Understanding Corporate Planning Layers

Posted By:

Understanding Corporate Planning Layers

Over the years, we have found that many executives are unclear about the distinction between strategy development, strategic planning, and financial budgeting: the corporate planning layers.

This article aims to create a taxonomy and discuss problems and opportunities. The initial post on this topic is by far Tellusant’s most popular post with more than 6,000 views, so here it is expanded into a richer article.

DEFINITION OF CORPORATE PLANNING LAYERS

At the corporate and business unit levels, there are three layers of planning activity that span all functions, as depicted in the graph. All are of critical importance to a company.

Tellusant - The corporate planning layers A few observations, ordered by when the planning layer became established:

Financial Budgeting

The bottom layer is financial budgeting. In most companies the budgeting process is well defined and the data required is available in a standardized form with high automation.

When a company starts its annual budget cycle few executives ask “what is this?” But it has not always been like that. Budgets where invented in the 1930s and it took around 40 years to institutionalize them across the corporate world.

Strategy Development

The top layer is strategy (often called strategy development). This was pioneered by Bruce Henderson, leader of BCG, in the 1960s. Again, it took decades for the wisdom of strategy to be accepted by corporations, but today it is well-established practice.

Strategy work is by nature ad hoc. It is usually initiated when there is a major change in the company such as declining profitability; a new CEO who wants to put his or her stamp on the company; major technology disruptions, and more. Strategy work invariably is commissioned to the large management consulting firms.

Strategic Planning

The middle layer, strategic planning, followed from strategy development. Companies found the strategy work useful, but wanted a more structured approach where each country subsidiary or business unit would develop a strategic plan annually. This involves a template approach and a closer link to implementation than seen in strategy development.

Strategic planning started in earnest in the 1980s and even today, most companies do not have strategic planning as an institutional competence.

CURRENT PROBLEMS

Strategic planning, while highly valued by executives, has its fair share of problems.

Confusing the Corporate Planning Layers

Two misconceptions we often encounter are:

• Strategy development and strategic planning are seen as the same thing. They are not.

Strategy development is a truly intellectual exercise done on an ad hoc basis. It seeks high level answers for where the company should be heading.

Strategic planning is somewhere between strategy development and budgeting. It is programmatic (annual, templates) and defines what line managers should achieve over the next few years in light of the strategy.

• Strategic plans become extended financial budgets. They focus on the operating reality that in turn feed into budgets. Sometimes, the strategic plan is little more than long-term budgets with an intense focus on the financial statements.

Rather, a strategic may tie into the coming year’s budget, but beyond this it should be about markets, competitors, and the company’s opportunities (and weaknesses).

Obstacles

To Tellusant, proper strategic plans are useful and that is why just about every company create them. But to do strategic planning well, the following has to be avoided:

A problem is that strategic plans often are data dumps and do not answer “what do we do to deliver on the strategy?”
Strategic plans are also time consuming to develop as most supporting analyses are created manually with low productivity.
Further, to be more effective, strategic plans have to be standardized and harmonized between countries and business units. They seldom are.

THE PATH AHEAD

Strategy work and financial budgeting processes are in many ways at the top of their respective S-curves. That is, they are well established and revolutionary improvements are unlikely.

Strategic planning is however, an immature process. There is a need to streamline and standardize the process so that there is less Excel, PowerPoint, and email and more cloud-based planning tools with virtual collaboration. There is also a need for preset definitions such as:

“What do we mean by market size?”
“What macro factors truly impact our performance?”
“How do we define our category? Which are the adjacencies?”

• • •

To move strategic planning up the S-curve is the task Tellusant has taken on.

Read more in our paper on strategic planning.