In a previously published article, I proposed that integrating a strategic and financial planning process that is facilitated by the FP&A Head would set the stage for the successful execution of a business strategy while meeting financial goals. In this follow-up article, I will introduce a model for such an integrated strategic and financial process and highlight key practical considerations for its use by an FP&A team.
There are several good models for strategic planning. Having used many of these, I find models that are simple and easy to follow work best. This is mainly because the simplicity reduces debate about the merits and mechanics of the model itself and enables teams to focus on its implementation. Based on this principle, I find that the Plan, Prioritize and Execute (PPE) model is an effective tool for an integrated strategic and financial planning exercise.
This model is flexible because it can be used by both large and small businesses and accommodate different budgeting methodologies. The model has three phases that are summarized below:
Three Phases of the PPE model
The purpose of this phase is to align and motivate the leadership team and set a direction for the company. This phase is conducted during a CEO-led offsite with heavy involvement of the FP&A lead. There are three main deliverables from this phase:
- Strategy fundamentals, which include the company’s vision, values and operating principles. If these have already been set, they should be reviewed by the team.
- Big Hairy Audacious Goal (BHAG), which is a compelling, self-explanatory mission for the company that fuels progress. It is typically a stretch goal, but it should not be unattainable. Defining the BHAG is perhaps the most crucial element, as it not only serves to motivate the team but also acts as a beacon for the business’ strategic priorities.
- Strategic Priorities are cross-functional strategic objectives to be accomplished during the planning horizon that if executed upon flawlessly, would result in the company meeting its BHAG. Strategic priorities also translate into key assumptions for the company’s financial plan developed by the FP&A team prior to the next phase.
The purpose of this phase is for the leadership team to decide on the top five priorities for execution in the next year. The session is kicked-off with the FP&A lead presenting the long-range financial plan with the first year of the financial plan serving as a “budget guideline”.
There is only one key deliverable for this phase, which is a list of five priorities for execution that will get funded in the budget for the following year. Each of these priorities should be measurable and have an accountable leadership team member assigned to drive execution. The FP&A lead will track the progress on these priorities throughout the year and build a budget to support their execution.
This step differentiates the PPE model from other planning models. The purpose of this phase is to ensure focus on the priorities for execution throughout the year. There are three main elements of the Execute phase:
- Incentives: An incentive plan that ensures that the entire leadership team stays focused on achieving the priorities for execution is crucial.
- Tracking: The FP&A team should develop a dashboard that includes financial targets and priorities for execution. This is then discussed by the leadership team on a monthly basis.
- Communication: Communication with all internal stakeholders, including the Board and employees, during planning and implementation is essential to align and motivate the different teams.
Tips for the successful use of the PPE model
Using the PPE model for an integrated strategic and financial planning process requires an FP&A team to not only draw upon its financial acumen and analytical skills but also hone its communication skills. Below are a few tips on communication that can aid a successful implementation:
- Setting expectations: Expectations and deliverables for each phase should be clearly explained to the leadership team. This is as much about what not to expect as what to expect. Ground rules that cover pre- and post-meetings discussions should also be set.
- Path to the numbers: The PPE model enables the integration of strategic planning and financial planning processes using the strategic priorities and priorities for execution as key assumptions for both the financial plan and budget. It is helpful to reinforce this point during broader communications.
- Speaking the same language: Aligning on the strategy fundamentals, BHAG and other deliverables, and consistently communicating them to all stakeholders (Board, employees etc.) will unify all stakeholders around purpose and execution.
- Metrics for course correction, not people correction: Tracking of progress and metrics are an essential part of the PPE model. However, it is important to focus review sessions on collaborative and constructive course correction, rather than the accountability of any individual or department. This can help cultivate more of a problem-solving or idea generation approach when addressing issues that arise during plan implementation.
- Celebrate! Celebrating and acknowledging the wins along the way is a crucial success factor that keeps everyone involved motivated.
- Planning time horizon: The planning time horizon must take into consideration the pace of the industry and size of the company. Typically, a three-to-five-year horizon works best for an integrated planning approach.
- Making most of resources: The research and analysis conducted during the use of the PPE model can be extensive and insightful. Therefore, it should be shared with other departments to use for functional strategies and tactics development.
Just as any strategy is as good as its execution, any model is as good as its implementation. The PPE model provides a simple and flexible framework for an integrated strategic and financial planning process that is heavily focused on execution. Hopefully, the details and nuances on the model provided in this article will help FP&A teams successfully run its own PPE process.