Importance of a 2023 Annual Plan: 9 Reasons Why Annual Planning Matters
Leaders frequently ask me about how to build a performance culture focused on personal accountability, employee engagement, and results. According to the research, each of these continues to be a core challenge for a lot of companies. Leaders just want people to do what they need to be doing—and do those things on their own without having to be told (i.e., personal accountability), they want engaged employees (and Gallup’s research continues to show a huge drag here), and leaders want people to help move the company forward—toward results.
To do this, most leaders will still get together for ‘strategic planning.’ It’s a great day of conversation and diving into some tough subjects. Yet, as time passes the plan more or less seems to dissipate into thin air. Everyone simply goes back to doing what they’ve always done—because it’s what they know.
Getting Clear on “Why Annual Planning Matters”
If you want to build a performance culture, then Annual Planning matters because…
- You can’t build a performance culture without personal accountability and leadership accountability laid out with a comprehensive annual plan. Without an overarching plan of action, to what will you be holding people accountable? How on earth are they supposed to just ‘know’ what you want them to do? According to the very early writings in this area by Von Moltke, it’s important to give people a framework. If you’ve hired talented people and trained them while also providing them with the right kind of leadership, Moltke suggested that you could achieve incredible results if these same people simply were to understand where the company’s headed, why they’re headed in that direction, and the role they play in helping the company get there. Furthermore, micromanagement isn’t needed if you’ve created the right environment and given the work they’re doing definition.
- Strategic annual planning clarifies your strategic intent and empowers employees. Correctly done, a strategic Annual Plan links directly to where the company wants to be three to five years down the road, and it defines what is critical to accomplish this year to increase chances of success in three to five years. People need to know your intent—which is a powerful concept. Prior to 1970, Honda (as one example) was a small player in the auto market. Leaders within Honda, then, began to share the bold vision of becoming a key player in the market. They clearly expressed their intent, and they came to be a dominant player in the market by the mid-1980s. Sharing your intent has business relevance.
- With strategic annual planning decisions become justified vs rationalized. There are two sides to this coin. First, having a plan is an outline of what you’ve decided are core priorities for the year. Therefore, you give yourself a framework for saying ‘no’ to all those shiny objects that will pop up throughout the year. Secondly, decision-making, in general, is faster because you’ve given your leaders a framework to help guide their decision-making—whether about buying a new piece of equipment, hiring new people, investing in training, etc. Every decision should align with your strategic targets. Your people will learn to think toward your strategic intent vs. making one-off decisions (or simply making a decision with no framework). Decisions, then, can be justified vs. rationalized.
- The strategic annual planning process forces you to focus on your core customer. Don’t fall in love with your own plan. What’s most important is that your customers fall in love with what your plan generates for them. How will what we’re doing better serve our customers? What is the competitive advantage of doing what we think we want to do? What about this annual initiative will help improve the retention of our core customers? What about our plan will help us gain new customers? Does the potential 2023 recession impact your plans?
- Strategic annual planning forces you to take a conscious look externally as well as internally. To maximize revenue also means becoming efficient with the monetary resources that are gained. You can have a ton of revenue and no profit—so a good Annual Plan will emphasize both revenue and profit. It forces the conversations that are otherwise simply overlooked. Somehow, we think all these things will magically just work out (and they rarely do). Annual Planning invites deep dive conversations that not only get people on the same page but also turn the tide toward proactive vs. reactive thinking. For instance: If we generate all this revenue, then do we have the internal systems and processes to support that growth? What process(es) do we need to be streamlining today so we’re set to reach our strategic intent? How is our brand viewed outside the walls of our own company? Do we have the right culture for implementing our strategic intent?
- Annual planning generates efficiency. Most people work hard to please those around them—their peers, their bosses, etc. They work hard—but without an Annual Plan, they’re working hard to execute on something that’s relatively intangible. Can people really execute well on an intangible or ill-conceived strategy? Creating a clear annual plan for the next 365 days gets the entire workforce more productive.
- Strategic annual planning sets you and your people free! Most leaders think a plan is ‘a plan.’ They think to themselves: “We can’t deviate from the plan!” Well…yes you can, because life happens. With a well-intentioned plan, however, you at least give yourself the ability to know where you want to make adaptations as may be needed along the way. Without a plan, your only option is to shoot from the hip and hope for the best. An Annual Plan gives people a snapshot of what you need them to do, and why. You won’t spend as much time redirecting well-intentioned people and they won’t have to wonder what it is you want them to do. A plan gives definition and everyone is freer to do what they do best…every single day. So don’t let a plan restrict you; let it feed the entrepreneurial spirit of your people.
- Annual planning can enlighten, motivate, and engage people. Communicating your plan gives you the opportunity to share your plan with people as well as the ‘why’ behind your plan. And how you share your plan (and your intent) matters. Steve Jobs spent countless hours mapping out his presentations to all employees because he understood that how he went about enlightening people had business significance. Doing this gives a line of sight to what you’re doing and why you’re doing it. Properly delivered, you set the stage for your people to be more engaged and curious about the journey that’s forthcoming, and the role they play in the company’s longer-term success. That can be very motivating to the right people. They become engaged, then, to make decisions that are best for the company (vs. only thinking of themselves or of their own ‘silo’). Enlightenment, motivation, and engagement create a magical alchemy for any business culture.
- You begin to measure what matters with a clear annual plan. Instead of pulling criteria out of thin air, your leaders will begin to focus on measuring what matters. As your plan begins to cascade throughout your company, then, leader after leader also begins to measure what matters. Everything links back to your overall strategic intent. This also helps with engagement. So many times, leaders measure things that are indeed important (such as EBITDA or profit margins, etc.), but while most employees intellectually recognize that these are important measurements, they’re also somewhat boring to most people. So measure what matters by creating engaging metrics around customer retention, production cycle reduction, new product development (and/or time from development to delivery), etc. This way, your people can see the difference their work is making along the way.
If you want a performance culture, then, a robust planning process should become a core part of how you run your business. Using a methodology such as Rhythm can catapult your journey toward predictable results. It’s easier said than done, but the core of a performance culture is providing a framework for the business, and part of that framework consists of healthy discussions (and conclusions) around your strategic intent (i.e., where you want the business to be longer-term, shorter-term, and at the end of this year). Simply half-creating an Annual Plan (or creating one and then not using it as a guide), or simply having an Annual Plan but only giving your people a boring snapshot of it simply isn’t effective. As Hamel and Prahalad pointed out, a snapshot by itself yields little information about “whether the driver is out for a quiet Sunday drive or warming up for the Grand Prix.”
Your Next Steps…
- Get a grip on your planning process. Here’s a quick read that might help you get a grip on your planning process.
- Make sure you share your renewed vision for what the planning process is and what it can do for your company.
- Consider inviting in a seasoned facilitator. To that end, here is another quick read on the value of having an outside facilitator for your planning sessions.
Don’t just survive; thrive. If you want a performance culture that honors your strategic intent, Rhythm Systems can help you continue the rewarding journey toward even higher levels of success.
Looking for more Annual Planning information to help get you started? Check out our additional resources:
How to Conduct an Annual Planning Meeting
Annual Planning: 9 Tips to Focus & Align Your Team with a Great Plan
Annual Planning Playbook: 5 Steps to Create a Winning Annual Plan
How CEOs Can Avoid High-Cost Mistakes in Annual Planning
Best Practices for Annual Planning
Rhythm Systems Annual Planning Resource Center
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