Annual planning is a crucial process that sets the tone for the upcoming calendar year and enables organizations to define goals, align resources, and capture growth opportunities. While some may view it as an exercise in predicting the future, the real purpose of annual planning is to identify opportunities for growth (the “homework”), synchronize the organization to capture them (the “framework”), and ultimately, empower operational leaders to make decisions when the future doesn’t turn out as planned.
Annual planning should be approached with excitement and anticipation, not as an arduous battle for resources with analytically wrought financial models. Instead, the annual planning process will outline historical performance, identify where there is opportunity across the primary sources of revenue, and prioritize which opportunities leaders will invest in to capture. This process unfolds across a series of milestones to:
- Agree to the fact-based support where attractive opportunities exist.
- Identify needs to capture the opportunities (e.g., people, partners, technology).
- Size your bets, including the budget and timeline required by each bet or initiative.
- Prioritize, select bets, define horizons and decision points.
- Set governance cadence, update organizational and incentive plans.
Before You Start Planning, Do Your Homework
Operational leaders should start by examining their organization’s past performance. This historical data is a treasure trove of insights that can guide them in identifying opportunities for growth.
This identification of opportunity is the “homework” leading up to the kick-off of annual planning and is a crucial step in the overall process. This is a collaborative effort that ensures each leader, from the CFO to the CEO, is part of a team. They initiate discussions based on the same understanding of historical performance and the “fact base” for what customers want, how their organization stacks up against competitors, and which markets are appealing.
This fact base is developed through tactics, such as capturing the voice of the customer (VoC), soliciting industry leader insight, and engaging your front-line field sales and success team members.
Once leaders have identified opportunities for growth through historical performance and fact base, where will this growth come from? Fortunately, there are five primary sources of revenue to which all business growth can traditionally be traced1:
- Base Retention: Maintain your customer base
- Share of Wallet: Increase the spending percentage of each customer
- New Customers: Attract new customers from competitors and convert non-users
- Market Positioning: Focus on new products and services in growing markets
- Adjacent Markets: Expand or acquire into neighboring markets
For example, see how one company realized this attractive market positioning growth opportunity:
A yacht manufacturer with a focus on the luxury market of bespoke marine crafts recognized more of their revenue was being derived from larger crafts. Their customers’ preferences were also shifting towards larger yachts. They suspected this shift in interest also carried expectations for a differentiated experience from entry and mid-size boat buying.
In anticipation of investing in new concepts, they “did the homework” to understand the market trend, customer needs, the role of boat dealers, and potential concepts. Their process included a series of working sessions across their product development, sales, and finance teams and a listening tour of their top-dealers. This allowed them to lay out the investments to build out of their commercial team, dealer relationships, and facilities needed to meet the demands of the coming season and next three to five years.
The development of the fact base is also the start of organizational communication and interaction. It is critical to engage the organization as this process unfolds. While only some participate directly, everyone needs to know how they are connected to the process and what it means for them. Ultimately, this process yields corporate and individualized personal goals for the coming horizons.
Don’t Forget To Set the Framework
While annual planning may begin three months before the year-end, it is not a one-time event but rather a continuous cycle of defining and realigning an organization’s strategy, tactics, and market actions for the coming horizons. Additionally, each horizon (monthly, quarterly, yearly, and three to five years) should have appropriate levels of focus to enable near-term actions while moving toward long-term goals.
The primary purpose of these governance cycles is to engage leadership through active participation and inclusion in developing and analyzing future scenarios. Remember, annual planning is not about predicting the future but about preparing for it. These activities are the force driving ownership of outcomes, tracking performance, understanding necessary resources (people, partners, technology) to achieve goals, and adjusting course as needed. Leaders will need to provide the overarching goals and “framework” to baseline historical performance and articulate their growth goals.
Here’s an example of how one company set up the framework for their annual planning and governance:
A medical device manufacturer had rapidly grown organically and inorganically to over $4B and was challenged to set a cohesive strategic vision where each franchise understood its goals and contribution to overall growth. They found themselves bogged down by budgeting and budget tracking and had lost sight of their growth plans and performance. They used annual planning to kick off a strategic reset where they facilitated discussions and workshops with each of their franchises and developed a standardized governance model for growth. They implemented dashboards and planning tools to limit spreadsheet proliferation and varying interpretations of results. Tying their strategic focus points of retaining customers, increasing wallet share, and winning new customers to each franchise to their initiatives resulted in alleviating quarterly “surprises” and increased the predictability of their financial results.
Annual Planning as a Vehicle for Organizational Communication
In addition to capturing growth opportunities, annual planning can serve as a powerful communication tool within organizations, driven by the executive team. By sparking a culture of shared goals, performance, and ownership, the annual planning process can have far-reaching benefits.
While predicting the future may be impossible, the process can facilitate open communication, establish clear expectations, measure progress, and enable strategic decision-making to stay the course or chart a new path forward. Ultimately, the annual planning framework can help organizations achieve their objectives and foster a collaborative, goal-oriented culture across the entire organization.
Future-Proof Your Strategic Planning and Execution
By focusing on future-proofing your annual plan ahead of time, organizations will be better equipped for future challenges and opportunities, ensuring long-term success and sustainability. Cherry Bekaert’s Strategic Growth & Innovation consulting solutions are tailored to address your specific needs and challenges. We partner with you to develop a personalized strategy with a clear vision and strategic priorities for profitable growth. We help you identify market trends ahead of your competitors and predict your customers’ needs to take advantage of untapped growth opportunities. We look forward to collaborating with you to unlock business opportunities with innovative solutions.
Contact us to explore how we can assist you in creating your business powerhouse for achieving exponential growth.
Reference
1 Michael Treacy and Jim Sims, “Take Command of Your Growth,” Harvard Business Review, April 2004, https://hbr.org/2004/04/take-command-of-your-growth.
