The Power of the Plan

Allen Engstrom, Managing Partner, CFO Network

Business planning is one of those “nice to have” things for executives. Most say business planning is a good thing, but yet only a small percentage report doing it on a regular basis, especially executives in small and medium businesses. If business planning is done well it can be a worthwhile investment and can actually help prevent the fires from popping up in the first place. The trick is to learn from those that do it well, adapt it for your own organization and integrate it into the fabric of how you run the business.

I spent 14 years working in the areas of strategy, investments and finance for companies such as Motorola Semiconductor and Intel Corporation. Intel in particular is renowned for its planning and execution capability. The semiconductor business can be lucrative to the winners, but brutally competitive and severely punishing to companies that make mistakes.

It is an industry where a company has to spend over $2 billion on a factory today and correctly guess right quantity and mix of products two years from now. Constant changes in demand for new products are extreme, but also is the continuing obsolescence of the manufacturing technology. New product design can cost hundreds of millions and if one of the 40 million transistors is wrong, you go back to the drawing board and lose your manufacturing window. Billions down the drain.

Needless to say, one of the secrets to Intel’s rise to one of the world’s most respected companies was that it developed a very powerful process for business planning early on, invested in it and made it a core competency.

Soon after I joined Intel in the late 90s the Asian Currency Crisis hit. One by one Asian economies crashed and a global recession was forecast. In response Intel slashed spending on manufacturing capacity.

It was the wrong move. The global economy quickly recovered and the dot-com boom kicked into high gear. Global demand for semiconductors skyrocketed and Intel was without critical capacity to fulfill demand. The company left untold billions of dollars in profits on the table.

By early 2000 there were signs that the dot-com bubble was bursting but Intel was determined to not let the same mistake happen again. It maintained a strong pace of investment in manufacturing capacity and got burned the other way. Demand fell off a cliff, inventory began piling up and factory lines were running at a fraction of their normal capacity. Intel’s margins plummeted, a lot of people lost their jobs and hundreds of billions of dollars in market capitalization was vaporized.

The point is not that one should have correctly predicted the Asian Currency Crisis or the Dot-Com Bubble, but rather that planning done well is a critical learning process and can be an extremely valuable tool to respond to change.

With strategic planning done well, one has participation from all the stakeholders from lower management to the top. It is everyone’s plan and so everyone takes ownership. Second, the process itself is an engine for making nimble changes in direction. Developing the tools, processes and management experience to effectively respond to change can pay huge dividends. In Intel’s case it could be argued that the impacts would have been much worse if it were not able to recognize the problem, evaluate corrective action, align everyone together and execute on the new plan as rapidly as it did. Third, because it is woven into the regular course of business and helps minimize firefighting, it is a minimum of cost and distraction. Finally is the learning element. Intel gets a great deal of value by going back and reviewing the plan and evaluating it against reality. This is of incredible educational value to business managers that cannot be taught any other way. A business planning process designed with these capabilities in mind is an outline for how it can be done to yield a positive return on investment.