Annual Operating Plan: Step 3 of 4

PlanThe easiest part of the Annual Operating Plan  should be the clear selection and articulation of 3 – 5 core goals for the upcoming year.  It is particularly straightforward if the team has completed Step 1 (see this post) and Step 2 (see this post).

In Step 3, the CEO and management team must ask and answer the question, “What must we achieve next year as the first step in the rational yet challenging 3-year strategic plan?”

My experience suggests there should be 3 to 5 core goals that conform to the SMART test (Specific, Measurable, Achievable, Reasonable and Time-based) and also be:

  • Understandable – by ALL employees;
  • Inter-related – like building blocks;
  • Operationally Sound – NOT aspirational fluff that make executives feel good

For any company under $100M in revenue, a set of 5 goals that build on each other seems to work very well:

  1. “$X” Gross Revenue @ “X%” Gross Margin;
  2. “$X” Operating Expenses;
  3.  “$X” R&D spend and delivery of the Product Plan
  4. “$X” EBITDA and “$X” Positive Cash Flow optimized in the face of any challenges or windfalls in any of the above
  5. Completion of next year’s Annual Operating Plan by “date” (I suggest Nov 15th)

Do you see how effectively the 5 goals build on and depend on each other?  This ensures clarity that is easily communicated to every level of the organization.  And, best of all, no fluff!

Along the way, it should also be explained to every employee that:

  • Any position will be tied to #1 or #2 or #3 and everyone owns #4 in some way
  • The bonus program is paid for by #4, not the “bonus fairy” who somehow shows up regardless of performance
  • If you see something or think of something – make a recommendation.  We all win or we all lose (ie… bonus) together and there is no victory for one department, team or individual – the organization MUST win as a whole.

All said, if you have been successful with the foregoing, then Step 3 should be successfully completed.  This sets the stage for Step 4 – which is coming soon in the next post

P.S. Unsolicited Advice to Owners:

I’d like to add something for owners / founders / CEOs with large equity stakes.  This is merely my opinion but I have come to strongly believe in it:

(-) Employees by and large DO NOT CARE about the 3-year strategic plan or the vision to sell the company.  They don’t participate in such results the way owners and C-Level executives do and, thus, won’t care or live it from the heart (regardless of what they say to your face in order to curry favor).  This is a reality regardless of whether the employees believe in your vision or if the company was voted the “top place to work in Toledo.”

(+) What employees REALLY CARE ABOUT is recognition, career growth, job satisfaction, a company seen as benevolent in the community and… (wait for it)… the bonus they can earn this year.  Employees care deeply about that basket of tangibles and intangibles.  At the same time, if the employees are truly bought in to current year plan, and it is a rational step toward your 3-year goal and other visions, then you have as much alignment as you likely will ever see.

I get arguments about this perspective and no, it is certainly not an absolute, but I have seen very few exceptions to it.  There you have it – you can motivate your people TODAY (on their terms) to help you reach TOMORROW (on yours).

Please note: I reserve the right to delete comments that are offensive or off-topic.

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