Why Business Planning is a Worthwhile Investment

September 9, 2015

 

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.  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 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.

 

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.  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.

 

Allen Engstrom is Managing Director of CFO Network (www.cfonet.biz), a North Little Rock based provider of outsourced accounting and financial consulting services.  He can be reached at aengstrom@cfonet.biz.

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