Monday, October 22, 2012

360 Planning

I have often been criticized for hedging my bets. When I put together yearly goals or strategic plans, I will delineate the assumptions and factors influencing how I derived the targets. Some kindly call them "qualifications" to the goals. Others call them "loopholes" in case I don't achieve the results.

Regardless, it's important to know why you think you can achieve the planning targets. You need to ensure that you've considered not only internal factors but also external factors that will influence your results. Applying systems thinking will double-check that a planned change in one area isn't going to adversely affect another.

Recently, a retail branch was planning for next year. There are a lot of influences they can't control: level of consumer spending in the general economy, the attractiveness and quantity of new product that will bring customers through the doors, the amount of marketing being spent, sudden hits to the brand's reputation, etc. They can consider all of the trends: traffic through the store, percentage of shoppers who buy and the average "spend" per transaction. The last has been going down; that's true for all branches. The likelihood of it increasing this next year is low. Better to shoot for maintaining the average, and stopping the slide. Additionally, successful efforts have increased the traffic and the percentage of buying shoppers in the past few years. They can look for continued success on those two factors. However, they won't be able to counter the overall retail trends of online shopping, stronger and bigger competition while smaller competitors exit the business, alternate products that meet the consumers need, etc.

You want to stay competitive in costs so you hire part-time employees. However, this has adverse effects on  the store associates as a whole having strong product knowledge, which sets you apart from the online retailers. You save costs to increase profits, but you might lose revenue which reduces profits. It seems like a lose-lose proposition.

But it is healthy to consider these things, record the assumptions and set appropriate targets.

Even in the public sector, 360 Planning is appropriate. In order to balance the government's budget, you want to reduce Medicare spending by cutting reimbursements to the providers. This will put pressure on private insurance policy holders to make up the difference in provider costs and reimbursements for Medicare patients. Employers keep wages low so they can foot higher insurance premiums--maybe even stifle job creation to avoid larger premium expenses. This reduces consumer spending by those employees and the unemployed, and keeps tax revenues down. Or employees are spending more on insurance rather than on items that stimulate growth in the economy and this keeps tax revenues down. The effort to balance the budget by reducing Medicare spending also reduces revenues and keeps the deficit high.

In planning, it's important to consider the internal and external interactions in order to have a better shot at successfully achieving your goals.

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