The consequences of not budgeting to your strategy (i.e., not integrating strategy and budgeting) can be pretty severe. We call it The Circle of Doom. And it begins with the development of strategy that never really gets done. I had a CEO tell me about the frustration he felt after a strategic planning retreat where he realized they had come up with the same strategy they had the year before… and the year before that – but somehow it never got done. And his company get missing the numbers because they were based on the assumption the strategy would actually get done. That’s not an unusual situation at all. Eventually the Board or investors get frustrated too… they wonder why the numbers aren’t being hit and if the strategy’s at fault.
Then there’s the people side of it. People want to feel part of something larger than themselves, and the strategy is a great way to inspire people – but only IF it actually gets executed. If it doesn’t, the organization loses confidence, people disengage and put in just enough effort to keep their jobs, something we call a compliance level of effort. They don’t really give discretionary effort. And not surprisingly, good people leave. I think this is especially true for Generation Y. If there not part of a winning team that’s making things happen, they don’t stick around for more of the same.
And eventually, if the strategy misses become a pattern, the stock price declines – or in the case of non-profits — giving goes down. Morale becomes a real problem, and eventually the layoffs come.
The bottom line is there’s a lot at stake here in having your financial plan support your strategy. So how can we make that happen? That’s the subject of a future blog series.