Does your organisation have a strategy? Let us assume for the purpose of this post that it does. And let us assume that it is updated annually. Every year, the leadership team lays out a document pointing the way forward for the business.
We can also assume that every year, your company produces a budget. Maybe you are responsible for producing it. The budget defines your expectations for revenue and where funds will be applied.
Now, how well do the budget and the strategy align?
Strategy is just an arrow. It can point towards the organisation’s target. It has potential impact. But without a bow to launch it, the target will never be reached. The budget is the bow, the motive force that launches the arrow towards its goal.
So often we find in business that the strategy and the budget, the bow and the arrow, are created in isolation from each other. They are not linked and often when they are, the connection is poor. Like the bowstring slipping from the arrow’s notch, a poorly aligned budget will not launch the company in the right direction. When this happens, the strategy is doomed to fail.
Collaboration, collation and politics
Part of the challenge of aligning budget and strategy comes from the complexities inherent in each. Both budget and strategy are political exercises, requiring the input and agreement of multiple parties. The simple mechanics of compilation are difficult. Extracting the relevant input from different people and formats and pulling them together into a coherent whole is incredibly time-consuming. With only so many months in the year the production of budget and strategy often happens in parallel, making it hard for one to inform the other.
What can be done to improve this situation?
From a finance perspective there are two clear steps to addressing the problem. The first is about information. Better structured and presented data can better inform the strategy-setting process. This helps to ensure that the desired goals are grounded in fiscal reality. Streamlining data collation and report production ensures that finance can offer the leadership team a lot more vision into the future, even allowing them to role-play different scenarios based on a variety of forecasts.
The second step is about the mechanics of production. It can take some bravery to tackle a process often long-embedded in the business, especially when under time pressure. But without one brave year of change, the situation never improves. Radically revising the budget production process, from initial collaboration through to presentation, can slash the time it takes to produce, making it easier to map budget to strategy and even to do multiple iterations to ensure the two align.
Hitting the target
The misalignment of budget and strategy seems like it would be a priority issue to tackle. Yet it remains common in a huge number of organisations. More than two thirds of respondents to our Future of Finance audit [http://audit.future-of-finance.com/] tell us that budget and strategy are either disconnected or only linked at the highest level. Without that connection, eventually the strategy is doomed to fail. By streamlining data collection, processing and presentation with Prophix, you can ensure the budget bow gives maximum power to the arrow of strategy.