Strategy is how you spend your money

There are many definitions of strategy. One of them is: strategy is how you spend your money. In lieu of a written strategy, one could look at your budget and determine what the company values. Does the company spend to hire the best talent, have the best R & D lab, state of the art technology? All of those investment choices indicate a different strength in the market.

The more interesting question is: Is your budget aligned with your strategy? Sometimes the strategy revealed by looking at the budget is not the same as what was approved in the last strategic plan. In fact, I see misaligned budgets more often than I see aligned budgets.

It’s not hard to understand why. Most strategic plans are completed at a high level and not tied to specific actions or initiatives. Even when they are, it is difficult to reallocate resources away from current projects or departments to fund new ones. So often, new projects get skimpy resources while existing departments may not get the increases they were hoping for but typically they don’t lose much either. That approach may eliminate arguments but it doesn’t implement strategy or change results.

If you are to lead an organization to achieve strategy, you must be willing to change how the organization allocates its resources–people, time and money.

For most organizations, I recommend that as part of the implementation plan, specific resource requirements of new projects are identified as well as their expected contribution. Consider it a contract with the project champion that if they get the requested funds, they will meet the targeted results. Lesser results means lesser resources.

The next question is where do the resources come from? Rather than just whacking at the budget and asking all to give a little, I like to look at what the strategy says. What should we be doing more of? What should we start that we haven’t been doing? What could we stop doing that customers wouldn’t miss or notice? What could we do less of without any significant loss of profit? The first pass at this exercise usually yields many more “start” and “increase” than “stop” or “reduce”. However, a regular review of these questions, over time, begins to identify some pretty exciting changes in how business is done and how to invest for a better outcome. It is a discipline that is essential for true strategic growth.

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