The rule of thumb for business planning used to be three-year cycles, with some longer-term strategy layered on top. However, markets changing at warp speed as technology improves have shaken up the norms.
Agility and flexibility are essential: soon, long-term planning may become a luxury.
In 1965 Intel co-founder Gordon Moore famously noted that the number of transistors per square inch on integrated circuits had doubled each year since they were invented, and predicted the trend would continue.
"Moore's Law" notions of rapid growth appear to be even more relevant today in most industries; the speed of change continually escalates, creating significant business model disruption.
In these circumstances, how far into the future can businesses realistically forecast and plan?
INTHEBLACK canvasses the view of three experts.
Technology Sector Executive, Tigerspike
Alex Burke is happy to admit his company contributes to the digital disruption phenomenon. "We are the disrupter," Burke says of mobile solutions business, Tigerspike.
The international company has recorded year-on-year growth of 50 per cent in recent years, matching internal forecasts. "From a numbers perspective, you can definitely still incorporate your [business] plans," he says. Favouring short-term plans, Tigerspike typically rolls out projects or innovations over six to 12 months and expects them to be profitable within a year to 18 months. Burke says this scenario is becoming the norm for tech companies in high-growth markets.
"The rigour we have is around ensuring we maintain profitability, or that we have proved a [concept] within a six- to nine-month period," he says.The pace of technology change has forced companies to adopt more flexible business plans, according to Burke. Major enterprise software rollouts could once take years, he says. "Those times have gone. It's hard to predict further than six months out, let alone two or three years."
Many companies now take a "launch and learn" approach, where they do smaller, incremental technology changes that are readily monitored and quickly modified. A different mindset is needed. Businesses must be prepared to evolve on a quarterly basis. "You need to be very adaptable with your business plan and know where the market is," Burke says. "You may still have your overall revenue and growth targets, but how you get there may change over the course of the year."
Tigerspike has bowed to the fast-changing nature of modern business when opening new offices in New York, Singapore and Tokyo, opting for a lean presence in the initial stages while testing markets. As the business proves profitable, there is scope to adopt a more cost-intensive model.
Many companies now take a 'launch and learn' approach.– Alex Burke
Recruitment strategies have also been modified. Rather than hiring technology specialists with expertise in one area, the emphasis at Tigerspike now is on acquiring multidisciplined, adaptable employees who can collaborate and switch projects easily.
While Moore's Law had its origins in the IT sector, Burke says the notion of exponential technology development is relevant to all sectors today as digital disruption becomes the norm. However, he urges companies to see the positives and use the rich sources of business data that can become available. "If a company can get the right level of business intelligence out of these ever-changing systems it can really put them in a very powerful place, because they are able to change strategy quickly based on data behaviour." The clear message for modern businesses, he says, is not to fear change.
"It's more about opening your eyes to it, being able to adapt to it and move quickly with it," Burke says. "And it may actually make your forecasts, planning and business model even more powerful."
Alex Burke is Asia-Pacific chief executive of Tigerspike, a mobile technology company. He is chair of the mobile expert group for the Association for Data-Driven Marketing & Advertising and is on the AsiaPacific board of directors of the Mobile Marketing Association.
Corporate Strategist, Deloitte Australia
There has been a fundamental shift in thinking about business models in an era when technology rules, according to Gerhard Vorster. As a consequence, the role of strategy has never been as important, he says, "especially as choices are much more profound and choices can visibly be the difference between success and failure".
A positive in this environment is that access to insightful business data means companies can quickly assess what they are getting right and wrong and adjust accordingly.
"This means that the alibi of ‘Well, it was too uncertain and we could not have made a choice' is no longer there, especially when you make choices that were proved wrong or right in the past," Vorster says.
Planning horizons are the other key shift as there is no longer a continuum of one-, three- and five-year plans. Vorster says the emphasis now is on the six-month, six-year syndrome. "It's much more a notion of what are we going to look like in six years?"
As a result, companies have to make firm decisions around what industries they want to dominate and in what way. Those choices then dictate strategies and execution plans for the next six months – short-term steps that will "move the dial" towards achieving the longer-term vision.
Vorster says it is crucial to have checkpoints to test strategies and assumptions. Were assumptions right or wrong? How did competitors respond? How did clients react? What internal forces are occurring? "That assumption testing is quite crucial and something that is not done frequently enough," he says.
In a recent report – Digital Disruption: Short Fuse, Big Bang? – Deloitte predicts that in the next few years almost a third of the Australian economy faces a digital challenge that will push companies to rethink their strategies. It defines disruption as when at least 15 per cent of a company's operations involving metrics such as revenue, cost structures or customer base will be affected by digitisation.
Leadership development is a big deal going forward.– Gerhard Vorster
The key, says Vorster, is for companies "to not become complacent if they've just taken one step on the digital journey, but to know that the capability required for the future is to continuously think six years out and implement six months ahead – continuously."
Technology aside, Vorster subscribes to the argument that the only other sustainable advantage companies will have in the next decade is the way they lead their people. "Leadership development is a big deal going forward."
He says good leadership will play a vital role in an increasingly important business factor – extracting maximum discretionary effort from Gen X, Y and the millennials.
"They want to feel well led. They want to have a sense of belonging and a belief in the fundamental purpose of the organisation, which is why that six-year planning theme is so important, and then they will give you beyond their discretionary effort," he says.
Finally, Vorster says innovation remains crucial and will require companies to test existing business models.
"There is no law of the universe that has sentenced new business models to the same matrix of old business models. It will require the ability to think and innovate and almost disrupt yourself at times, which is incredibly difficult as a practitioner."
Gerhard Vorster is chief strategy officer for Deloitte Australia and Asia-Pacific. A former managing partner for Deloitte's consulting practice in South Africa, East Asia and Australia, he is also chair of the RMIT Industry Advisory Board and is a qualified civil engineer.
Lisa Reed CPA
Business Consultant, Business Balance
Five-year strategic plans are out and one- to three-year visions are in, according to Lisa Reed. However, she offers the caveat that time frames depend on where the business sits in its life cycle. Start-ups will logically work to shorter cycles than established companies.
"If you are a more mature business and have moved from survival to the growth phase, then you are probably a bit safer with a three year horizon," Reed says.
Regardless of the business, she says it is crucial to review strategic plans at least annually – but ideally every six months – and to tie that plan to operational reviews. On the back of a suite of strategies to strengthen operations, a business plan can be developed that identifies a specific set of actions for the year ahead.
"What we're finding is that those annual business plans are changing more rapidly than before," Reed says. "We're typically finding we have to update every quarter."
Annual business plans are changing more rapidly than before.– Lisa Reed CPA
Rather than fearing such a fast-changing environment, Reed says most of her clients welcome the chance to constantly review and reshape their plans.
"It's made business owners a lot smarter, a lot sharper … it actually allows them to connect the dots and be agile, so it feels a lot simpler to operate a business even where the environment changes constantly." Although sophisticated software tools can help businesses collect valuable data that informs their business plans, Reed says "technology is not always great". A plethora of technology options with a short shelf life can confuse business owners and hinder rather than help. Selecting a "tool for purpose" is essential.
"You need to be really au fait with your end-to-end processes and you've got to pick the technology tools that allow you to engage successfully with customers and aid productivity."
Reed believes it is inevitable that, as a result of digital disruptions, companies will increasingly recruit technical specialists as a way to ensure smart business plans are devised and implemented with technology in mind.
"Five years ago you didn't need to allocate people and financial resources to support all the cloud-based technology, but it's going to be a basic requirement in all areas of operation from here in."
When it comes to plans, Reed advises pursuing clarity over quantity. That means shunning 30-page strategic or business plans and opting for something that fits on a single page. A business still has to do its research and analysis, "but once you've done that, keeping the information up to date is much easier."
"It's going to be a much better communications tool and management tool for the next 12 months than something that takes three months to put together," Reed says.
Lisa Reed owns and runs Business Balance, a Perth consultancy that provides strategic and operational advice to business owners and corporate managers. A CPA and co-author of The Business Mystic: A Practical Guide to Being in Business and Having a Life, she has worked with managers and teams at some of the biggest corporations in Australia.
- A combination of six-month and six-year plans is in vogue.
- Having the agility to switch business models quickly is essential.
- Rich data from technology innovations can help planning.
- Constant review and updating of business plans is also essential.