The Interdependency of the Strategic Plan and the Financial Plan

Back in 2017, a PWC study revealed that 82% of CEOs were concerned about uncertain economic times. This despite an economic climate marked by rapid growth that outpaced even the most bullish predictions. Fast forward to 2020, where we find ourselves in the middle of the most topsy-turvy year that anyone living can remember. The tumultuous climate is perhaps best defined by the dramatic shifts in the World Bank’s global economic predictions. In January 2020 the World Bank fretted about a modest global recovery, but still predicted overall growth at 2.5%. Just five months later the World Bank is now projecting a 5.2% loss in global GDP.

It’s not hard to imagine that under the current circumstances today, where collectively we have been blindsided by a pandemic and the subsequent unprecedented global lockdown, that same survey would reveal that nearly all business leaders would feel concerned about uncertainty in their financial futures. 

What this means for all business leaders is that your financial plan and your strategic plan can no longer work in silos. They must be able to work together in tandem and be sensitive to disruptions on either side. History has proven that outside forces will always disrupt our best-laid business plans, but that doesn’t mean “uncertainty” should spell disaster. The best laid financial strategies have a measure of elasticity to them – an ability to bend and shift without breaking as unforeseen and unexpected circumstances happen.

Most critical to success is the ability to align your broader business strategy to your financial plan so that both elements can work together more effectively, while also working separately more efficiently. How can you make this happen in your own organization? Consider the three M’s – meet in the middle, measure and monetize, and maintain consistency. 

Meet in the Middle

If your corporate strategy and your financial planning are managed by two different departments, you’re not alone. For many companies not only are these functions separate, they rarely overlap. 

Traditionally, strategic vision takes a long term approach, forecasting for years ahead. Budgets, on the other hand, rarely go beyond 12 months. It’s hard to map strategic business initiatives to the reality of resources without creating a long term vision for what those financial numbers need to be.

On the flip side, it’s hard to set a revenue goal, for example, without mapping out a strategy to achieve that goal. If your finance team only has access to the numbers, without the purpose, meaning and direction behind them, they can’t adequately use their expertise to help control and funnel resources where and how they are needed.

Settle on a plan that allows your finance department and your executive strategy team to meet in the middle, sharing insights and understanding that help align the vision and goals with the financial reality. Our Strategy Dashboard feature makes it easy to track a quick-glance view of strategic initiatives and their success. Perhaps most valuable, you can track success based on a variety of metrics, which as we explain below, is another critical consideration when evaluating the best allocation of resources.

Measure and Monetize 

Having full visibility into your organization’s strategic activities helps to better clarify where your budget is having the most impact. It also offers great incentives and motivation, as the team sees immediate feedback in the form of budget or revenue success.

Non-financial metrics are also critically important, and should not be overlooked. Aligning corporate strategy with financial activity helps to also highlight these non-financial victories, and positively influence how and where money is spent. 

In theory, this sounds reasonable, but as business leaders ourselves we recognize that this can prove quite challenging in reality. It’s not always obvious how to track KPIs and other metrics on a regular basis and have that information accessible to your key decision-makers. That’s why StrategyBlocks Metrics Zone takes a highly automated approach in delivering near real-time access to a variety of pre-defined metrics that can be adapted or added to as often as necessary.

Maintain Consistency

If 2020 has taught us anything, it’s that we need to be flexible and agile when making business goals and evaluating success. Sometimes what we consider ‘success’ can change overnight. Too often businesses use past performance to set expectations for future performance, without taking into account mitigating factors that are often outside of the company’s control.

Keeping financial strategy closely aligned with broader business strategy helps to ensure that forecasting and outlooks are accurate, and allows more team members to weigh in and course-correct as needed. 

This cannot be a one-time effort but instead an ongoing solution. The lesson of COVID-19 should be that strong companies can adapt business forecasting and even shift business goals, but it needs to be done in concert with financial projections. Our Strategic Health feature makes this easier to manage, by providing real-time understanding of how various projects are helping now to meet the broader business initiatives.

StrategyBlocks integrates with your financial planning software to give your finance department and your executive team full insights into the distribution and efficacy of resources as compared to company projects, goals and long-term vision. Let us help you align your financial and strategic planning – request a free demo today!