How to Adopt a Business Plan in a Sea of Resistance

Over the last 30 years, whole forests have been felled so that books on business planning could be printed. Yet ironically very little has been written about switching on the planning process in companies that have long operated without one. It is a critical but delicate task.

Like many technology startups that struggle with adolescence, Twitter has taken awhile to develop a solid business plan. But that hasn’t bothered investors, which have plowed an estimated $900 million into the firm since its inception in 2007. “We don’t necessarily have to start making a lot of money right now,” co-founder Biz Stone told CNBC in a 2010 interview, a year before a Russian company invested $800 million into the firm. Stone may be right. With 140 million users, a good number of people are obviously getting value from Twitter.

But it’s far less excusable for the average mid-market company to go without a codified business plan. Unlike Twitter, which sells something no one needed before they began using it, a mid-market company that manufactures pantyhose or sells legal advice absolutely needs a business plan. They’re operating in markets where the rules of competition are far better established.

At the very least, your managers are likely to miss their targets and engage in ugly plan review meetings. Their morale will sink, and they will pressure you to shelve the plan so things can get back to “normal.” Normal means little accountability, which in turn means lower performance. Too many CEOs justify backing off planning by saying, “Now just wasn’t the right time. We’ll try it next year.” While business planning is necessary to guide companies through treacherous markets, it is unnerving for managers who have never felt the performance pressure that a good business plan will induce.

Instituting a rigorous business plan is a complex rite of passage that CEOs must phase in deliberately but delicately, steadily ratcheting up of the pressure on their team to meet their targets. The lessons of several mid-market firms shine light on how to institute it without sending off fire alarms.

First, Steer Clear of the Common Pitfalls

Academics and consultants have created a cottage industry selling business planning processes. Many planning processes are designed to be instituted meticulously. When the CEO rigidly enforces the program, their team is likely to reject it. Helping an organization become excellent at planning is a process, not an edict.

Other CEOs worry about upsetting their team, so they create a plan with a clear direction but allow soft goals (e.g., “increase market share” or “improve customer satisfaction”). The problem is you can’t determine whether executive team members have delivered or not. While this is much less threatening to executives, it rips out a critical element of planning and will decrease its effectiveness.

Another common but flawed technique to soften the blow is to reduce the internal exposure of each executive by having the CEO hold private one-on-one review meetings with each of his direct reports. It’s less embarrassing if no one but the CEO knows an executive missed his targets. But hiding poor performers won’t get the results that a good planning process can deliver. When each team member knows how others are performing every month, a funny thing happens: They all get serious about their own performance.

Increasing Pressure Slowly But Surely is the Key

Business planning, when done right, creates clarity for a management team: the markets to pursue and not pursue, the products to offer, the processes for bringing those products to market, and metrics to monitor progress.

But by mapping all that out, business planning also brings pressure to perform. CEOs need to introduce this pressure delicately — low pressure for improvements in the first quarter, medium pressure in the next quarter, medium-high for the second half of the first planning year, and full planning pressure for year two and beyond.

GSC Logistics, a mid-market transportation provider on the west coast, started with just two plans—a sales plan and an operations plan. For the first three months after creating the plan, we reviewed results and talked about what we were learning. In the second quarter, we modified some measures to make them more useful. In the second half, we’re digging into challenges that the planning process has helped to identify. The pressure is building. Next year we’ll get more of the leadership team involved in planning.

My experience and 16 years of research by the performance research firm Elkiem have found that three elements of a business plan can slowly but steadily raise the pressure on managers to perform:

Targets for both success and failure. You must start with clear goals that are measurable and date-based. Goals are the definition of success. They should be just achievable—not stretch, and not easy marks. Don’t start by defining failure, the point at which heads will roll. Threatening to jettison poor performers shouldn’t happen in year 1 unless you’re in need of, and ready for a shakeup.
Rewards for success, discomfort for failure. At the start of the process, the CEO must act as a cheerleader, letting the team taste what it feels like to “win”—the emotional rewards for success. In the second or third quarter of planning, those not performing to plan should start to feel discomfort —things like team-wide brainstorming to help them overcome obstacles, more CEO attention, budget cuts or critical reviews. Some managers will try harder and improve their performance; others will resist the planning. Having a majority of your team adapting to the planning provides a counterbalance to those trying to avoid accountability.
Exposure. As soon as you create your business plan, you need to schedule monthly review meetings. Your entire management team must be present, and each executive must present his results. Just knowing that they’ll be exposed to their peers creates significant pressure. For the first quarter, nary a critical word needs to be said by the CEO. But the CEO must enforce everyone’s participation.

An engineering firm I worked with was overly reliant on its CEO for direction. He brought in business planning to provide a clear set of targets for each executive, and to raise awareness of broader business issues. As adroit project managers, they adapted quickly to the process. The CEO set attainable goals and adjusted them as the team learned exactly what needed to be measured. Their COO became the main driver of the plan review process. The entire executive team now finds it essential.

Yes, I know that Twitter hasn’t needed a business plan. But unless your company is inventing new markets, you do need one. Just be very careful about how you introduce it.

Originally posted on Forbes online.

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