the unknowable and uncontrollable
However the engine has to cope with uncontrollable (e.g. the weather) and some unknowable (e.g. diversions created by air traffic controllers) forces that would slow or stop it from achieving its purposes. And the same is true for organisations.
Although, the business environment in which companies operate cannot be controlled, it certainly cannot be ignored. The role of planning is to continually evaluate uncontrollable scenarios to predict what may happen should they occur, from which decisions can be made over the areas that management do control. For example, what changes would be required to business processes should the market grow; what resources may they use; and what outcomes would be possible.
Unless the organisation is very simple, planning will involve multiple people and multiple choices, all of which must be carefully managed.
In the second blog of this series we will look at the fundamental building block of business planning – the organisations business processes. In case you can’t wait, you can download our new white paper that covers this new approach in detail.
If you Can not wait for the next parts, you can download the white paper: ” Rethinking the Planning Process”