Predicting results

Predicting results

This will help you establish a realistic vision for the future of your venture and can maximize its growth potential.

We should not mistake a strategic plan for a business plan. A business plan (which was a topic of a previous article) concerns short-term or medium-term objectives and the definition of the necessary steps to achieve them.

The goal of strategic planning is to set the overall goals for your business and develop a plan to achieve them. This involves taking a step back from your day-to-day operations and asking where your business is heading to and what its priorities should be.

Now and then

Controlling the progress of a business seems more difficult than ever. In all sectors, the pace of the economy is accelerating and the problems are becoming global. The distance between the decision centers and the field are increasing. The growing technicality of the issues makes the decisions more and more uncertain. Groups double in size overnight thanks to an acquisition, always increasing the complexity to manage them.

And yet, at the same time, management must always give more guarantees of controlling the situation. Markets require ambitious action plans for a clear strategy, quick results and ever-improving results, and, moreover, irreproachable forecasts. Even though the short term seems to be out of control, the business leader must place his or her action in a long-term perspective, directing the trajectory towards a well-established target. It looks like an impossible task, but some leaders have yet managed it.

Forecast and anticipate

These days, it is not enough to get a good performance, we must also be able to announce it, without being mistaken, several quarters in advance. The point is that forecasting is no longer good enough; from now on, it is necessary to predict results or to anticipate them. Nowadays, it’s not about reacting right after the event took place; we need to take action even before it happens.

With that in mind, once the strategy is determined, it is important to detect as soon as possible the deviations of the trajectory in comparison with the target. The action plans can then be reviewed and the trajectory corrected, in order to secure the achievement of the objectives that were set. Sometimes it’s the strategy or the assumptions themselves that are at stake. The company must be able to see it in time, take advantage of its mistakes and improve its strategy. Task definitely more difficult now than in previous times.

Anticipating is therefore not only very quickly detecting the warning signs of a reversal of a trend (growth of demand, loss of customers, rising costs, arrival of new competitors, for instance), but also know how to recognize when and to what degree the foundations on which the action plan was based and, therefore, must be adjusted.

Detect trends

The strategic plan should provide the means to anticipate the drifts in the long-term trajectory; in practice, it is too often focused on measuring performance in the short term. Anticipating means, in particular, listening to markets and customers, and detecting components that indicate trends.

Thus, the most advanced companies reason in terms of direction or trend, rather than absolute values. For example, they track the number of customers won and lost rather than the simple evolution of the number of customers, in order to be able to detect a decrease in the satisfaction or the effect of a competing marketing campaign. They are also open to external data: market share, changes in customer expectations, macroeconomic data, competition actions, etc.

Model the uncertain

Without pretending to control all the factors of uncertainty, it is possible to evaluate their consequences. This implies knowing how to model the effects of changes of the various parameters relating to external and internal factors on the company’s performance. Such a model must be as simple as possible and rely on a few key factors.

Exceed the budget horizon

Even if all the companies carry out a medium or long-term plan every year, in practice most people base their entire plan on an annual budget and the measurement of deviations from it. Often the budget objectives are fiercely negotiated and serve as a basis of an individual motivation system. Everyone keeps their eyes fixed on reaching their annual goals, and neglects to prepare for the future. Worse, if the situation requires to put back plans of action, and therefore to review the objectives! We then face strong resistance of the organization as well as the individuals to change the reference framework.

To break this deadlock, some companies have adopted what is called the sliding forecast regime. At the end of the year, they replace a permanent or constant horizon, most often five or six quarters, according to the cycle specific to their sector of activity. Some of these pioneering companies went so far as to simply deleting the annual budget altogether. Operational staff must then learn to reason beyond the annual horizon, to identify trend indicators and critical parameters, to trust their internal partners and to make an informed commitment. It is up to the management to breathe this culture of learning and predicting.

This article is for general, indicative purpose only and should not be considered investment advice. Florida Connexion is not liable for any financial loss, damage, expense or costs arising from your investment decisions based on this article.

At Florida Connexion our multidisciplinary business brokers can assist you in identifying the right business for you and the right buyer for your business.