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©2020 by M. Beacon Enterprises LLC. DBA Strategy for Real™

  • Tara Rethore

Strategy is Not a Hockey Stick

For many, fall equates to “budget season”. Budgets quantify near-term expectations for earning, investing, and spending. Good budgets also reflect a key strategic decision: How will we allocate our resources to execute our strategy? More often, however, the budget process results in a corporate profit projection that looks roughly like this:

In other words: “We’re fine now, but must spend more in the near-term in order to be wildly successful later.” Sounds reasonable: investing in your business is important. Yet in our experience, this approach may result in a succession of similar lines that simply move out one year.

We end up with a collection of hockey sticks rather than a meaningful exercise that aids strategy execution.

Strategy is not a hockey stick.

Your budget or profit projections should never create one! Follow these 3 tips to make the budgeting process strategic – and avoid the stick:

1. Start with strategy. It’s easy to copy last year’s numbers and paste them into the current budget; that says we’ll hold cost (and investment) flat, which may be appropriate. Yet, that says little else about your performance for the year and whether more of the same is the right approach going forward. Before jotting down numbers, revisit your strategic priorities.

Consider: What key outcomes must we drive this year to be successful in our longer term strategy?

Then, identify the key drivers or success factors for each outcome and relate these to resources (e.g. dollars, time, people, or equipment).

2. Define what it will take. No doubt you’ve experienced changes since last year – perhaps in your market, competitive position, industry, or political environment. Each strategic outcome will require effort and attention to be successful, yet the nature of that may differ in your new context. Review your programs or activities in the context of the outcomes. Take time with your team to assess your current progress and lessons learned.

Identify: What’s working, what may require investment, and what should be eliminated or allowed to run its course?

Then define what it will take to be successful given where you’re headed, your new/changed context, and where you are today. Use these to set your budget and investment goals.

3. Recast the numbers as decisions. Budget season can be an impetus for reflection before committing resources. You should see the work you did in steps 1 and 2 embedded in the specific line items of your budget. Recast these logically, so that they tell the story of how your resources will help to achieve your strategic objectives. Pie charts and matrices are particularly useful in this way; they create perspective by relating disparate things to each other.

Think: Have we committed the right amount of time, dollars, or talents – in the right proportion?

For example, if you’re opening a new market, you may see increased spending on travel or training as you learn more about customers or teach your people to work in or support a different area. Perhaps you’ll spend less on R&D, because you’ve moved into product launch mode. Or you’ve got too many people working on high-risk, longer-term initiatives when you are struggling to meet near-term operational objectives. For any of these: Is that how we want to spend our resources?

Strategy is about the decisions and actions needed to achieve your objectives.

Likewise, your budget is not about the slope of the line (or the shape of your stick); it’s about the implications of your decisions for allocating resources.

When you start with strategy, then reflect on and align your spending or investment proportionately with strategy, you transform your budget process – from an annual event to active strategy execution. So, banish the hockey sticks!