The Bigger Picture Annual Planning Process
Hopefully, you have already read my article or book chapter on Management By Objective and learned about managing individuals and departments to monthly goals. If you have not it is recommended, but not required, to understand this piece. This chapter is really the next level “up” in terms of developing a more strategic annual plan. It is no so much about deciding where the business will go; that should be part of the vision process and already known. It is about setting the milestones to be achieved in a particular year. I recommend a simple and fast planning process for each of the following levels for the best results.
Overall Vision - All business and operational plans and objectives over three to five years. Really, everything about the business. See my article “The 11 Required Elements of a Successful Vision.” Constantly evolves as new data comes in and new opportunities emerge. The CEO “owns” it.
Annual Plan – A strategic level exercise that ties the long-term objectives into specific steps.
Quarterly Objectives – Tangible results expected in the quarter.
Monthly Objectives – Ditto for the month; usually a more tactical level process with detailed steps for the month that are stepping stones to the quarterly objectives.
Monthly goals are very different than annual goals, and so is the process of managing those goals, and empowering people to achieve them. It is a well-known fact that most people do not have a lot of forethought. Hopefully, all your managers do, but it is certainly our job as CEOs to maximize this ability in our people. We should also be stretching and growing them for their own personal benefit, as well as for the company.
In any business, the day-to-day interruptions can easily pull people away from their longer-term goals. Systems and even philosophies must be set up within any organization to prevent these short-term distractions from interfering with the longer-term goals. In engineering, we use to call this “interrupt-driven,” meaning that whoever walks in the door with a problem determines how your day will be spent. This is bad management. Much smaller, or early-stage, companies leave Setting long-term goals to the individual department managers. This works for a while if those managers are experienced and really good, but it breaks down when the nature and scope of the goals begin to exceed the individual’s business scope and experience. For example, Directors of Software Development can set the software development goals, but how would they know what marketing might need to do prior to the product being available? Their expertise is not in marketing and it is likely they will not provide the marketing VP with all the needed information. Therefore the CEO needs to coordinate this communications and planning process, while also enabling an iterative dialog between departments and disciplines to happen without them always directly involved. This is partially culture, and partially the personalities involved, but definitely the responsibility of the CEO.
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So what “level” of the planning process is appropriate for a company? This greatly depends on the number of employees and, to a lesser extent, on the revenue and type of company. I am going to describe here a process that is probably appropriate for an average company with twenty-five to seventy-five employees, and you can extrapolate for larger companies.
First, let’s look at the appropriate steps in the annual planning process that will set the goals. The CEO’s job is really to determine what those goals are first. I like to say that is it always the boss’s job to say “what” will be done, and the subordinates’ job to decide “how” to do it. This assumes they are experienced enough for this task and do not need to be micromanaged, which may be the case in very early-stage companies since you cannot always afford a top person on day one. I like to start in mid to late November, or early December, This uses the holiday slow period to get some real work done while things are quiet and much time might go to waste. There may be an advantage in some businesses to using a different cycle for tax or other reasons, but the process is the same.
1. The Stake in the Ground – The CEO defines the “what” needs to be done, such that he or she believes these initial goals, or objectives, are reasonable given all the resources likely to be available during the next year. This is an iterative process and someone has to start it off. These goals are the strategic level objectives that are the steps needed to achieve the long-term (three to five year) vision. In the early stages of company development, or when there are unknown resources for other reasons (e.g.., high sales risks, a financing round needed) this can be a more iterative and elastic process, but either way, I strongly believe the CEO needs to put the initial stake in the ground to get the ball rolling. In theory, he or she is the best one in terms of experience and can balance the resources between departments and objectives. This list should fit on one or two pages and be very high level (e.g., achieve 240 customers with 100 new and less than a 10% drop out rate, add such and such a capability to the product, grow the average sale 10% through a combination of price increases, bundling and better up-selling of existing customers). Send it out to all the managers several days before the first planning meeting and tell them to be prepared to discuss this with additions and issues.
2. Department Head Meeting - Hold a group meeting of all the senior managers together to review these goals and get initial feedback. This will start the dialog and begin to identify the issues. This needs to be upbeat and positive. There is always someone “wearing the black hat,” who can come up with a million reasons why these objectives cannot be met. This person needs to be restrained at this stage. This meeting should be like a brainstorming session to some degree where the focus is on what is possible and “what we need to do to make these things happen,” not why they are too difficult or impossible. More realism can be introduced later in the process, but you should start with aggressive goals that are possible, but not easy. I like to do this offsite, away from distractions, as this gets the creative juices flowing. It would not be unreasonable to spend an entire day on this annual meeting. Some goals may eventually be two-year goals, but knowing them now helps get there.
3. Manager-Developed Plan – At this point, the CEO will quickly update the goals based on this meeting and redistribute them asking the managers each to develop their own more detailed list and plan for the year. This plan should include a timeline for each objective and a list of all the resources they will need to achieve these goals in that amount of time. It should also list the things they will need from other departments (out of their direct control) and when. Needless to say, these timelines need to match with some room for error. This does not have to be a big document with all kinds of text; it is better done as a list for easier changes. I personally prefer a Pert Chart Format or PowerPoint slides that are very easy to edit and move around, but any list will do the job really.
4. Individual Managers’ Meetings With the CEO – The CEO should now review each person’s plan with each department manager one-on-one. This is where the real issues, limits, and dependencies will get surfaced and discussed bluntly. Some people may not be willing to say things needed here in front of everyone and these need to get out on the table. The interactions and dependencies with the other departments may be big issues. After these meetings, the overall goals and schedule for each should pretty clear to the CEO. By either pushing out some deadlines or applying more resources to get something done sooner, the CEO should be able to “merge” the needs of each department and publish the next iteration. (Repeat as necessary until both parties are happy and in agreement.) You may want to tie people’s annual bonuses into these objectives, but this is a double-edged sword because some will want to be overly conservative to make sure they make their bonus. So it is important to have everyone know you will be a little flexible here and their bonuses should not ever be all or nothing based on those annual objectives. This causes high stress and low goals.
5. Financial Testing and Analysis – At this stage, the CEO should have a pretty good idea of what the staff thinks is achievable in certain time frames. I would probably plug this all into a spreadsheet myself and do the cash flow and/or P & L analysis at this point (cash flow is most critical for stage 1 to 3 companies and the P & L becomes the guide when the cash flow pressure is not too high). Some people might want the help of a financial person depending on their comfort level with the numbers side of the business. The point though is that I would not involve the financial people until this stage of the process because they simply wind up going in circles and wasting lots of time through these early iterations. I think a lot of CEOs make the mistake of allowing the financial people to drive this process. They are typically the worst people to do this, and it gives the impression to everyone that they are in charge and “visionary,” when usually they are not. They also tend to be people who “wear black hats” and this will slow down the process without adding value, and will slow company growth (there are exceptions, of course). If there are huge financial unknowns and a financing round will be required, you may need more help from them, or you may need to repeat the process going back to step 4.
6. Group Meeting To Finalize The Annual Plan – At this point hopefully, everyone has bought into their own department’s (and personal) challenges for the coming year and knows how they will do it. In an early-stage company if the goals are not somewhat challenging, then they are too easy and you should go back – you must have higher expectations and move faster than bigger companies even to survive. You should now all meet to review and “bless” the plan and flush out any additional details or interlocking. I would usually try to rate the risk of achieving each goal and have the group understand the consequences of not making each goal. The last thing you want is a potential domino effect from a goal with a high risk of being late. This will drive up the sense of urgency and level of communications to make adjustments as the year goes on. With distance from the planning process, it is human nature to say “Oh well, we will just slide it out another month,” and people need to understand the consequences of that to the organization. If this happens you may not have the planned resources for everyone else to achieve their goals and the business is at serious risk of failure. I would generally make a point of having people stand up and present their goals. PowerPoint presentations are good for this because they are serious and have to be prepared with thought. Also giving these out in writing can be powerful and has a high psychological value and creates a permanent record to benchmark against at the end of the year, at review time, and at quarterly checkpoints.
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It should not be too difficult to complete one step each week as long as people take the process seriously. It should be a top priority, not a “nice to have.” I would simply publish the schedule for all these meetings in advance of the whole process so everyone could manage to that time frame and be sure to be available. After this, there should generally be quarterly meetings to review progress against the annual plan. The trickle-down from the monthly review process should always be connecting these long-term goals with the monthly goals as components of those bigger objectives.
Wrapping It Up For “Publication”:
Now add a quarter to all these goals for slippage and unforeseen circumstances and publish only this more conservative plan to your investors and other outsiders as necessary. Continue to manage the staff and departments to their personal goals as originally set (one quarter sooner). You don’t need to tell everyone you have built more time into the schedule, which makes people lazy. This manages the expectations of the investors and also pushes the staff to their potential too. This more conservative plan takes into account real-world unknowns and changes that are inevitable and also gives you some room to change dates if priorities change (which they always do in the early-stages).
One CEO I had when I was a VP used to take the one-page financial plan and shrink it down on the copier five times until it fit in his shirt pocket. This was a good message for managers about commitment and staying on top of the numbers when they are critical to the business. It also helped him remember 200 different numbers and hold people accountable.
This level of the planning process should be sufficient and not too much overhead and bureaucracy for most companies with fewer than 100 employees. It is easy to adjust, even for a $50 million company, simply by stretching out timelines a bit. As the company gets larger you need to add some elements like succession planning, manager development, and things like M & A or new product development planning (all separate processes really that tie into the annual plan).
You will find this process clarifies intent and focuses people on the long-term objectives for a while. When managers return to the month-to-month they can’t help but bring these annual goals into their day-to-day and month-to-month planning process. You will see better results, people will feel better because they were involved in the process and “know the plan,” and your staff will be very clear on the expectations of them. This makes for a happier staff and better performance all around.
Best of luck in your next planning cycle, and if you don’t have one now, don’t wait till December. Do it now!
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Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship University™. Mr. Norton works with companies to triple their chances of success in launching new companies and products. And helps established companies scale faster using the six AirTight Management™ systems. And helps companies successfully raise capital.
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