Ensure Your Annual Planning Process Is Strategic About Growth | A Market-Focused Approach to Annual Planning

The annual planning process is a ritual at many companies, often with the finance department driving the process. As such, this process is often more about budgets and headcount than it is about customers and needs. While budgets and headcounts are critical, they are usually allocated based on the current year's plan and not a market-focused view of the company's best growth opportunities.

Even at companies with long-range and mid-range planning processes, product and market strategies are too frequently based on the status quo and internal thinking that is unable to ignite growth. Often this approach leads companies to the no-growth rut, where each year you set an aspirational revenue target for year 3, and year after year, that same revenue target continues to be year 3 in their plan.

A wise mentor once said, "if you keep doing what you're doing, you're going to keep getting what you're getting." Regardless of your planning approach, if an external view is not guiding your strategy, you are likely to yield the same results year after year.

Before we get started, an exception, if you are achieving exponential or hockey-stick growth, keep doing what you're doing. With that said, keep a close eye out for the inflection point where your growth starts to moderate, as that is the time to start thinking about your next growth curve, not once you are stuck in the no-growth rut.

For the overwhelming majority of companies who are not experiencing exponential or hockey-stick growth, your annual planning process must take a strategic approach to growth. Your approach mustn't be reliant on luck or status quo thinking.

Remember, if you keep doing what you're doing, you're going to keep getting what you're getting.

Now is the time to change what you're doing and improve what you're getting. As Peter Drucker said, "Luck never built a business. Prosperity and growth come only to the business that systematically finds and exploits its potential."

To help you change your approach, here are four best practices to ensure your annual planning process is strategic about growth:

1.    A market-focused approach is the foundation that enables a company to attain sustainable, profitable growth.

2.    To attain sustainable, profitable growth, a company needs to pair a strategic focus on growth with a market-focused approach

3.    The best growth strategy is determined by market dynamics and a company's current performance and differentiating capabilities.

4.    An objective system for evaluating opportunities enables prioritization of the opportunities with the best odds of success

A Market-Focused Approach

A market-focused approach is the foundation that enables a company to attain sustainable, profitable growth.

To borrow from Peter Drucker, the central foundation of a market-focused approach is "to know and understand the customer so well, your product or service fits him and sells itself." When done well, this approach removes friction from the marketing and sales processes whose mission is to obtain those customers, enabling market-focused companies to outperform non-market-focused companies in profitability and enterprise value growth.

As your product and market teams work on their annual planning, make sure their initiatives and plans are market-focused. Make sure they reflect the outside-in view of your market and customers' needs.

To do this, they need to engage with the market. Product and market teams need to talk with customers about their unmet/under-met needs, do some sales win/loss analysis, explore adjacent markets. From this market-focused work, identify as many growth opportunities as possible, and focus their plan on the two or three with the best chance for success.

Strategic Focus on Growth

As Sun Tzu said in The Art of War, "Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat."

This quote is still very relevant today, as inside-out and status quo thinking leads companies to create tactical plans not grounded in sound growth strategy.

The Growth Strategy Matrix from Igor Ansoff provides a sound foundation for thinking strategically about growth. The matrix builds on the reality that growth comes when you sell a product into a market and identifies four possible ways to grow a company based on Existing and New Markets and Existing and New Product.

1. Market Penetration (Existing Markets – Existing Products)

2. Market Development (New Markets – Existing Products)

3. Product Development (Existing Markets – New Products) and

4. Diversification (New Markets – New Products).

Ansoff's Growth Strategy Matrix

To gain the most value from this framework, have well-defined market segments based on customers with similar needs, wants, and interests and a clear definition of your product from the market's lens and the value you deliver.

With a full map of the products and markets you currently compete in and adjacent market segments and product categories you could potentially compete in, you have a great foundation to think strategically about growth.

Market Dynamics and Current Situation Impacts on Growth Strategy

With the Growth Strategy Matrix and a map of the product and markets you compete in place, the next place to focus on is the current market dynamics in those product-market intersections and your company's current situation.

Let's start with market dynamics. There are three areas of market dynamics you should focus on are:

1)   External forces that could impact your industry;

2)   Your market position in that market-product segment; and

3)   The maturity of the product-market segment where you compete.

External Forces

Your evaluation of market trends should take into consideration external forces that could impact your industry. A common framework for assessing these forces is a PESTLE analysis, which has you review the Political, Economic, Social, Technology, Legal, and Environmental.

This year, the economic impact and industry disruptions caused by the COVID-19 pandemic are a great example of a macro trend. Many companies will need to re-think and re-invent their businesses because of the pandemic, and each of the PESTLE forces could have the same type of impact.

Could Artificial Intelligence or Machine Learning (AI/ML) technologies disrupt your industry? How will climate change impact your value chain and customers? These are the types of questions you should be asking yourself as you think strategically about growth.

Market Position and Market Maturity Impact

The combination of your Market Position and Market Maturity can dictate the optimal growth strategy for a company.

The best growth strategy for a market leader in a mature market is different from the laggard's best growth strategy in a growth market. Making sure you optimize your growth strategy based on these Market Dynamics is critical to success.

Click here to download the Situational Growth Strategy Matrix to see what the recommended growth strategy is for your situation

Current Situation at Your Company

While market dynamics play a crucial role in identifying potentially successful growth strategies, your company's current situation helps determine which growth strategy to pursue.

Understanding your core and differentiating capabilities, along with your strengths and assets to leverage, can help you determine which opportunities have the best chance of success.

If your organization's strengths are in marketing and sales, a Market Development or Market Penetration growth strategy will likely bring the best chance of success. 

If you have very loyal customers and strong product development capabilities, a Product Development growth strategy may be the best option. 

Understanding core and differentiating competencies across marketing, sales, product delivery, product management are critical to identifying the right growth strategy.

So, when you can combine the market dynamics with your company's current situation, you provide your growth strategy with the best chance of success.

Objective Evaluation of Opportunities

The final best practice for ensuring your annual planning process is strategic about growth is valuable for all companies but more beneficial for companies with a portfolio of many products serving multiple markets.

To make the final choices on where to focus your growth strategy, utilize an objective process to evaluate all growth opportunities during the planning process. 

During the annual planning process, it is hard to compare the apples and oranges from different product and/or market teams. When this happens, decisions are primarily subjective, based on opinions and status-quo thinking, not market data or a standardized process for comparing projects.

The best companies at growth strategy utilize decision-making frameworks to evaluate and objectively score each opportunity. These frameworks provide consistency in scoring across all opportunities to enable the ability to compare opportunities and use multiple factors for scoring objectively. Factors can include:

1)   Strategic Fit (fits with corporate strategy, leverages corporate differentiation, etc.);

2)   Market Landscape (market size, competition, trends, etc.);

3)   Value Proposition (value to the customer vs. adoption costs);

4)   Ability Execute Confidence (very confident to not confident at all); and

5)   Financial Projections (NPV, ROI, Pro-Forma).

Within each of these factors, rubrics or metric-based scoring systems are used to ensure the consistent evaluation of all opportunities.

While a framework like this is valuable during the annual planning process, it is perhaps more useful outside the annual planning process. A consistent framework for evaluating and scoring opportunities enables opportunities that you discover outside the annual planning process to integrate into plans and roadmaps. It also allows for reprioritizing plans based on changing market dynamics and macro trends like a pandemic.

What Next?

With these best practices in mind, take a fresh look at your current annual planning process.

Do you leverage a market-focused approach, or are you relying on internal thinking and status quo?

Are you thinking strategically about growth, or are you mired in the weeds of tactical plans?

Do you utilize market dynamics and the current situation inside your company to help focus your growth strategy, or does momentum just keep you going in the same direction?

Do you have an objective framework for deciding where to invest, or does the loudest voice or highest-ranking person in the room's opinion decide?

Once you have answered these questions, start thinking about working these best practices into your process this year.

Get more market-focused, be strategic about growth, and understand the market dynamics and your current situation. And be objective in your evaluation and prioritization of which opportunities to invest.

These best practices will help your process be more strategic, and over time help you achieve sustainable, profitable growth.

If you need help, schedule a call to learn more at https://calendly.com/grantwhunter/gsi.

Click here to download the Situational Growth Strategy Matrix to see what the recommended growth strategy is for your situation