Business Planning & Pakistani Companies

While conducting a session attended by nearly 30 heads of Pakistani companies (small to medium sized), I asked them to tell whether they had prepared any business plan that they followed. I saw one hand raised by representative of Pakistan franchisee of major global conglomerate. That was not the first time I had observed such lack of realization about importance of business planning among Pakistani companies. This phenomenon is not limited to SMEs of the country; a number of even well-known corporate entities listed on stock exchanges do not have formal business planning process in place that ultimately results into decisions taken on ad-hoc basis instead of well thought out strategy. 

Culture of Business Planning

While talking to CEOs or Seths of Pakistani companies, you get impressed with their vision and ‘big picture’ approach they take in their analysis of business issues. We should praise them for their ‘holistic’ view of business challenges; however, their analysis generally covers ‘what’ part of overall jigsaw puzzle. Aspects of ‘why’ and ‘how’ remain unanswered. Here comes the role of business planning process; we need to realize the importance of process instead of just the final product i.e. Business Plan. The fact of the matter is that most of Pakistani companies do not have business planning process that involves all the stake-holders in finalizing the road map to reach a pre-determined destination. It is important to realize that a corporate entity cannot come up with a realistic and robust Business Plan unless it is developed through a process instead of finalized by one or few persons only. 

Sales Plan or Business Plan?

Another problem area is the lack of differentiation between sales plan and a full-fledged business plan. Many senior business executives (including C-level ones) claimed to have business plans; however, these plans turn out to be mere sales targets or sales budget at best. This lack of understanding on part of senior management team clearly impacts the way business is managed (or mismanaged). How much you are going to sell does not make a business plan even though it may include SKU-wise and month-wise phasing. Such a sales target does not constitute even a formal top line since it may not include critical elements like pricing and phasing of pricing decisions. 

Why Business Planning?

In view of foregoing discussion, it is evident that a commercial entity should have the destination where it want to reach and annual and long-term business plans provide the road maps to reach the pre-determined objective. The desired milestones may be defined in a number of ways including required return on equity, market share, profitability and similar indicators. Since these milestones (so-called destination points) may not be achieved simply through wish; proper planning has to be done which covers timelines, required resources and other strategic imperatives. As successful entrepreneurs say, only good intent (or wish) does not take you to the desired place; you need to plan (read business plan) to reach there. The business planning process helps to focus on resource requirements (financial, human resources etc.) for achieving specific targets in accordance with corporate vision and mission. 

Destination Planning

In order to have effective destination planning, the companies should have a robust planning process through which challenges to business can be ascertained and a clear line of action with financial and other implications can be determined. There is no rocket science involved in that process; simple common sense will guide us how to proceed in designing a basic business plan though a number of sophisticated tools are available for formulating an advanced level business plan. A simple business plan would have basic elements like situation analysis, elementary SWOT analysis, historical performance, challenges on hand, competitive scenario, targets (business, financial, operational), resources required, phasing of resource requirements and projected financials. The companies may have all these elements in isolation with no connection with one another that result into absence of any formal business planning process. For example, the sales target may not be in line with production and supply chain phasing a disconnect that results into wastage of resources.

Who is to lead BP process?

For those companies which are inclined towards business planning, the essential question is who should lead this very process: this question may seem simple to those companies but there are issues involved since they are confronted with choices. In many traditional entities, the task of preparing business plan is assigned to Finance function whereby CFO or Head of Finance leads the process while coordinating with other functions. In most of the cases, it is considered as one-off task in a business year, hence there are no dedicated human resources to perform this activity. Such apathy toward this crucial business process leads to culture of ad-hoc decision making depriving the stake-holders to have bigger picture. Some well-organized companies with mature system do assign this responsibility to Marketing since this function does have access to critical business data, exposure to market dynamics and can coordinate with other functions to come up with a consolidated business plan. On the other extreme, few organizations do have dedicated Business Planning function which is involved in planning process including rolling estimates and periodic variance analyses throughout the year. Such a dedicated function in Pakistan corporate landscape is a rare sight as most of us do not seem to be convinced about the utility of such an exercise.

Financial Plan or Cash Flow 

Another phenomenon which is quite common in our country is the pre-occupation with cash flow as compared to real profitability. The local entrepreneurs tend to overlook the business profitability and focus on cash flow instead that leads to incorrect priorities reflected in critical business decision making. The purpose of this argument is not to undermine the significance of cash management but the focus on cash flow only while ignoring the overall business profitability may be recipe for disaster. Once the sponsors become overwhelmed with cash flow totally disregarding the bottom line, there arise numerous issues in financial reporting further complicating the decision making process. 

Another aspect which gets neglected is the choices for both opex and capex; even the companies with reasonable business planning process do not plan for operating expenses with reasonable accuracy that have serious bottom line implications. Since planning process is not managed in professional manner in most of companies operating in our country, the inaccurate or highly unrealistic assumptions about input and other cost lead to weird financial projections. In these circumstances, no one in the organization owns those assumptions and hence the whole process of business planning does not yield the desired results. The issue is more serious as regards capital expenditure since time horizon is longer that impact the accuracy of mid to long term assumptions. 

Competitive Knowledge

In order to have effective business planning process, it is essential that companies have updated information and data about competitors so that a comprehensive view of overall situation is taken and strategies are formulated accordingly. The companies in Pakistan, with the exceptions of MNCs and few professionally run business houses, have no access to market and other competitive data; corporate strategies are finalized in isolation without any consideration to competitive environment and activities. In our country, there are many research companies that undertake variety of market and consumer studies and data collection; however, the main clients of these research companies include only MNCs and handful of national companies. Most of local companies consider any spent on research and competitive data as sheer waste; no wonder that very few local companies do subscribe to periodic retail audit conducted by Nielsen or Access Retail. Unless decision makers in Pakistani companies realize the importance of competitive data, an effective business planning process cannot be initiated. 

The business planning process compels the decision makers to get more insight about the industry they are part of, what exactly the competitors are doing in the market place, what are their pricing and promotional strategies and the like. Such competitive analysis helps companies to know more about the actual size of industry volume and value. I met many successful entrepreneurs who were not sure about the size of their own industry volume; one’s lack of knowledge about the actual size of pie hampers the very process of effective and robust decision making. 

Strategic Approach & Annual Plan

The absence of business planning culture (read no annual business plans) reflects the lack of strategic approach towards key business factors. The strategic approach, on the other hand, helps businesses to think through where is their destination as well as how to reach there. Such an approach facilitates the process of making choices in view of limited resources and prioritization becomes easy.  Once business goals and overall macro environment are clear to sponsors and other stake-holders, the business planning process becomes comparatively easy. Most of companies operating in Pakistan need to adopt a more robust strategic approach that will help in formulation of annual business plans consisting of financial statements, marketing plans, pricing strategies, supply chain and human resource planning.