How to Build a One-Year Operational Plan That Improves Performance

How to Build a One-YearOperational Plan That Improves Performance In this chapter you move from the strategic view to the tional applications.. opera-The 1-Page Strategic Plan generally

How to Build a One-Year

Operational Plan That

Improves Performance

In this chapter you move from the strategic view to the tional applications Here you separate the strategic from the tac-tical, the global from the specific, and the long term from the shortterm This is where most management energy is focused for execu-tion

opera-The 1-Page Strategic Plan generally spells out where you intend

to take the organization while the operational plan defines howyou plan to make the trip Yet getting to a practical application of a

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business plan seems to always get lost in the planning process.Earlier you defined the goals, objectives, and tasks necessary to giveyou three levels of definitions Now let’s examine your businessplan up close by defining what must happen next year This iscalled the operational plan (see Figure 8-1) The content for theplan is developed during the initial planning conference All theinformation for the operational plan can be extracted from theoriginal planning process This is mostly true for the other plans aswell The real task becomes putting the information into the rightportion of the 5-Page Business Plan In lay language, we call this

“getting it in the right bucket.”

Figure 8-1 The operational plan sets the direction into motion It is how you plan to work the next year.

The operational plan usually extends out one year (see Figure8-2) It is always the first year of your strategic plan, which auto-matically makes it the first year of your business plan Althoughsome companies elect to use two or three years, one year is morepractical and best fits accepted business reporting standards Oneyear fits with the quarterly concepts and the annual budget cycle.This permits you to look at your performance on a frequent basisand make annual adjustments if necessary One year is also aboutall the detail you can plan without becoming overwhelmed Do notspend a lot of time, if any, trying to develop the details and num-bers for subsequent years because they will be adjusted as you workwith your plan over its life span

Figure 8-2 The operational plan is cut out of the total ten years.

S ITUATIONAL A NALYSIS : T HE B RIDGE B ETWEEN THE S TRATEGIC P LAN AND THE O PERATIONAL

P LAN

To get from the strategic view to the operational view you must dovery detailed thinking Situational analysis is the middle or secondstep of the backPlanning process (see Chapter 3), with strategic

thinking and operational execution being the first and third steps,respectively At this stage of planning you must do a reality check.

In strategic thinking you examined what you wanted to do in thelong term Now you must carefully consider what can be done inthe short term in light of the realities of the business environment

in which you must act

To conduct a good situational analysis, you must considereight criteria:

1 Analysis of company performance

5 Analysis of existing resources

6 Analysis of your business’s drivers—excluding, at thistime, your primary operational focus (i.e., single focus)

7 Analysis of existing structure

8 Analysis of reference information

a Customer satisfaction survey

b Employee satisfaction survey

c Others as identified

Analysis of Company Performance

As part of the planning model you must conduct self-evaluations.This means taking a hard look at your last year’s performance and

a second look at your overall performance from a historical view.Usually there is no shortage of charts and graphs depicting howwell you did financially for the past year The analysis usually

includes one or more previous years, depending on the size printand complexity of the chart It always includes actual performanceagainst projected performance Usually these are just numbersdrills.

To be truly effective you need to have some lessons learned.You need to know why the numbers went up or down Thoughtmust be given to why spikes occurred in your performance A poorshowing cannot be written off as the result of a bad economy or anunexpected downturn These are simply excuses for mediocre man-agement performance

This analysis is where you start to sort out the serious planningsession from the weekend at the golf resort session Often managersare unprepared to talk specifics of the current business situation oftheir industry at a planning session This can only mean these peo-ple came to the meeting unprepared At your next planning sessionhave your principal attendees give a short briefing to the team onthe status of their portion of the business This can be assigned ashomework in the preconference briefing

The best team I’ve ever seen do this is Cedarglen Homes inCalgary The two principal players really know their business.Robert Bezemer and Scott Haggins can talk for hours about the backcorners of the industry in Calgary, Alberta, and all of Canada That

is because they are out every day dealing with the details of what ittakes to run a successful building company This means they aredoing more than just building houses Both executives are involvedand have a genuine interest in how their company fits into thesocial fabric of the community They spend a considerable amount

of time with customers, other builders, and the trades This pays offwith a multiplier effect

plan-in plannplan-ing the team must start with the future and work ward, so I advocate the backPlanning approach This future orien-tation removes the inherent limitations placed on the thinkingprocess Once team members decide where they want to go, theycan test the validity of their decision with the situational analysis

back-to determine the plausibility and practicality of the plan

If you are dead set on starting your planning process with acompetitive analysis flavor, think about these two points First, themore time you spend in competition the less time you have toaccomplish your own goals Second, why do you care about thecompetition, anyway? If you are accomplishing your goals, whichyou freely set, why should you have more than a passing interest inthe competition? You need a healthy respect for your competitorsand should honor them as legitimate players in the market, butdon’t overdo it

What I’ve observed is that competitive strategy actually should

be called competitive obsession Management consultants have led

us astray in this area by building large, complex schemas for gic thinking and planning based on intricate formulas for compet-itiveness This approach appeals to the macho tendencies oftenfound in the upper levels of management You don’t need a lot ofcompetitiveness except toward one thing—your vision and its asso-ciated strategic goals

strate-Analysis of Market and Market Share

What is your market and who is your customer? Don’t tell meeveryone! Someone once asked Willie Sutton, the famous Americanbank robber, why he robbed banks His answer was very insightful

“Because that’s where they keep the money.” A danger is to notknow where the money is kept Are you guilty of selling or servic-ing every customer with no real knowledge if it is a profitable sale

or not? When was the last time you did a careful screening of yoursales to decide which customers should be dropped?

Some companies think any sale is a good sale That is simplynot so You may be robbing a convenience store after-hours instead

of a bank on payday It’s hard to turn down an order when yourpeople are not busy or your machines are idle The normal justifi-cation for marginal to nonprofitable sales is to exercise the equip-ment, keep the plant running, and pay for overhead Well, that has

a downside, too I’m not suggesting you turn down work or turnaway orders What I am suggesting is that you look at work to see

if it is profitable

Define your market and, specifically, who is and who is notyour customer The latter is just as important as the former WhenEZCertify.com developed its business plan, the managementfocused like a laser on this issue After careful market analysis theydetermined exactly who they were attempting to reach with theirproduct By first defining the market and then the profile of theactual customer within that market they were able to develop real-istic annual targets Without this information your operationalplanning targets are going to be guesses at best and badly skewed

Analysis of Mission

Give your mission statement another look during the planningprocess Make certain that you fully understand the implied tasks ofthe mission statement This gives you coordination points for activ-ities that cross boundaries between staff functions Ask these fivekey questions as a validity check:

1 What am I being asked to do in the mission statementthat is not spelled out in the text?

2 Are there implications of those tasks that may or maynot be fully understood and appreciated?

3 What resources are going to be implicated when the hidden tasks are brought to execution?

4 Have we coordinated those implied tasks among themanagement team?

5 Are we fully committed to the range of tasks?

Another reason to revisit the mission statement is to confirmyour mission capability That is defined as your ability to carry outthe requirements In the plan that means you must be able to hitthe targets you are setting for the first year Not only is missioncapability a planning issue, it has leadership implications as well.Too often managers set targets, objectives, or goals that are beyondthe capabilities of the management team Test your reality by ask-ing several hard questions Start with the following six about yourteam and their ability to fulfill the mission:

1 Does my team have the management maturity to plete the mission?

com-2 Do they have the wisdom, experience, and judgment to besuccessful?

3 Are they willing to commit the time, energy, and effort toaccomplish the mission?

4 Can they complete the mission or operational tasks beingset within the time frames being established?

5 Are we giving the team the right tools and equipment toget the job done?

6 Will they have enough information to properly do theirjob in the spirit in which intended?

Analysis of Resources

You must review the resources requirement from two perspectives:strategic and tactical (Later, in Chapter 10, we look at the completeresources plan by addressing strategic resources in more detail.) For tactical or short-term existing resources supporting youroperational plan, you must be ruthlessly analytical A great danger

of planning is to overcommit tasks and targets without adequateresources for support Consider these ten items when looking atyour existing resources base to support the operational plan:

a Do I have the right amount of information on hand

to make short-term decisions?

b What additional data must I gather to support my decisions?

c How will I manage the volume of information currently flowing through the system?

d What are obstacles and barriers to overcome for effective communication of information?

3 Staffing levels

a Do I have the right amount of people in place to accomplish the tasks?

b Are the right skills represented among the workforce?

c Will I be able to find and hire against my job skills shortfall?

d Can I afford to pay for the core competencies I need?

4 Facilities

a Do we have adequate facilities to get the work done?

b Are conditions in the offices, plants, or facilities conducive to effective work?

5 Tools and equipment

a Do we have the right items on hand to properly

do the job?

b Can we afford any upgrades or replacements required?

c How soon will we be able to get the tools and equipment needed?

6 Technology

a Will our existing technology be able to keep pace with the action plan?

b Can we afford to leapfrog technology?

c What will be the implications of working with outdated technology if our competitor is state-of-the-art?

7 Relationships

a Do we have the right partnerships, alliances, and outsource partners for the mission?

b How difficult will it be to put a relationship in place

to meet mission deadlines?

c Are there old relationships that must be renegotiated

or dropped?

8 Intellectual capital

a Do I have people with the willingness to share experiences for a synergistic effect?

b Do we have a formal database of lessons learned

to draw from along the way?

9 Financial

a Do we have the money to support the annual plan?

b Have budget considerations been included as an internal part of the planning process or are they

d How can we make the most of our good name and reputation?

Analysis of Drivers

In the planning conference you examined six key business driversand initially selected a single business driver as your focus The sin-gle focus creates alignment Now you must account for the remain-ing five drivers You need to ask specific questions of your opera-tions to make sure none of the other five have been neglected Case

in point: Although Wal-Mart is not a customer-intimate business,

it certainly doesn’t mistreat the customer Regardless of which

driv-er you select as your focus, you must maintain an acceptable level

of performance with the other five Ask these questions for eachdriver:

or have we been too limiting in time?

2 Are we disciplined about how we do business? Do we haveaccountability measures in place to make sure the plan isfollowed? Do the rewards and compensations match thedesired results of the plan?

Processes

1 Are we operationally efficient? Do we have a plan for trolling overhead?

con-2 Do we pay attention to our business process? Are weupgrading our ways of doing business or just continuing

to do business the same old way?

3 What is our level of heat loss? Do we know how muchmoney is draining out the bottom through inefficientprocesses? What is our plan to fix the loss?

Products, Goods, and Services

1 Are we single-product focused with no alternatives? Whatwould be the implications of additional products? Have

we let go of obsolete but emotional lines of goods?

2 Where do we make our money? Is our attention and focus

in the right place?

Properties

1 Are we using our intellectual capital database as well as weshould? Is teamwork required of our people?

2 Are we protecting and preserving our capital assets? Are

we willing to invest money to make money with our ities and equipment?

Chapter 9, in relationship to the complete business plan For theannual activities, let’s examine what we need to do from an orga-nizational viewpoint You need to look at your plan from three per-spectives:

1 Organizational charting

a Do you have the right teams in place to carry out the mission?

b Are the reporting relationships lean and efficient?

c Is the organization structure as flat as possible?

a Are the physical facilities set up to support the mission?

b Do you have the right equipment spotted at the right locations?

Analysis of Reference Information

There is a wealth of information available to you for a situationalanalysis You may have a customer satisfaction survey that providesdetails on a range of vital items Use this information to cross-checkyour goals and supporting tasks The key questions to ask are as fol-lows:

■ Are we satisfied with the current customer satisfaction ing? If not, what must we change?

rat-■ Does the plan allow for improving the customer ship?

relation-■ How does the customer fit into the total picture of theplan?

You may use an employee satisfaction survey to determine theculture temperature of your workforce The data may or may not betranslated into a goal In all cases the purpose of gathering referenceinformation is so you can apply it to the development of actionitems to close identified gaps For your situational analysis youshould know the answers to these questions:

■ What is the employee feedback telling us in relationship

to the plan?

■ Is the plan too ambitious or too conservative in ship to our employee base?

relation-■ What roles are specifically designated in the plan?

■ What actions are necessary to close any employee faction gap?

Choose Annual Targets

From your planning process you need to scale down the numbersfrom the strategic goals and select numbers for one year out Thesebecome your annual targets, which are critical to your fiscal healthand well-being This is what the stockholders and Wall Street gradesyou on Everything you do for the next year should focus on meet-ing the annual target you set

To set annual targets review your goals and objectives Examineone objective and determine how much you can accomplish nextyear Apply realism to the target based on the previous description

of the situational analysis Repeat the process until targets are setfor the remainder of the objectives

Avoid the twin dangers of setting the targets too high or toolow The first danger of shooting too high comes from the inherententhusiasm found when planning It is easy to sign up for morethan you can do based on the adrenaline high from the process Toavoid this danger, apply the situational analysis measures and make

a determination

Setting targets too low is equally a danger because not enoughwill be accomplished to put you on the correct climb for yourstrategic goals Frequently a low target is set for the first year thenrepeated the second and third years to produce a hockey stick per-formance figure (see Figure 8-3) The management rationale is tostay relatively flat for several years to get systems in place or ramp

up the activity This may or may not be valid I’ve worked with eral CEOs who will not allow a flat model of any type Their think-ing is that a hockey stick model permits continued mediocre per-formance rather than demanding improved performance from theplan Interestingly, each CEO has been able to get the company torise to the occasion and make the numbers over sustained periods

sev-of time

Set Quarterly Performance Measurements

Waiting a full year to see how well you are performing against yourannual targets is not good business You need interim measure-ments These are usually done on a quarterly basis Business is based

on quarterly measurements, so there is a need to be consistentacross quarters It is common to rely on one single quarter to pullout your numbers for the year This is a traditional but dangerousway to work Look carefully at the distribution of your sales, cashflow, and other measurements to see how they can be equallyspread across all four quarters

Measuring against quarterly performance has both an upsideand a downside The positive aspect is the fact that you are con-

Figure 8-3 The hockey stick model allows an organization to get by for eral years with less than satisfactory performance As the flat spot is extended year after year with only small growth, the real target is identified.