Genre: Instruction

When it comes to their planning process , many financial institutions choose to stay the course and execute , not sure that an updated planning effort would be worth it . But that 's not the sentiment that resonates among banking industry outperformers , who regard their planning process as essential to achieving business alignment and focused execution . They aim to formulate a plan that illustrates the value proposition that will attract and retain customers , and the strengths that will enable the business to deliver this value to customers , while simultaneously earning an attractive return-on-equity . As a result , and perhaps not surprisingly , these companies enjoy strong organic growth and higher shareholder returns . That makes sense . Their customers are served distinctively , while internally , managers reach decisions effectively and efficiently . However , the majority of financial services executives say that the frustrations that go along with strategic planning are holding them back . We often hear complaints such as , " Let 's face it ... we call it a strategic planning process , but it 's actually just a financial forecasting effort , " or , " Our consultants delivered a fat book full of urban legend assertions , but we would have been better off with a thin one that really got to the essence of what we should do to gain profitable share . " Characteristics of a Broken Planning Process Ineffective strategic planning processes have several unfortunate outcomes . They often emphasize tactics and not strategy , and then end in a " cram-down stage " that leaves a bad taste among participants . As one business manager commented , " We spent hundreds of man-hours planning a business , and then we were told all of us had 10 % revenue growth and 3 % cost growth bogeys . " Another common outcome is financial forecasts that are infeasible to fund . When this occurs , business managers will inevitably be asked to reformulate their plans to meet Wall Street's short-term expectations . Problems also occur when too many viewpoints are accommodated under a collegial , " group-think " approach . Resulting plans often end up describing broad concepts for how the business will differentiate itself . These compromises accommodate the group , but do not provide the context for making tough allocation of resources decisions – which is , after all , the essence of strategy . Eliminating Low Value , Costly Distractions Plans that claim to offer " everything for everyone " are more expensive and run a high risk of becoming " great intentions , never realized . " These problems result in a set of tactical initiatives to cut costs and a half-hearted commitment to the revenue plan , exacerbated by a lack of differentiation in the market . Everyone ends up being disappointed – most silently , some vocally . To avoid low value , costly distractions , executives should take a more constructive approach to strategic planning . Spend time developing and gaining consensus on a more focused value proposition and determine the implications for prioritizing initiatives , while deprioritizing others . Steps for Effective Planning Devising a strategic plan that ultimately aligns a company's business segments , and propels organic growth and shareholder returns requires an internal analysis of the institution and its objectives in the marketplace . Call it a four-part process , in which executives will first , clearly identify and communicate financial goals to their company and ask senior management to answer fundamental questions such as , " why would prospects choose to bank with us ? " Then , executives must review their new value-driven plan and commit to making it the basis for the company's future strategy and eliminate discretionary investments and activities that are not central to the strategy . 1 . Spell It Out : At the outset , executive management should be clear in communicating the goals for the corporation , including any " must have " financial objectives . Ideally , this step should also include guidance for each line of business . For example , one unit may be challenged to grow faster than the market while maintaining its profitability ; another may be told to fix its low margins before emphasizing growth . 2 . The Litmus Test : As each unit prepares its strategy , management should make sure that each strategy includes consideration of the fundamental issues that , once resolved , will guide decisions on allocation of resources and will focus execution . One way to help business heads and planners understand how to approach planning is to adopt an entrepreneur's mindset . Produce a strategy that would stand up to the scrutiny of an independent venture capital or private equity firm that you wish to attract an investment from by addressing the following four areas : W hat the business will achieve : Although this is a derivative of the strategy and should be completed last , it 's is often the first topic to be discussed with executive management in the strategy review . It 's mostly composed of financial goals , but the best plans will also highlight the competencies that are important to the business' competitiveness . Where the business will compete : Examine the criteria to be used to decide where in the competitive landscape to focus . Typically , this is based on analysis of growth and ROE potential . These criteria should guide specific recommendations for the types of customers to target , the products and channels to emphasize , and the geographies on which to focus . How the business will win : One of the most critically important steps in strategic planning is determining how the business will be successful . If it 's not compelling , the value of planning will be substantially compromised . The strategy must be as straightforward and specific as possible in describing the value proposition that will motivate customers to do business with your bank versus competitors . Once defined , a companion section should describe how value will be provided at a cost that will enable the business to generate attractive economics . Finally , if acquisitions are envisioned , this section should explain their contribution to the strategy and how the acquisition premium will be earned back . · How the business will be managed : It is important to highlight those aspects of the organization design , management processes , performance measures , culture , and incentives that will be aligned with the strategy . Someone reading this section should be able to understand how the recommended approach will facilitate achievement of the goals . It is critically important to align the metrics and incentive plan . Without such alignment , people will continue to do what makes their wallets bulge , and you might as well delete the strategy before you even print it out . 3 . Recap : At this point , reviews should be held with senior management . Such reviews should begin with a discussion of the proposed value proposition : Will customers be motivated ? Business managers should be asked , " Okay , let 's pretend I am a prospect in your target market . Tell me in a straightforward manner ... why should I do business with you instead of your competitors ? " If the answer to this question is not compelling , the business needs to rethink its value proposition . The worst case occurs when the business seeks to be distinctive in too many dimensions , e.g. , convenience , service quality , price , and segmentation . This is the state of affairs in most banks that are losing share . More subtle , but also problematic , is deciding that , for example , " We will win with superior service " without defining precisely what aspects of service will be distinctive . This leads to a false sense of consensus that later breaks down as management grapples with a myriad of investment proposals and activities to be approved which all appear consistent with a strategy that is too broad . What is really needed is more precise resolution of whether the service strategy will focus on having fewer errors , showing customers respect , offering superior hours for convenience , being hassle-free and easy to do business with , offering more personalized banking , etc. Once the answer to the " why should I do business with you " question is concise and convincing , then the business team should be asked , " Now tell me how you are going to deliver this extra value to customers and still achieve an attractive return on equity . That is , what will be the behind-the-scenes competencies that will underpin success ? " Present the plan as if to a venture capitalist who is being asked to invest It is essential to achieve clarity and buy-in on the answers to the two fundamental questions noted above during a friendly but rigorous scrutiny of the strategy . If full buy-in is achieved , execution alignment can be accomplished . Even 75 % buy-in will not be enough , as the 25 % outliers will hinder efficient decision-making , delay execution , add complexity , and cause the organization to be more confused than efficient . Buy-in failure essentially guarantees ineffective execution . So , the quality of the answers to these questions is the critical determinant of whether ( i ) the effort is strategic , ( ii ) top management will fund , and ( iii ) the initiatives will lead to focused action . 4 . Talk the talk and walk the walk : Finally , and ideally after they are approved by top management , strategic plans should become the basis for next year's financial plan . Only after the strategic plan has been challenged , refined , and accepted should budget detail for its first year be constructed . Creating the budget at this point is more efficient , as it is now less likely to need revision , and adds value by further validating – or challenging – the near-term aspects of the strategic plan . It is also vital that periodic reviews include a discussion of strategic milestones that are not financial in nature , i.e. , the key initiatives and leading indicators that will drive the financials . More quality thinking ... less make-work Ensuring that these four steps are in place will go a long way toward making a planning process successful . At best-practice institutions , the whole planning process is frequently so well honed that it can start a mere four to five months before the fiscal year-end . Such institutions often start in mid-August , with the initial top-down corporate plan developed in September and the individual business planning cycle running from mid-September to November . Budgets come to their conclusion in early to mid-December . Boards are presented with and asked to approve strategic and financial plans in mid - to late December , and receive the final budget in January . Does this " best practice " approach require more effort ? Certainly it mandates disciplined thinking about your customer needs , your value proposition relative to that of the competition and how you will deliver that value at an attractive return . However , if there is less make-work , the odds of a failed process are dramatically reduced .