Ways to Approach Planning for 2021
by Matt, on 27 Oct 2020
Part way into the fourth quarter, as the end-of-year target chase is heating up, we usually start thinking about next year. Is our vision for the business still valid? Does it need adjusting or extending? What targets should we set?
Stating the obvious: extrapolating 2020 for another 12 months – which might have worked in previous years – doesn’t sound like a winning approach.
In this edition of SPT, we explore a few key questions that every business will have to wrestle as we try to plan. We don’t have all the answers but starting the dialog sooner rather than later feels important.
WHY EVEN BOTHER?
There’s a strong case to be made for scrapping the annual planning process altogether. Many businesses have been running quarter-to-quarter – if not month-to-month – for much of 2020, so why not keep that going?
The first thing that comes to mind is pandemic fatigue. We just can’t keep working like this forever.
Some of the process and lifestyle changes that we’ve embraced are worth preserving but the overall level of uncertainty, anxiety, and short-termism needs to get dialed back.
While we may not be able to plan with the same level of rigor or confidence as we have in the past, some degree of long-term strategy and forecasting is needed for other parts of our business to function in a healthy manner.
The other reason to spend time planning is that it forces us to appraise our current reality, juxtapose it against our vision, and get real (to a degree of our choosing) about the situation.
Taking stock is an essential precursor to planning and carries its own worth.
WHERE TO BEGIN?
As I wrote in the introduction, I like to start the annual planning process by reconnecting with our vision for the business. Where do we want to be in 3-5 years from now?
After a year like 2020, your vision statement might require a bit more repair work than usual. What sounded achievable and exciting twelve months ago might seem far-fetched or irrelevant today.
If so, step back even further and reconnect with your company’s purpose.
Your purpose – the “why” that gets you out of bed in the morning and motivates your team to strive – should endure. If not, you’re in an existential crisis and need to get that sorted out before planning anything else. I’d be happy to offer suggestions, but it’s beyond the scope of this post.
Once you’ve reestablished why you’re in business, get really clear about where things stand today. An honest, realistic, shared understanding of the current situation is the only solid place from which to plan forwards.
Then, craft – or adjust, if your earlier version is still workable – a vision statement that captures where you hope to be in 3-5 years’ time.
The vision should be ambitious and attractive enough to get everyone excited but not so grand that they dismiss it as unrealistic.
A popular metaphor for creative tension is a rubber band stretched between the status quo and your vision.
If the vision is too close to current reality, there’s no tension in the band and nothing moves. If the vision seems too far from current reality, the band stretches too much and snaps.
Healthy creative tension that propels the organization forwards happens when the gap between current reality and vision is sufficient but not excessive.
So, start by refreshing or redefining your vision statement in a way that fosters healthy creative tension among your team.
PLANNING IN THE FACE OF HOSTILITY
No plan of operations extends with any certainty beyond the first contact with the main hostile force.
– Helmuth von Moltke the Elder (translated by Daniel Hughes et al)
Armed with a vision of where you want the business to be in 3-5 years’ time, it’s possible to break the journey into one-year legs and establish intermediate milestones.
In this way, you’ll be able to tell each year whether the business is on track to realize the vision in the desired timeframe.
So, how well did that work in 2020?
In truth, it’s unlikely to work in a “normal” year, let alone when multiple improbable events coincide to wreak havoc throughout the world of business. Even relatively limited or transient disruptions can knock your business off track.
For those we typically invoke a “contingency plan”. A backup plan to be dusted off under a range of “what if” scenarios.
However, contingency plans are designed to bring the business back onto the original path once a trigger event – usually something predictable and negative – has been dealt with and overcome. For example, when a critical machine fails at the production facility causing a reduction in output for several weeks, additional shifts can be added to make up the shortfall once the machine has been repaired.
A year like 2020 amounts to something much more than a negative trigger event.
A year like 2020 throws the whole plan – vision, status quo, and rubber band – into disarray.
So, what use is a plan?
Not much, indeed - but the problem lies with the “a” not the “plan”.
In the face of potential and unpredictable hostility, a singular plan makes little sense. We need a range of plans that we’re ready to follow, depending on the circumstances.
Then, we can pick one and see how things go.
But, before we pick a plan for 2021, we need to discuss scenarios.
WHAT’S THE WORST THAT COULD HAPPEN?
A scenario is any sequence of events that we care to dream up. In the context of annual planning, a useful scenario is one where that sequence is plausible and would have a particular impact on our business.
Many consultants make a handsome living guiding management teams through scenario planning exercises. Much like legal matters or investing, please consult an expert before making any significant decisions based on what follows. These are my general thoughts, not a proven recipe.
Think about different axes along which to chart the course of 2021, and what the negative and positive ends of each axis might look like.
I like to start by exploring doomsday scenarios – not because I’m melancholy or fatalistic, but because I think it’s harder to get objectively negative after flooding one’s mind with the opposite, Utopian end of the spectrum.
- COVID-19 … returns with a vengeance vs. vanquished, either by a ubiquitous vaccine or some other elimination mechanism.
- Macroeconomy … slides into protracted global depression vs. shows resilience and begins to regrow strongly.
- US politics … party A in control and pursues its agenda vs. party B in control and pursues its agenda (or: a clear political majority and action vs. “lame duck” administration and protracted gridlock)
- Natural events … many devastating natural disasters with large-scale effects on population centers vs. a quieter year with relatively few, low-impact events
Add local or market-specific factors that could significantly impact your ability to grow the business. These will be as varied as the businesses we each run, having to do with financial constraints, supply chain issues, consumer buying habits, competitor response, macro- and micro- market effects, and so on.
Then, create your scenarios. Pick plausible combinations of positive and negative outcomes across the various axes and write short narratives for each.
The more uncertain the future, the wider the range of plausible scenarios becomes.
If 2020 has taught us anything, it’s that seemingly improbable scenarios are just that – improbable, but not impossible.
For example, using some of the axes described above:
- COVID-19 stubbornly persists but the global and national economies are surprisingly resilient. Consumers find ways to do business despite measures necessary to contain the virus. The new administration adopts a coherent approach that boosts investor confidence and supports businesses while enforcing necessary measures to tackle the pandemic. Demand for our solution rebounds strongly, beginning in late Q1 and continuing throughout the year.
Finally, for as many distinct scenarios as you like, ask yourself how your company would react.
Which plan would you be best to adopt in each case?
Photo by Gia Oris on Unsplash
Photo by Boba Jovanovic on Unsplash
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