IN OUR OPINION, PERSPECTIVE #119 — SEPTEMBER 28, 2020
(A Continuing Series for Leading CPA Firms)
CREATING A VISION-BASED STRATEGIC PLAN
"If you are working on something exciting that you really care about, you don't have to be pushed. The vision pulls you."
In a previous perspective, we addressed the five common mistakes that firms make in developing their strategic plans. This perspective will focus on the 1st – lack of alignment with the firm’s future vision.
John Naisbitt (author of Megatrends) stated – “Strategic planning is worthless – unless there is first a strategic vision”. Vision reflects what the firm aspires to be and provides a destination. The strategic plan should reflect the strategies that will be implemented to achieve that future vision. A great vision statement should not be based solely on financial success but rather a vision of what the firm’s strategic destination looks like. What is the vision of the firm in terms of the communities it serves, its clients, its partners, its employees, and finally society?
As stated in the previous perspective, you can’t create a strategic plan that looks out four to five years without first discussing and supporting the firm’s vision statement – what does the firm aspire to become? A strategic plan is a roadmap. No roadmap has any value if there is no agreed-upon destination. As the old saying goes, without a destination any road will get you there. The trap that many firms fall into in their strategic planning is that they build their plan on revenue and profit goals - how much do we want to grow and how much do we want at the bottom line or goals like improving realization and other such metrics. While these metrics are important, if the firm’s plan is built solely on financial metrics, the potential for huge strategic mistakes is significant if the goal of the strategic planning is to achieve the firm’s future vision. Anchoring your strategic thinking in financial goals reflects short term tactical thinking. Anchoring your strategic plan on a well-defined and shared future vision reflects long-term strategic thinking.
Let’s imagine we are at a partner retreat for Able & Co, LLC that has about $30 million in revenue and 15 equity partners. After a review of the firm’s financials at the beginning of the retreat, the partner group agrees that today’s profit of 25% is too low and the firm needs to reach 36% by the end of the 4-year planning horizon. The partner group follows with a discussion surrounding what the top line should be in 4 years, they agree on a target growth rate of 9% that will take their top line from $30 million to $42 million over 4 years and when coupled with strategies to improve other financial metrics, achieve their profit goal of 36%. Not bad, right?
Anchoring the strategic plan in financial metrics creates a strategy mindset that evaluates strategic choices through the filters of growth and profit. While both of these financial benchmarks are critical to establish in any longer-term strategic plan, the result will be tactical short-term initiatives versus long-term strategies. Let’s discuss why.
A firm’s ecosystem is what drives the firm’s success. The ecosystem is comprised of four building blocks (vision, mission, core values, and strategy). If you visualize these building blocks as concentric circles, vision and strategy form the outer two rings defining what direction the firm takes while mission and core values form the inner two rings reflecting how the firm operates. Vision impacts and in fact defines how leadership leads; how clients are serviced; how talent is motivated; how performance is measured and driven; what the culture reflects; and finally, what every person believes the firm’s purpose is? Strategy defines the roadmap regarding how the firm will move towards and achieve its future vision.
The retreat discussion progresses, and the CEO asks everyone to think about strategies that will drive growth and profit - the following discussion takes place.
There is a lively discussion about growth and how the firm will drive its growth to achieve a four-year target of 9% annual growth per year. The partners talk about cross-selling and about more effective marketing and BD. They talk about creating a focus on the firm’s A and B clients. They talk about potential mergers. They talk about realization and managing jobs better. They talk about reducing staff based on utilization. And yes, they talk about the need to add advisory services. Sounds like some good discussion with potentially good strategies to drive growth.
As the consensus builds around the above, Mary raises her hand and says “Look all of these points are good, but we are just nibbling around the edges and talking about the same stuff we always talk about to drive growth. None of this moves our firm towards our future vision. I think we need to address a bigger issue and that is how do we build our client base with larger clients where we can sell multiple services and where we can be paid a fair rate. I realize that this type of strategy requires an investment and will impact short term profits and maybe even short-term growth, but when we are successful in this strategic direction, our financial goals will be achieved and perhaps even exceeded”.
She finally asks “I thought our vision was to become a firm that achieved financial results within the top of our industry, that we would become a firm of choice for larger clients and that we would be a firm that provided not only a strong career path for our team members but also a challenging work environment? We can’t deliver on that future vision if we don’t step out of our comfort zone and implement strategies that will move us towards our vision. The strategies we talked about earlier may improve our short-term growth and profit, but they are tactical and lack alignment with our firm’s future vision”.
The firm’s CEO thinks about what Mary said and summarized it for the partners this way. “Mary thank you first of all for your comments and challenging our thinking. The option presented by Mary is seismic in terms of impact and its effect on how we operate as a firm. Do we want our strategic plan to be comfortable and incremental with little movement towards our future vision or do we want to step out to the edge and develop strategies that not only align with our future vision but that will be exceptional in terms of potential? We may be risking short-term profit and growth but if we don’t invest in our future vision, what good is the future vision?”.
If you decide that you want your strategic plan to be driven by a future vision – an aspirational view of what the firm should be in four or five years (assuming you have one) then you need to challenge your partners to think differently than they have in the past. You need to challenge them to have the courage and confidence to move out of history and their comfort zone and to develop strategies that not only achieve long-term financial goals but more importantly move the firm towards it future vision.
In Our Opinion, the above scenario depicts the essence of the strategic planning challenge – are you building your plan based on and aligned with your long-term future vision for the firm or not? Think about this as you evaluate the impact on the firm from your prior retreats and as you plan this year’s retreat. Was the output from the prior year’s retreat impactful? Did the output result in more than incremental changes in the firm? Did the output move the firm towards its vision or not?
It takes courage to move from the comfort of the past to creating a vision and strategic plan that requires you to think four or five years down the road with all of its unknowns. If you decide that you want your strategic plan to be driven by a future vision – an aspirational view of what the firm should be in four or five years (assuming you have one) then you need to challenge your partners to think differently than they have in the past. You need to challenge them to have the courage and confidence to move out of history and their comfort zone and to develop strategies that not only achieve long-term financial goals but more importantly move the firm towards it future vision.
Written by Tony Zecca (CPA and retired CohnReznick partner and National Director of the Advisory Group), an ESPOSITO CEO2CEO consultant who is brought into client assignments as needed.