So you have a good debate about how to close whatever gap exists. You want to have that debate because the worst thing is someone who says he can make it but then doesn’t. You count on him, and he doesn’t come through. I’ve talked to many operating people who said, “You know, I knew at the beginning we had no chance at this plan.” My reply is, “Why didn’t you speak up and say so? I’m not going to run out of the room. I am going to challenge your plan. I’m going to try to get as much stretch as I can, but if it’s not achievable, nothing’s been accomplished here that’s good.”
One approach is to give a person a number, and she comes into a budget review. She says, “You know, I’m highly confident I can make ninety percent of this number in this way. I don’t know how I’m going to make the remaining ten percent—I can’t see it in the business. But I’ve got a couple thoughts, and I’ll accept your challenge. And I’ll come back at the end of the first quarter to tell you whether it’s in the cards or not, because if I don’t know by then, it’s not going to happen.”
I’ll say to her, “I’ll give you a couple of suggestions right now. I’ve been over your plan. If you get one more point of productivity, that closes the gap. One half-point of price will close the gap. But I don’t want you to tell me you’re going to get another point of productivity or half-point of price until you go back and make sure you can. And you may have better ways to close the gap. But those are two things to think about.”
Taken from: Execution The discipline of Getting things Done
As we noted earlier, a big problem with conventional budget processes is that targets disconnected from reality can be all but meaningless for the people who have to meet them. An operations process that runs on the social software of execution solves this problem, because the people
themselves help set realistic targets. And since those targets are the ones their rewards are linked to, the operating plan is where they take full ownership of them. This is the bedrock of accountability.
LARRY: Let’s assume we rolled up the operating plan, and the corporation was $50 million short of what it had to do in order to meet the estimates of the street and so on. I tell them, “We as a company think this is the realistic target. This is what we’ve led people to believe. We’ve asked you to come up from what we agreed upon earlier, but there’s still a gap between what you think you canmake in the ten operating businesses and what we think we have to make.”
I can’t just give them numbers they can’t make, because that isn’t going to be helpful. We’ve got to talk about how we fill the gap. I say, “What ideas do we have that begin to close this gap? We’re going to keep health care costs flat across the organization, so that’s going to give you two cents a share. I’ve got some ideas to help you, but I’m
still short.”
Taken from: Execution The discipline of Getting things Done
My purpose is to set up with him or her an apparatus to still achieve that plan by the end of the year. I explore the first quarter in detail to see how much they know about it and what they’re going to do about it. And the emphasis that I have is on early action.
What I say is, “People, we’re talking about operating plans. This is not about hopes and dreams. This is about realities. Don’t tell me you hope it’s going to get better. Don’t tell me that you dream about doing it better . The reality is that in the first quarter it wasn’t better. That’s the
database that we’re going to go from, and that’s the database we’re going to act upon.”
Now, if it develops that we can foresee some cash issues at the end of the second quarter, I might reduce the capital budget a little bit. I’m going to say, “Okay, we approved$50 million for capital expenditures in your operating plan, but I’m going to reduce that to $45 million in order to maintain our cash flow plan. Now you have to select the capital
projects most beneficial to the business. If you’re back on plan at the end of the quarter, fine, we’ll look at those things again, and we may bring them back to the original state.”
This process doesn’t guarantee that you make every plan in the corporation—you don’t. But you’d be surprised by the number of people who come awfully close under conditions that were a lot different than were assumed when they put the plan together.
Taken from: Execution The discipline of Getting things Done
Quarterly reviews help keep plans up to date and reinforce synchronization. They also give a leader a good idea about which people are on top of their businesses, which ones aren’t, and what the latter need to do.
LARRY: I’ll go with my HR person to a business, especially one I don’t know well, and before starting on the business plan, we’ll meet with the general manager and his HR person to go over the people- and organizationdevelopment plans. I’ll also try to make the point that the
strategy is appropriate and is being translated into the business plan. Then we’ll go through the operating plans in terms of most recent quarter: sales, market growth, exogenous factors, margins, levels of expense. I like to do it with a lot of people where I can get dialogue from a large constituency. The better the people, I find, the more they like these reviews. Later I hold a public forum, assembling a group of people in an auditorium, on a loading dock, or whatever, to talk about what the company is trying to do and take questions. On the plane home, I write a note about what we agreed to in the quarterly review.
The review itself is a basis to compare how the general manager has done against the first quarter plan. I might learn that we need to adjust the plan. Maybe he says to me, “I missed my sales in the first quarter because it’s a slow season.” I’d say, “Well, wait a minute, it was a slow season last year in the first quarter too. So what does that have to do with anything?” And perhaps he’ll say, “But I know I’m going to pick up my sales in the second quarter. I’ll be on plan by the end of the second or third quarter.” I then have to ask, “Let’s assume you’re not. That means I don’t do anything about it until the fourth quarter after you don’t make it in the third quarter. Well, let’s not do that. Let’s start doing something now as though you’re not going to make the sales budget. If you do, all the better and you’re ahead of your plan and that’s great, but if you don’t you’re protected.” Same thing with productivity. If someone says, “I didn’t have a good first quarter, but I will have in the second,” again I have to say, “Well, let’s assume you
don’t. What are you going to do now about that?”
Taken from: Execution The discipline of Getting things Done
Companies that execute can put a contingency plan into effect on the turn of a dime—recall how Honeywell responded to the crisis of September 11. When the Asian contagion roiled world economies in 1997, both AlliedSignal and GE created contingency plans and redid their budgets in six weeks. They had this capability because they had thought about it beforehand and had been practicing the process for years.
LARRY: The operating plan is done. Now the leadership looks at the assumptions that might be most vulner-able and plans for contingencies in case results start to come up short. For example, we’ll calculate that if a business misses its growth target of 10 percent, it will cost us revenues of X and margins of Y. So we’ll have an idea of the magnitude of costs we would have to take out and the productivity gains we’d have to increase to make up for the shortfall. We don’t get very granular, but our people are very adaptable. They know the kinds of actions they’ll have to take to adjust, when and if.
Taken from: Execution The discipline of Getting things Done
