When people are united behind a clear vision and strategy, amazing things can happen. The Black Caps’ incredible run in the Cricket World Cup is one example. The global success of Xero, driven by its vision of ‘beautiful accounting software’, is another. But often, there’s a gap between the vision and strategy set by the directors or trustees, and what the organisation actually does.
When the vision isn’t reflected in what happens ‘on the ground’, it’s enormously frustrating for directors and trustees. They don’t understand why people in the organisation just don’t seem to ‘get’ the vision they laboured so long and hard to create.
It’s frustrating for people in the organisation too. They’re working hard, doing what they think is right for the organisation – but somehow it doesn’t seem to meet the expectations of the board. So what’s behind that gap between the vision and strategy - and the way they are interpreted and executed?
Communication breakdown
In our experience, one of the fundamental issues is around the clarity of the vision, and the way it’s expressed.
To achieve out the board’s vision, staff first need to understand what it means for the organisation, and how success will be measured. More importantly, they need to know exactly what it means for them - and how they will be measured.
It sounds simple, but it’s not - and that’s the cause of much of the frustration.
Often, Directors, Governors and Trustees have broad conceptual goals, based on a desire to leave the organisation in a better position after they leave. For example, they may want to be ‘the leader in their market’ or ‘the pre-eminent provider of widgets to New Zealanders.’ While those are admirable goals, they’re also relatively ‘loose’ and open to interpretation. The more stakeholders you have, the more interpretations there are likely to be. In collectively owned Maori businesses there are by definition a wider range of ownership interests than most other businesses. It’s not surprising, therefore, that the outcomes are often different from what board members had in mind.
In our experience of working with Maori Trusts, the owners and Governors also have much longer horizons than most commercial businesses. They are concerned not just with the next 3-5 years but with the next 30 – 50 years or longer. Because their asset base predominantly their land will never be sold, they take a long-term intergenerational view. That means that they may be less concerned with maximising opportunities today, and more concerned with ensuring sustainability for future generations.
However, the farm managers they employ may have short-term financial targets to meet in terms of getting the best prices for their sheep, beef or crops so they are very much concerned with maximising current opportunities. The result is often that while those financial targets are achieved, that may come at the cost of some of the key principles that are important to owners and Governors, such as long-term sustainability.
We often see business plans being driven by budgets rather than strategy. And when that happens, unintended consequences can result.
Business Planning should always start with a clear understanding of the purpose of the organisation, how that purpose will be achieved, and how it will be measured. A budget is then developed based on the resources needed to carry out the agreed strategy – not the other way around.
Business planning is not a simple process. In our experience having a structured planning framework is key to success. There are many models, but below is one that we’ve found effective in helping many Maori Trusts get greater clarity on their vision – but the process can be applied to any business.
A Business Planning Framework
We view the business planning process as having four distinct steps:
Step 1: The strategic plan
In this step Directors and Governors agree on the vision and mission of the organisation, and a high-level view of its goals and objectives. For clarity, this should cover no more than 4-6 key areas (otherwise it becomes difficult for stakeholders to understand), and should describe the things that are fundamentally important to the owners and board. Typically the focus areas will be something like:
▶ Production
▶ Financial
▶ People
▶ Social & Cultural
▶ Environmental
Having a focus on each of these areas gives managers and staff a wholistic view of the business, rather than focusing for example on narrow financial goals. It helps them understand not only what you want to achieve, but also what that would actually look like in the real world, to mitigate the risk of different interpretations. It also enables conversations about how you prioritise and trade off between sometimes conflicting objectives.
In each focus area, directors should the define critical success factors and key performance indicators, so there is a clear understanding of the outcomes they are seeking in each area. That’s crucial, because unless you know with crystal clarity what it is you want, you are unlikely to get it.
Getting to agreement can make your head hurt – but in our experience it is often the difference between success and failure.
The extract below illustrates the type and level of information in a typical strategic plan. While it’s a farming example, the same principles apply across all sectors.
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Key focus area
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Objective
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Critical success factors
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Key performance indicators
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Production
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Maximising livestock productivity
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- Ability to finish 70% own grown lambs
- Ability to finish all own grown cattle
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- Ability to market 80% finished lambs
- Ability to market 80% finished cattle
- Development of individual productivity performance programme
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Environment
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Utilising resources in a sustainable and scientifically based manner
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- Forage and nutrition plans
- Improving our environmental footprint
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- Completed nutrient budget and long term plan
- Land Environment Plan to be completed
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Key focus area
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Objective
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Critical success factors
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Key performance indicators
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Completion
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Production
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Ability to finish 70% own grown lambs
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- Development of more high quality forages
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- 300 ha to be planted this year
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May 2016
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- Selection of ram genetics in line with finishing policies
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- Board approval of any genetic changes
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August each year
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Step 2: The business plan
In this step, management are responsible for taking the strategic plan and turning it into a detailed operational business plan. For each critical success factor (CSF), they set out how they will achieve it, by when, and how success will be measured. The extract below shows how one of the
CSFs from the above example might be broken down in the business plan:
This process is key to bridging the communication gap that often exists between different levels of the organisation:
▶ It ensures that the board and management are aligned, with an agreed view of what needs to be achieved and how. (Giving managers the responsibility for creating the business plan also helps ensure they are committed to achieving it).
▶ Management can also use this with staff to ensure they understand how their day to day role contributes to the overall goals of the business.
Step 3: The Budget
Only when the strategic and business plans have been agreed does the budget process begin. The goal is to ensure there is enough money and resources to achieve all the parts of the plan. If there isn’t, management must negotiate with the Board to obtain more funding, reprioritise, or delay some aspects of the plan until more funds are available. The key point is that the budget is an outcome of the business strategy, rather than driving it.
Step 4: Reporting
A common issue with strategic and business plans is that they are created once, amidst much fanfare, and subsequently left to languish in a drawer while the business carries on as normal. The key to keeping the plan alive is a regular, simple reporting process.
Managers should report directly to the Board on the key metrics identified in the business plan. This reporting should be a feature of every board meeting (we have found that a simple red-orange –green traffic light report on progress towards the 4-6 Key Focus Areas works well, as it’s easy to create and interpret).
The process of regularly reporting and discussing issues keeps the strategic plan alive in people’s minds, and enables changes to be made in response to changes in the business and the external environment.
It also helps keep everyone in the organisation focused on what’s really important, rather than getting lost in the minutiae of business as usual.
As many boards in many industries will attest, delivering on their vision isn’t easy. It takes discipline, accountability, and focus. But by following a structured approach Maori businesses can greatly increase their chances of bridging the gap between vision and reality and achieving the true potential of the Maori economy.
For more information, contact Kylee Potae, Head of Maori Business at BDO Gisborne: kylee.potae@bdo.co.nz