Strategic investment critical for company’s growth

One of my favorite expressions when working with clients is, “We are perfectly aligned to achieve the results we are achieving, and we deserve them.”

It puts everyone in an excellent frame of mind when an organization’s leaders are ready and willing to take a long, hard look at what they are accomplishing or how they feel about the future.

One of the best ways to examine your results and your alignment is a thorough budget review to see how your financial resources are allocated.

When I speak of budgets, I mean the annual operating budget, the capital expenditure budget and the strategic investment budget.

Everyone is familiar with the first two. The operational budget focuses on what the organization has traditionally done, factoring in desired growth rate, a reliable forecast for revenue, and expenses from last year adjusted for inflation. The capital budget should not be driven by history but by strategic needs identified explicitly in your strategic plan.

Many aren’t familiar with the third budget, a “strategic investment budget,” but it can be one of the most important when a company realizes it must develop new capacity and new capabilities to grow or continue success. This budget includes spending for items essential to your organization’s future, but not identified in the capital budget, such as money for organizational development, enhanced technology or more aggressive marketing.

Too often the investment in strategic needs falls short even if the company has identified what it needs to do. When that happens, any money spent becomes wasted because not enough was spent to get the results needed.

For example, my wife once took a position as vice president for talent management at a new division of a financial services firm. She prepared a budget to launch a meaningful program based on industry statistics for recruitment costs. The budget totaled $1 million. But the company approved only $50,000 — and that was for an employee awards dinner.

The 10 winners of that year’s awards got a very nice weekend and banquet — $50,000 goes a long way for a celebration. But it had very little to do with developing a successful program for talent development. They had invested in the person to run a program, but had no program.

You see similar results when companies make a strategic decision that they need a better information system. Their strategy calls for them to become increasingly sophisticated in their analytical ability to target-market, to cut costs or to find new markets.

They buy software. But they don’t adequately train the people on the software, or train the managers to ask the right questions of the software. They’ve got new software, but they haven’t met their strategic goal of sophistication in information analysis because they’ve only invested part of the way.

You must fund strategic goals at a level to succeed.

If you know what you need, go get the resources to do it.

Strategic thinking should drive your financial thinking. What is your ability to go to the capital markets, borrowing power, or what do you have available from annual cash flow?

Think of your strategic budget as investments, not as expenses. You can amortize an investment over a number of years.

Allen Hovious is president of LBMC Planning Services and has been a leader for 30 years in development and implementation of strategic plans. Prior to LBMC, he was the driving force implementing corporate strategy and marketing for Jack Daniel Distillery.

Source Url:http://www.tennessean.com/story/money/2014/12/19/strategic-investment-critical-companys-growth/20601527/