Linking the Budget to Strategy

1. Linking the Budget to Strategy • Implementation of a strategy requires • Enough resources to support the strategy • Screening of requests for new capital projects and bigger operating budgets • Shifting resources to support new strategy priorities - Downsizing some areas and upsizing other areas - Eliminating activities that are no longer needed • How well budget allocations are linked to the needs of a strategy • can either promote or impede the implementation process.

2. Implementing Best Practices & Continuous Improvement • Implementing a strategy involves adopting “best practices” • Best practices means: • Benchmarking is an integral part of a successfully implemented strategy • Continuous improvement programs • Total quality management - TQM

3. Instituting Best Practices & Continuous Improvement • Quality improvement programs are linked to • Defect-free manufacture • Superior product quality • Superior customer service • Total customer satisfaction Identifying & implementing best practices is a journey, not a destination; it’s an exercise in doing things in a world-class way.

4. Formal Reporting of Strategy-Critical Information • Accurate & timely information is essential to guide action • Prompt feedback on implementation initiatives are needed BEFORE actions are fully completed • Monitoring early implementation actions serves two purposes • Quick detection of the need to adjust the strategy or its implementation • Making sure things are moving in the planned direction • Critical success variables must be track as needed

5. Formal Reporting of Strategy-Critical Information • Information systems should cover • Customer data • Operations data • Employee data • Financial data Accurate information allows a strategy to be monitored and corrective action to be taken promptly

6. Commitment to Chosen Strategy • Implementing rewards & incentives inducing employees to make the strategy work • The reward structure must motivate people to do the very things it takes to mjake the strategy work successfully • Requiring results, not intentions • Keys to implementing pay-for-performance programs • Make performance targets the basis for structuring the incentive system • Ensure performance targets are clearly defined and every person/group is accountable for achieving them • Be fair and impartial in comparing actual performance against targets • Avoid rewarding non-performers • Explore reasons for deviations (“poor” individual performance or circumstances beyond the individual’s control)