The Importance of Planning
I still am amazed at the amount of companies that I encounter that operate without any sort of business planning whatsoever. There are many types of business planning activities that a company should spend time on:
- Marketing plan: what do you sell and to whom do you market toward? This is rudimentary analysis and modeling that is a must…how can you expect long term value creation of you do not even know your market? I recommend the work of Geraldine Fennell as a primer for creating a good marketing plan (Fennell, Geraldine, and Greg M. Allenby (2003) “Market Definition: A Strategic Task,”Marketing Research, 15,2, 32-37.)
- Pricing analysis: what type of pricing strategy should you employ that addresses both tactical and strategic objectives? What are the economics of your product or service. There is a great article from back in the day entitled “Beyond the Many Faces of Price: An Integration of Pricing Strategies” by Gerard J. Tellis, Journal of Marketing, Vol. 50, No. 4 (Oct., 1986), pp. 146-160 (here is a link to the article on JSTOR.) Remember, pricing is both a financial and marketing function that is both tactical and strategic.
- Financial modeling: given a set of assumptions, how much capital will the business consume or create over an extended period of time? Every decision we make in life is based on risk and return…yet many in business do not take this process to a more structured level. I have seen more business models fail because they outgrow their capital base as opposed to bankruptcy or lack of sales.
Whenever the question of planning comes up, I almost always hear that it is postponed because of a lack of time to spend on it or inexperience in going through the process. Sometimes business leaders will point to a budget that they are held accountable to but rarely understand how it was prepared. I am personally not a fan of budgets as they are limiting and tend to be a waste of time. My position is to focus on rolling forecasts that are driven from the bottom up and sail accordingly (here is a link to a webcast from last year that talks more about implementing rolling forecasts.)
I will try and spend more time on future posts on planning and the issues and opportunities that can be created from them.
