27 September 2017

The folly of 3 years plan

In the eighties, UK companies were often accused of not knowing how to plan for the future. In contrast, stories abounded of Japanese organisations planning their progress for a hundred years or more. I have no idea whether this was true or not, but the success of Japanese industry was nailed to a meticulous long term view of the future.

Perhaps the tipping point for UK companies was to realise that making it up on the hoof was not a guarantee of success. And so the 3 year plan was born. Like me, you’ll have encountered many occasions when this cornerstone of UK business planning raises it’s head.

Chairman: ‘When’s our strategy day taking place?’. CEO: ‘October so we can shape our thinking for the financial year’. Chairman: ‘I think the board would find it useful if the divisional heads presented their 3 year plans and you and the CFO bring them all together for the company. I think our advisors should be there too, efficient way of keeping them in the loop.’

Now, is this a good idea or a fairly pointless exercise? The answers depend on a number of variables. If the company uses 3 year planning as a regular management tool to plot progress and benchmark decisions, then it’s arguable it could be time well spent. But if that’s the case the board would already be regularly updated, so spending a day hearing what they already know would be a pretty poor use of time.

But most companies, certainly in my experience, only prepare 3 year plans for occasions such as a strategy or board away days. The CEO returns from the board meeting to inform his executives that a considerable amount of their valuable time will be absorbed preparing for the big day. Most will dust off last year’s power point as a start and leave the exercise as long as possible before they get going.

Where can we find value here? Arguably the exercise of a 3 year plan helps executives take a future view that will impact on day to day decisions. ‘Our 3 year plan relies on purchasing storage space to scale the company, perhaps we should be buying more capacity than we need right now?’. Of course, that may be a prudent decision but it may result in paying for unnecessary capacity and that will affect margins and profits.

The 3 year plan provides comfort to the board that the company has thought matters through and that there is basis for the decisions that will need to be made. Although it’s the tradition for most companies I’ve ever been involved with, I’ve personally become increasingly convinced of its diminishing worth.

I recently discussed this with a friend who works for a fast growing tech company which you will have heard of. ‘When I first joined we had a 3 year plan but then we ditched it. Why? Because we can’t predict the next 6 months let alone 3 years!’ His company now operate on a 3 month rolling plan.

Last week I was with a company I help. The CEO said that, in order to encourage greater accountability and improve personal responsibility, each partner was writing their own 3 year plan. I persuaded him that this was a pointless, time consuming exercise that would fail to deliver his desired objectives. ‘If you ask them to plan their activity for the next 3 months, share it with their colleagues and account for what they’ve done each week you’ll see better results’.

What can we learn from this?

Exchange 3 year plans for 3 year goals. Nothing wrong with having ambition and it’s important to have something to aim at.

Run the business on rolling 3 months plans. Constantly ask the question ‘Is what I’m going to do this week take us nearer to our goal?’

Ensure the 3 month plan has plenty of measurable outcomes. It needs to be commercially driven whether you’re in HR, Finance or Marketing.

Share your plans and results in order to hold yourself and your colleagues to account.

Keep tasks within reach. Small steps are far more effective than big leaps.

No time like the present, revolutionise your business from Monday!

 

David Mansfield, founder of The Drive Partnership and visiting professor at Cass Business School