Creating a Plan (from the Vision and Mission)
Creating a strong, effective annual plan should be based on the organisation having a defined underlying vision and mission (covered in another post) with supporting long term ‘break through’ objectives with a longer timeframe – typically 3-5 years or longer.
In this guide we’ll look at how these strategic, long term objectives are defined and also how to cascade the annual objectives, priorities and measures (as part of your annual strategy deployment/planning process).
We’ll also look into how to use the annual plan as effectively as possible.
Defining strategic, long term (‘breakthrough’) objectives that support the mission statement
The link between an organization’s vision/mission and the plan for the year are the strategic, long term objectives. These supporting ‘breakthrough’ objectives:
- Bring significant changes to the organisation – these are not Business As Usual expectations or the results expected from current operations
- Have a timeline consistent with the vision and mission (for example 3-5 years out)
- Have a measure (KPI) to define what success looks like – which align with the organization’s mission
If these long term ‘breakthrough’ objectives succeed, then there should be reasonable confidence that the organisation will meet its vision and mission objectives.
As a high level, simplistic example, consider an organization with a vision to be market leader globally in a product. The associated high level mission statement might have a broad road map of achieving market leading position in the North American market within 2 years and the European market within 3 years and the Asian market in 5 years.
The supporting long term/’breakthrough’ objectives to achieve that mission might then be:
- Setting-up new 5 plants in North America and reducing unit cost down to $x per unit
- Building a strategic marketing alliance built with a European leader
- Launch a new market entry in the Asia market with manufacturing plants set up in 5 countries and supply contracts and distribution set-up with 3 major OEMs in the region
Each of these ‘breakthrough’ objectives would then have measurable KPIs (e.g., number of new plants set-up in the US market and $x unit cost). These ‘breakthrough’ objectives would each take multiple years to achieve.
Reducing unit cost down to $x per unit in North America might be achieved by a Continuous Improvement program or a Transformation.
Cascading annual objectives, priorities and measures
Cascading the long term objectives/priorities down through the organization and defining annual objectives (with supporting priorities/programs/initiatives) with measures for each area is usually an annual planning process – and is often collectively called strategy deployment (as the strategy is defined in the vision/mission and strategic objectives) or sometimes simply annual planning.
Three well known methodologies for defining the cascade of objectives, priorities, programs/initiatives and measures from the long term, strategic objectives are:
- X Matrix: a useful tool defining the cascade of objectives, priorities or initiatives and measures plus resources. This spreadsheet tool starts with the long-term objectives and maps them to the year’s annual objectives which are then mapped to priorities/initiatives and then the measures used to define success. Strategy deployment (=Hoshin Kanri) using the X matrix can be traced back to Japan since the 1950’s Major companies using this approach include Toyota, HP and Xerox.
- OGSM framework: Objectives, Goals, Strategies and Measures is extremely similar to the Strategy Deployment steps – with some differences in language. OGSM’s origins can also be traced back to Japan in the 1950s, and has since been adopted by many Fortune 500 companies including Coca Cola, Procter & Gamble and Mars.
- OKR framework: Objectives and Key Results – is somewhat more simplistic with some important differences. Key Results are really a merge of both the priorities and the measures and each key result is required to have a measure that defines success. OKR’s were introduced by Andy Grove at Intel in the 1970’s and have later been introduced at multiple large tech companies including Google, Microsoft and Twitter.
In all these methodologies, there is interaction and feedback of what is planned (in terms of priorities and initiatives) and what is doable in terms of measures back to the higher levels. The process enables lower levels in the organisation to actually have input into the overall objectives – so that asset objectives are not simply a top down-edict but more a collective and aligned agreement.
Whichever, method is preferred for an organisation – the intent is similar – a method that allows the organisation to:
- Cascade down the objectives to each area of the organisation – so everyone knows the major priorities for the year
- Define what success looks like for the year – with measurable KPIs – and ensure there is a scorecard that can be used to track progress monthly or quarterly during the year
- Reflect, at the end of the year, on what worked and what didn’t before defining the next year’s objectives
Using the example from before of an organization with a vision to be market leader globally in a product – one of the long term objective in North America was to achieve $x unit cost. In the annual plan, for North America there would detailed steps showing exactly how this was going to be achieved – either from Continuous Improvement or a cost Transformation with plans showing which levers were being used e.g., availability, productivity, quality, cost and a target KPI for each of these.
What numbers (and the timing of those numbers) actually used in the budget would then be up to the organization on how aggressively they wish to plan for success.
Three tips to consider when creating the plan:
1. Use a driver tree approach to cascade KPI targets
KPI targets at each level need to be aligned and are, ideally, based on a value driver tree approach to ensure alignment.
Continuing our North American example of an organization with multiple production plants that is setting a volume target for the year:
- The volume target for all plants is cascaded down and aligned with the collective sum of each plant’s targets
- The plant target at each site is then cascaded down and aligned with the maintenance and production targets – for availability, performance and quality…
- …and in another level of detail, the maintenance targets at each plant for availability are cascaded down and aligned with expected and achievable scheduled and unscheduled downtime (based on current performance plus whatever priority initiatives have been identified for the year in Maintenance).
The cascaded planning process ensures that the targets at the corporate level all the way down to each area or department at each plant – align for the year – in a top-down/bottom-up process.
2. Don’t use plugs in the annual planning process!
In the annual planning/strategy deployment process, the intended lift in performance to meet targets should come from proposed programs/initiatives – not ‘plugs’. The proposed programs/initiatives need to be based on:
- a) Key opportunities that the organization has identified
- b) Calculated uplift based on what the organization believes is possible
Without knowing where the uplift will come from or how much the uplift is worth – the organization will not be able to define the implementation plans behind the uplift needed. You’ll be left with ‘plugs’ in your plan that will lead you to fall short for the year or require rapid unplanned improvement to meet target (that you could have planned for ahead of time).
There needs to be some bottom-up thinking done by the organization to ensure that objectives at the higher level align with realistic objectives at the lower levels.
Without this bottom-up thinking the high-level objectives are likely to remain aspirational and become a big part of the reason for missing the annual objectives at the end of the year.
3. Use realistic assumptions in the planned process
When planning the year’s outcome and the planned measures (volume, cost etc), use realistic estimates based on current performance plus any planned uplift expected from the programs/initiatives planned for the year.
Being unrealistic on either the baseline performance or any planned uplift will simply leave you with a gap i.e., another plug!
The point of the planning process is to identify ahead of time, what needs to be done during the year – what improvement programs are needed ? where/which measures ? how much ? and how will they achieve the required uplift ?
Using the plan effectively
Once the plan is agreed and committed to, then you need to use the plan as effectively as possible including sharing regular progress updates on how you’re doing against the plan and also reacting to your performance against plan and taking action accordingly:
1. Share progress against plan as widely as possible across your organization
Once execution has started for the year, monthly performance against the targets should be ‘scored’ at all levels.
Ideally, a scorecard, showing progress month by month against the targets, is shared organization wide. A typical format for this is a ‘bowling card’ style – showing performance month by month during the year and commonly using traffic lights to show if each target was met (or not met).
All employees should be able to see progress towards the targets, where there has been success and where they are falling short and where further effort is needed to focus for the next month or quarter.
In these communications, it’s also important to celebrate success – and recognize wins and effort as appropriate.
2. Ensure you review progress against plan and act accordingly
Leadership need to review progress against the annual targets each month or quarter to determine actions needed.
These reviews should seek to understand:
- Where are we missing target and by how much ?
- Why are we missing target ? are some initiatives failing or not delivering ? have underlying operating performance or conditions changed ?
- What is needed to make target for the next month or quarter ? are additional initiatives needed ? what actions are needed ? is help needed ?
In an organization using Continuous Improvement, these leadership reviews are critical in defining where the next cycle of initiatives need to focus.
For example, a site might decide to start a new set of Continuous Improvement initiatives every three months in response to the quarterly reviews on the basis that three months is sufficient time to complete most initiatives before defining and implementing the next set.
In organizations, where a major Transformation is underway, the quarterly reviews can be used as pulse checks on the status of the improvement program and if sufficient progress is being made quickly enough.
Conclusion
Creating a strong, effective annual plan is based on the organisation having an underlying vision and mission (covered in another post) with supporting long term ‘break through’ objectives.
As discussed, there are multiple methodologies used in to create an annual plan but the common intent in all these approaches is to:
- Cascade down the objectives to each area of the organisation – so everyone knows the major priorities for the year
- Define what success looks like for the year – with measurable KPIs – and ensure there is a scorecard that can be used to track progress monthly or quarterly during the year
- Enable the organization to reflect, at the end of the year, on what worked and what didn’t before defining the next year’s objectives
We looked at two tips to help you create a strong, effective planning process – namely:
- Don’t use plugs in the annual planning process
- Use a driver tree approach to cascade KPI targets
We also gave some guidance on how to use the plan as effectively as possible:
- Share progress against plan as widely as possible across your organization
- Ensure you review progress against plan and act accordingly