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| Thursday, March 29, 2007 |
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Statements on vision, mission, objectives, values, strategies and goals are not just elements of future planning. They also provide benchmarks for a historic review. Most managers will find it exceedingly difficult to develop a future strategy for a business without knowing its current strategies and measuring their success to date.
Assess Current Position
The starting point must be to determine a company's existing (implicit or explicit) vision, mission, objectives and strategies. Then judge these against actual performance along the following lines:
* Is the current vision being realized?
* How has the company's mission and objectives changed over the past say, three years? Why have the changes occurred or why have no changes occurred? Identify primary reasons and categorize them as either internal or external.
* Describe the actual strategies followed over the past few years in respect of products/services, operations, finance, marketing, technology, management etc.
* Critically examine each strategy statement by reference to activities and actions in key functional areas covering such matters as:
o How has the company been managed?
o How has the company been funded?
o How has the company sought to increase sales and market share?
o How have productivity/costs moved?
Take each element and quantify by reference to actual performance. Ask of each "why not"?, "why only"?, or "why so"? and locate the reasons for differences between the actual and desired performance.
Drill Down
A useful technique for exploring performance shortfalls is to review the business's financial return and to drill down through the components of this return to locate and assess the key determinants of performance. For example, return on shareholders' funds is a key measure of profitability which can be expressed as:
Net income Sales
------------ X -----------
Sales Shareholders' funds
3. Use Hindsight when Strategic Planning
Statements on vision, mission, objectives, values, strategies and goals are not just elements of future planning. They also provide benchmarks for a historic review. Most managers will find it exceedingly difficult to develop a future strategy for a business without knowing its current strategies and measuring their success to date.
Assess Current Position
The starting point must be to determine a company's existing (implicit or explicit) vision, mission, objectives and strategies. Then judge these against actual performance along the following lines:
* Is the current vision being realized?
* How has the company's mission and objectives changed over the past say, three years? Why have the changes occurred or why have no changes occurred? Identify primary reasons and categorize them as either internal or external.
* Describe the actual strategies followed over the past few years in respect of products/services, operations, finance, marketing, technology, management etc.
* Critically examine each strategy statement by reference to activities and actions in key functional areas covering such matters as:
o How has the company been managed?
o How has the company been funded?
o How has the company sought to increase sales and market share?
o How have productivity/costs moved?
Take each element and quantify by reference to actual performance. Ask of each "why not"?, "why only"?, or "why so"? and locate the reasons for differences between the actual and desired performance.
Drill Down
A useful technique for exploring performance shortfalls is to review the business's financial return and to drill down through the components of this return to locate and assess the key determinants of performance. For example, return on shareholders' funds is a key measure of profitability which can be expressed as:
Net income
------------
Sales X Sales
-----------
Shareholders' funds
Take each item in this formula, explore its contents and derive performance measures or ratios. For example:
Sales break down into sales values, units, prices, discounts, commissions, bad debts and so on.
Net income is derived by deducting costs (materials, labor, power etc.), expenses, interest and depreciation from sales revenue.
Shareholders' funds are based on the value of fixed assets, current assets, current liabilities, debt etc.
Use of cascading ratios is illustrated in this DuPont-type profitability chart (click thumb opposite) which is automatically generated by more powerful versions of Exl-Plan to show the impact of specific changes in key variables and assumptions on overall profitability.
Subject the resultant ratios to critical examination and attempt to compare them with industry norms. The paper entitled Managing Working Capital explains key working capital ratios.
Note that the Exl-Plan financial planners generate extensive ratios based on projected P&Ls, cashflow forecasts and balance sheets for 1-3-5-7 years ahead. |
posted by azwan.fatahsz @ 2:19 AM  |
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