Why strategy vs. the P&L is important

investor-readinessStrategic planning is critical to business success, it is not just about the revenue model and P&L.

Different from classic business planning, the strategic variety involves vision, mission and outside-of-the-box thinking. Strategic planning describes where you want your company to go, not necessarily how you are going to get there. However, like all other “travel plans,” without knowing where you want to go, creating details on how to arrive are meaningless. Strategic planning defines the “where” that your company is heading.

Delivering a strategic plan is one of the most important things any organisation, regardless of size can undertake.  A well-formulated and executed strategy establishes the foundations against which the organisation can create, monitor and measure their success. And yet many people find strategy and its purpose difficult to articulate.

swot-analysis (1)Why is strategy important?

Strategy is fundamental to the success and sustainability of any organisation for the following reasons:

  1. Understanding your company and industry

Strategy allows organisations to develop a clearer understanding of their own organisation and what is required for them to succeed. It helps organisations understand their core capabilities, identify and address weaknesses and mitigate risks. It can help organisations better design themselves so that they are focusing on the right things that are the most likely to deliver the best performance, productivity and profit both now and in the future.

  1. Growing in a changing world

Understanding what is taking place within the external environment is important to preparing a strategy that will ensure long-term profit and growth. Understanding changes that are taking place in your industry, or with your market place is important.

Because if you don’t adapt you die. Even successful businesses need to realize that what made them successful today is not what will make them successful tomorrow. With the rate of change becoming faster every year, it’s increasingly important that we understand what trends are going to impact on our business and our industry, and how we’re going to respond to them.

Whether political, social or technological, we need to what changes are going to affect our businesses. And we need to know how our organisation can respond to them. It enables us to find opportunities for growth and sustained profitability and it can help us identify and respond to changes that could make us extinct.

It is important that you understand what can affect you and your business both short term and long term.

  1. Creating a vision and direction for the whole organisation

All organisations and their staff need to understand their purpose, their destination and the course they are taking to get there. A company without a strategy is akin to sending your staff into the desert and leaving them to follow mirages in search of water. Without a destination and focus in mind your staff will wander aimlessly from one activity to the other never knowing what to focus on or how to prioritise.

Providing an organisation with a common purpose, goals and a set of actions to reach the goal ensures that everyone is working for the same outcome (your organisations success) and that time and resources are being allocated to the same goals and objectives. Simply it streamlines your business and ensures every pound and minute you spend on the business is in the direction of your sustained success.

While strategy is can be difficult for many organisations to commence, its benefits are far-reaching and many. From creating new business opportunities, to streamlining the operations and engaging staff, a well-formulated strategy will enable increased growth, productivity and profit both now and into the future

Why the P&L is important?

For a long time, the answer has been “more.” Ever since Frederick W. Taylor did time studies of steelworkers with a stopwatch in 1900, the measurement of business activity – called “Greater Taylorism” by Walter Keichel in his business history “The Lords of Strategy” – has grown ever more central to management. One result of this drive to quantify and analyse has been that senior executives often create numerous profit centers, or isolated groupings of both revenues and expenses nested within large businesses.

The two benefits are obvious. First, profit centers allow these executives to make better decisions. In organisations whose various revenue and cost accounts are not linked, poor economic performance can be hidden by positive results elsewhere, and decision-making is clouded. Second, profit centers help make accountability clear. By giving managers direct profit and loss responsibility, companies can incentivise activity that measurably contributes to the bottom line.

Finally, for a coherent strategy to work, then, the organisation executing it must be measured as a whole, rather than as parts. In other words, if a company is to have a single strategy, it must be driven by a single P&L.

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