In part one, of this two-part blog series, I isolated the five characteristics of best-in-class financial planning organizations described in The State of Capital Planning Study, published in 2012. With new data from the 2013 Long-Range Planning Benchmark Study, it’s time to revisit and ask, “How does the data compare to my current situation?”
Designed to isolate definitive characteristics, the new research reveals organizations should strive to improve the corporate long-range planning process. The results not only confirm what was described in 2012, but also provide insight and differences between successful organizations and those that struggle with the long-range plan. Here are some key findings from the research:
- Nine out of 10 companies with a highly integrated process create long-range plans that are well aligned to the corporate strategy.
Take a tip from those organizations that are successful with their long-range planning. Integrating strategic and long-range planning with individual capital projects and initiatives is more likely to produce better long-range plans, enabling a company to make better long-term decisions on its capital projects and major initiatives. Furthermore, the data shows that 85% of companies with integrated long-range planning and annual budgets are more likely to have a more effective capital planning process.
- Sixty-seven percent of respondents rely on technology that is fundamentally incapable of supporting and ensuring accurate and timely data.
More than half of the 200-plus organizations that responded to the survey are using spreadsheets. We know that while spreadsheets are indispensable for many finance-related tasks, they do not work well for long-range planning as they have inherent technological inadequacies.Perhaps more important, are the study responses that address the impact of access to accurate data during the long-range planning process. Companies plan and set a baseline of expectations can measure objectively against reality. The variances ‒‒ enable executives and managers to spot issues or opportunities that must be addressed. How quickly companies can react when variances appear has an impact on their ability to execute. The data provides a clear correlation between the time it takes to get answers and the quality of these decisions. It’s common sense that corporations with shorter decision loops are better able to adjust and succeed.
- There is a direct correlation between the software a company uses and its ability to implement long-range plans effectively.
The effectiveness of the software a company uses has a direct impact on its ability to do many of the important tasks related to the long-range plan. For example, contingency or what-if scenarios are critical to assessing alternatives and understanding the implications of specific choices. The ability to translate a set of assumptions into a detailed set of outcomes quickly goes a long way and provides executives with a clear understanding of the attractiveness of a various course of action.
Long-range and strategic planning is, by its nature, an executive function. Communicating vision and tying it to specific actions and initiatives are important. Yet the research in 2012 and current findings show that too few executives are communicating effectively. According to the 2013 data, executives may think they are leading by communicating vision and goals but in reality, 73% are not.
It is also interesting to note that people in charge of running the long-range planning process are much more likely to say that their executives communicate strategy well. The analysts concluded that this is probably because those individuals are closer to the informal channels of communication among senior executives.
To quote Robert Kugel, SVP of Ventana Research and chief researcher of the study:
“The point here is: don’t kid yourself and don’t judge the effectiveness of commutations by how well the inner circles understand the strategy. It’s only working when everyone is on the same page. Good communication of strategy promotes success. Almost all companies with good executive communications have a long-range planning process that is well aligned to their strategy compared to just 30% of those that do not communicate well or at all.”
Beyond an ability to communicate, executives ultimately own how an organization will operationalize corporate strategies into specific investments. The effectiveness of technology systems that directly contribute to corporate success should be of paramount concern. With the, State of Capital Planning Study and the new Long-Range Planning Benchmark Study, we have two years of hard data to back up why change and investment is warranted.
To learn more about the new benchmarks download your complimentary copy of the executive summary.