ASK ETHAN: Sharpen Your Market Focus with Long-Term Planning


CFO-Thought-Leader-Horz-599-131What does long term planning mean to your finance team? Join us as Ethan Carlson, CEO of Carlson Management Consulting, once more tackles our questions to supply you with answers and a new mindset designed to help empower your finance organization to look ahead.


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Transcript Highlights:

The following is an edited abstract from CFO Thought Leader’s “Ask Ethan” podcast featuring Ethan Carlson, CEO, Carlson Management Consulting, and Jack Sweeney, cohost of CFO Thought Leader.

CFOTL While frontline teams these days need to be responding quickly to changing events and opportunities, how does this impact the mind-set of organizations when it comes to long-term planning?

Ethan Well, from my perspective, having a long-range forecast or a long-range plan — something of greater than 3 years, say 3, 5, 7 years — is really a key component of the overall planning and forecasting process. It’s crucial to ensuring that the strategic alignment with your budget is maintained for a number of reasons. We see that having this in place allows organizations to have a thought process that’s focused not just on the immediate year’s results. In doing so, it allows the participants in the budgeting process or the planning process to take a step back and look at what the market looks like, what the macro trends are that they’re dealing with, and really be a little more thoughtful and strategic in the projections that they put in for what they want to accomplish.

It also allows people to — well, I don’t want to say take more risks — but to put ideas out there and to separate themselves a little bit from the process. Personally, I find that one of the big challenges in the annual budgeting process is that there’s a lot of gaming the system or sandbagging where a business owner won’t put forward their best projection because they know that hitting it is how they get paid their bonuses. So dealing or doing away with this is a great thing in that, often, these longer-range plans are not seen to have this same correlation, so people can often be much more transparent and can put stretch goals in place, which is really how organizations will evolve and improve.

I can think of one business leader I worked with for a number of years with whom we had to go through a 5-year projection as part of the beginning part of our budget process. Whenever we were doing our annual plan, he had more tricks up his sleeve — such as taking ways to hide backlog and things of that nature — so that he would always hit his annual budget and get his bonus. But when it came to the strategic plan, he was very thoughtful and did the market research and all that, so it was a very different process. So I think that this allows people to be more strategic but also to be more transparent on what’s possible in their business.

CFOTL Can you give us a sense of how organizations are modifying their approaches when it comes to long-term planning?

Ethan I think that the biggest thing that’s changing is the frequency and pace with which organizations are looking at longer-term projections. When I worked at GE a number of years back, we always had a long-range projection, but it was an annual exercise. I think that today this is happening much more frequently.

The pace of business that we’re dealing with, even in the last few years, has changed radically to where over the course of a week, or days even, a company’s outlook can change dramatically. Strategic events in the world or in their market can change and the long-term plan needs to be constantly reevaluated. What we’ve seen as much as anything is that the frequency of the model and the use of it is increasing. As a result, organizations are looking for ways to make this long-range projection easier and more accessible and more real-time.

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