How (not) to develop annual business plans and do budgeting

Your annual plan and budgeting should foster your unique business identity and capabilities. Move away from historic department wise view.

It’s back, the season of putting together annual business growth plan and drawing up a budget where the investments will happen for the next year. While some businesses operate on Jan-Dec cycle, the majority of Indian companies operates on March-April but never the less making annual plans is part of every business.

Sad to say, I have seen very few companies doing this exercise with the rigour needed to reinforce their overall competitive advantage.

In my experience, the larger the company, the more conventional the approach; and conversely, the smaller or more founder-driven the company, the better the process.

I have also come across cases where the founder has a grand plan but struggles to get the whole organization to buy into it.

I have seen very few companies doing this exercise with the rigour needed to reinforce their overall competitive advantage. In my experience, the larger the company, the more conventional the approach

The conventional planning that some large companies follow is inadequate. Each business unit tweaks the previous year’s budget by a few percentage points up or down, based on their ambition or lack of it. They also do some competitive benchmarking for their product or the marketing strategy around it, and then plan is drawn up.

This work-shy approach ends up first infecting in small doses and eventually killing the business in the not-too-long run. And in some worse case scenarios, this exercise turns the business into an unwieldy dinosaur, which, might be strong and powerful but certainly lacks the dynamic to respond to an ever-changing market.

Conventional hide-bound planning processes fail to factor in the uniqueness of the business under consideration, and, in most cases, does not care to invest the business with a distinctive identity that is capable of being recalled by others.

What every business needs to win for itself in a highly contested market space is a unique identity that subconsciously gets baked into everyday operations and furthermore brings a “capability view” to the budgeting exercise.

What every business needs to win for itself in a highly contested market space is a unique identity that subconsciously gets baked into everyday operations and furthermore brings a “capability view” to the budgeting exercise.

Unique identity

Success in business is almost always about never letting the competition define you. Far from that, it’s incumbent on you to position your business based on your unique and perceived strengths, customer aspirations, and most importantly, the capability of your business to meet and surpass such expectations.

Every business small or big has or should endeavour to nurture a unique identity, which is much like a human fingerprint.

Some businesses are local champions (usually retail companies), so such enterprises should direct their energy toward generating local consumer insights.

Still, others might be game-changers in terms of their business model, in which case, they should have in place functions that are strong in driving innovation and generating business models.

On the other hand, there are aggressive price warriors, who compete basically on price points; these should develop robust supply chains as well as lean cost structures. Therefore, the first step of any planning exercise is to map out the unique identity of your business.

Every business small or big has or should endeavour to nurture a unique identity, which is much like a human fingerprint.

Unique identity and everyday ops

Your unique identity should not be mission and vision statements framed and plastered on company interiors or flaunted in corporate ads.

It should permeate every single business operation, every single day. Also, businesses should understand the fine distinction between image and identity.

With some effort and communication blitzkrieg, it is certainly possible for any business to build out its image without necessarily living and breathing it. Identity, by contrast, is about walking this talk and baking it into day to day, minute to minute business operations, and it is not easily replicable by the competition.

Big Bazaar used to be one of the early price leaders in the Indian retail space. Remember the ads — Isse Sasta Aur Accha Kahin Nahin (you won’t find it cheaper or better anywhere). Then DMart came along and brought with it a different business system. The focus was on stocking lesser brands (deeper discounts from manufacturers) and low rent catchments, all of which worked to create a leaner cost structure in DMart’s favour. And riding on this cost structure, they were able to offer more economical prices. Big Bazaar created an image of low prices without taking into account how such cost structures need to be managed. The long and short of it is that ultimately Dmart became more trusted on price points than BigBazaar.

So, whatever be your identity, hardwire it to everyday business ops and see how it will enable you to foster your unique identity in the market.

Your unique identity should not be mission and vision statements framed and plastered on company interiors or flaunted in corporate ads. It should permeate every single business operation, every single day.

Identity or capability-based budgeting

Sometimes businesses without understanding their unique identity and capability embark on something funnily referred to as compensatory strategy. To gloss over their lack of unique capability, businesses indulge in heavy advertising, promotions, discounting, and more, which starves the business of critical budgets in key areas, money that could have been otherwise channelled into building a unique identity.

Budgets should fall into three buckets-

1. Those which reinforce the business's unique capability
2. Table stakes for the business to stay in business
3. Those that could be avoided or trimmed.

Budgets should fall into three buckets- 1) Those which reinforce the business unique capability 2) Table stakes for the business to stay in business 3) Those that could be avoided or trimmed.

A critical aspect of budgeting is to move away from a siloed and departmental view to a capability-based outlook. With the capability view, those isolated ivory towers, which plague most businesses, are broken.

Allocate budgets based on what capabilities are required to win the most in a certain market and what weak and blind spots need attention.

Move budgets from activities and capabilities that are not essential to the core business. Remember to invest only in your unique differentials.

Managing investments keeping competition in mind and trying to be good at everything is a perfect recipe for disaster.

Allocate budgets based on what capabilities are required to win

So, when you are drawing up your annual plan and budget, think of your unique business identity, how your identity gets translated to everyday ops, and how your budgeting links back to your unique identity.

If you liked this article, read part — II in the annual planning series:

How a simple change in vocabulary can dramatically improve your business plan

Happy planning! Happy budgeting.

If you would like a free 30 mins consult on innovation, growth, marketing or scaling sales, pls use this link to pick a date and time https://calendly.com/subashfranklin/30min