Any business operation or idea needs a sound Business Plan to enable the actors to perform their respective roles and thus achieve the expected financial and strategic goals.
Most progressive organisations prepare their Strategic Business Plans for 3 to 5 years, depending on the industry and the market. Such a Business Plan is then diligently followed to achieve the desired outcomes.
Business leaders review these periodically to ascertain if they are moving in the right direction or if a course correction is needed. However, sometimes leaders become too convinced with their Business Plans, especially if they are meeting their short-term financial goals, and do not wish to make any changes.
Continuous achievement of such financial goals at times makes leaders short-sighted and they ignore early warning signs of challenges that may affect adversely if not addressed soon.
In the following paragraphs I am listing nine (9) indicators that can be looked at to check if the Business Plan needs to be reviewed and tweaked:
1. Consistency
If we are consistently performing at the same levels of growth and profitability it could be a sign that we are neither taking enough risks nor trying anything new. Or we may have shut our eyes to the changing external environment.
While consistent performance is always a good sign for the present, it may be worthwhile to regularly view it against the prisms of future perspectives. As the business environment often changes drastically, especially in the current times of disruptions, we must ensure our innovation factory is efficiently working all the time. There is no time to relax and enjoy the spoils of our triumphs.
2. The Unknowns
At the time of developing the Plan, there are many ‘Known Unknowns’ and ‘Unknown Unknowns’. For the former, we usually assume a safe value based on our experience with a similar product, service, or problem in the past. The Unknown Unknows, however, are unrepresented in the Plan exposing us to risks that pop their heads unceremoniously.
It is possible that now we have a better understanding of the Known Unknows and hence an exact value of those could be incorporated in the Business Plan to revise and validate our initial assumptions.
It is also possible that a few of the Unknown Unknows now have become Known and hence must now be incorporated.
3. Diversification
Diversification of the Products and Clients goes a long way in shielding us from the cyclicity and unpredictability of the market. It is, therefore, necessary to periodically assess if our Portfolios are well diversified.
In one of my earlier organisations, we use to check how many clients were contributing to 80% of our total business. This was an amazingly simple and effective tool as a bigger number told us that we had spread our risk over a larger client base.
The same logic can also be applied to the Product Lines. Depending on the size and type of the organisation, we can check how many products are individually contributing to more than 15% (a good yardstick for the medium and small business) of the total revenue. The lower the number, the better it is for the dilution of risk.
4. Tipping Points
Every Business Plan has certain ‘Tipping Points’ or ‘Critical to Success Factors’. Whenever any one of them is breached, it triggers a set of predefined actions to mitigate the ensuing positive or negative outcome.
To be on the safer side we should also study if any of these Tipping Points were ‘Almost Breached’ a few times in the past or are ‘About to be Breached’ in some time.
For risk avoidance, this would give us insights about possible stressed seams in our operations and thus prompt us to prepone certain actions to avoid an imminent breach. This would also enable us to tackle the problem on our terms and timelines instead of solving it when it becomes urgent.
On the other hand, a few minor positive signals may point us towards short-lived windows of big opportunities thus enabling us to scale up, gear up and make use of the given opportunity promptly.
5. Failed Projects
Analysing failed projects gives insights into what the future may hold for us.
Too many failed projects tell us that our design, strategy, and execution has a lot of scope for improvement. We are either not learning from our failures or missing to implement the learnings. However, it also tells us that we are trying and just a step away from success.
Having too few failed projects unless it is supported by a considerable number of successful projects, is a sure sign that we are not trying anything new.
Too many successful projects and a negligible number of failed projects could be a sign that we are going for easy wins and not looking at risky or difficult projects. Risky Projects often are highly rewarding in the long term, and difficult projects are hard, to replicate by the competition.
6. Employee Attrition
A high attrition rate, especially in the middle and lower hierarchy levels is a sign that a lot is not working for the organisation.
While the attitude of the leaders and managers is a crucial factor in employee attrition, which we are not delving into in this article, employees usually leave when they stop growing, either intellectually, financially, or both.
If we are unable to give an environment of knowledge or skill growth to the employees, it could be because we are working on tools and processes that are obsolete and no longer in trend. All these are indications of an avalanche that is imminently heading our way.
On the other hand, if we are unable to pay our people well or in line with the market, we need to check if our finances are in order. Are we charging enough for our products and services? Are our operations efficient enough?
7. RFQs
One way to check if we are up to the mark in our skills and capabilities is to check our performance on various Request for Quotations (RFQs) that we fill while quoting for new clients and tenders.
Checking against how many client requirements are we filling ‘No’, ‘Not Applicable’ or ‘Not Available’ and then analysing how relevant they are to our business today and in the future will give us a clear idea in which direction the market is moving and what we can do to be in sync with the changing times.
8. The Competition
Leaders keep a tab on the competition to actively assess their capabilities and competitiveness. They however need to take this analysis a step further and check two more things.
The first is to check if we are competing with the same entities or if our competition is changing with time. And if the competition is changing, is it for good or bad. That is, are we now competing with more market leaders than in the past or have we now started competing with the bottom performers instead.
The second thing to check is how our competitors are doing. Are they growing and making money, or it is the other way round? If our competition is doing well, it shows an overall good situation in the market, which we may or may not be harnessing up to its potential at the moment.
However, if they are not doing well, it is wise to check if we are making the same mistakes that they have made.
9. Deadweight Assessment
Leaders need to continuously assess if the business is carrying dead wood in any area or function. For example, are we continuing to succumb to the fancies of some over-demanding clients (despite the size of their business) who continually erode value instead of adding any?
Do we continue to employ defunct, unwilling employees in the name of improving retention? Do we have employees who like to gloat about their past contributions instead of continuously learning and retooling?
The same can be also said about processes, technologies, tools, machinery and other systems deployed for running an efficient business.
When to Review?
Business Plan review should be a continuous process with a regular frequency. However, it must be done immediately if any significant event occurs in the market that we wish to respond to.
If things are in control and going as per schedule, we can take a 2-step approach:
1. Validation
This could be done once every month or quarter, depending on the business and industry. We check if various assumptions and estimates that we had made while preparing the Business Plan are within the tolerance limits. We should also check our performance on various financial and service level Indicators to validate if they are still within the expected levels.
If anything, extraordinary either Good or Bad is observed during the validation process, we must do a deeper analysis of the problem and take decisions on the future course of action.
2. Reassessment
A comprehensive Reassessment should be done once every year usually at the time of planning for the following year.
We should do a deep analysis of all our Assumptions, Financial Performance, Service Level Performance, Competency Mapping and Competition Analysis.
The findings will tell us if our Business Plan is still sound and will survive one more year or if it would require an immediate overhaul or if we would need to junk it comprehensively and start implementing Plan B, Plan C or Plan Z as the case may be!
I am sure you shall find this article interesting and useful.
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PS: Copilot and ChatGPT have been used to create parts of this post.
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