Strategic Corporate Plans Analysis

As I demonstrated earlier, your company management has two fundamental objectives: (1) create and monetize a desired amount of financial value during a certain time period and (2) create a powerful money-making machine that will constantly generate the highest possible amount of financial value for its shareholders.

To accomplish these objectives, you will need to develop and execute strategic plans – financial and operational. Because if you fail to plan, you plan to fail. Period. 

Because your fundamental objective is generation of certain amount of financial value, your financial plan must take the form and structure (and content as well) of a financial valuation model. This model allows to plan financial building blocks – revenues, expenses, assets, liabilities and capital – that you must produce to generate free cash flows that, in turn, will generate your shareholders’ value. Obviously, these ‘building blocks’ – like your fundamental financial objective - must exhibit the optimal level of ‘stretch’ for employees responsible for the corresponding KPI.   

Financial valuation model is based on classic financial statements – income statement, balance sheet, statement of cash flows (in indirect form) and statement of retained earnings. In addition, it contains sheets for calculating and planning of several other KPI – NOPLAT, ROIC, WACC, economic profit and ultimately the financial value of your company. 

But planning financial building blocks is not enough. You will also need to plan and coordinate (vertically and horizontally) all decisions and actions in your company to make sure that they are all completely focused on your fundamental objectives and each of them is bringing your company one step closer to achieving them.

In other words, in addition to your financial plan, you will need an operational plan as well. This plan is typically developed using Gantt charts and other project management tools and specialized software such as Microsoft Project. Financial plans are usually developed using good old Microsoft Excel or specialized financial planning software (stand-alone or a corresponding component of an ERP system). In any case, you must make sure that you are using the optimal and highly efficient tools in your strategic planning.

Obviously, you will need to tightly integrate your financial and operational plans and to accompany them with detailed explanation and justification for every major number and action. These explanations and justifications are typically structured into a hypertext document which becomes your business plan. If you want to follow more traditional terminology, you can call a business plan a combination of all three.

In order to make your strategic plans trustworthy and reliable, you need to make sure that you are following the right strategic planning and valuation methodology and that your ‘input data’ is true and correct.

Unlike your corporate vision statement, your corporate strategies and your strategic objectives that are updated very periodically (on a quarterly basis or even less frequently), your operational and financial plans and your business plan in our fast-paced world can be forced to be updated on as frequent as weekly basis.

Therefore, you will need to have a highly competent financial and operational planning specialist (or even a team) on staff. A team that follows an optimal and highly efficient corporate process for developing your strategic plans and adapting them to inevitable changes in the external environment on an ‘as needed’ basis. It is important that you never relax your objectives (you can only make them more challenging), but only the ways and means for achieving them.

Obviously, your strategic plans must fit/match your KEF, your corporate vision statement and your corporate strategies (all of them). Also, both operational and business plans must be comprehensive and all plans must be sufficiently detailed.

Another important issue in strategic plans is the ‘reality check’. In other words, you must make sure that (1) all your plans are accurate and up-to-date and (2) your actual finances and activities match those stipulated by your strategic plans.

Like any other corporate objective (or statement, for that matter), your strategic plans by themselves are useless. To be useful and valuable to your company they must be tightly integrated into your strategic and operational decision-making – to make sure that every decision and action in your company fits your strategic plans and brings you closer to reaching your strategic objectives. In other words, you need to develop and deploy a highly efficient corporate process of using your strategic plans in your strategic and operational management.