2. Metrics and Planning
Metrics (accounting, finance, and nonfinancial reporting) can quantify and clarify the past and present, and provide data for planning (e.g. analysis, decision support, budgeting, forecasting) the future. As leadership’s main tools for implementing strategy, Metrics & Planning (M&P) can be grouped together and considered as a unit, just as R&D (Research & Development) can be considered as a combined function in the firm’s products and services division.
In the M&P department, asset management (an Investing function usually grouped under the Finance department) is one area where good metrics, forecasting, planning, and strategic agility are rewarded. When a firm is in startup mode, with volatile sales and limited capital, cost accounting and cash flow forecasting are often the most important foresight metrics. Many firms have died while scaling up because they did not control costs, or ran into an avoidable or temporary cash flow problem. In enterprise resource management there are also many opportunities for foresight professionals to add metrics and key performance indicators (KPI’s) that surface emerging issues, reduce risk, improve transparency, governance, and improve measurement and reporting. Triple-bottom line (economic, social, environmental) benefits and cost measurement has become the dominant approach to full cost accounting in the public sector. For more, see ACCA’s annual Accounting for the Future conference. See also Benchmarking for Best Practices, Bogan and English (2012), for more on benchmarking, another critical metrics method. Doug Hubbard’s How to Measure Anything (2010) is a primer on measuring business intangibles (brand perception, employee satisfaction, etc.), a big step to improving their management.
Strategic planning, as it includes both Strategy and Planning functions, bridges both Top Management and the Metrics & Planning departments in many organizations. Strategic planning can be done rigidly and poorly, or flexibly and effectively, and it has been both misused and overused in many businesses. Some of strategic planning’s abuses and limitations are outlined in Lou Gerstner’s “Can strategic planning pay off?”, McKinsey Quarterly (1973, reprinted in 2014) and they are more extensively documented by Mintzberg in The Rise and Fall of Strategic Planning (1994) and more recently in Walter Kiechel’s excellent Lords of Strategy (2010).
Foresighted firms must plan, forecast, and budget quickly, inexpensively, and often, since reality often changes plans. They will do strategic planning in the C-suite, and project management (project planning) in product or service departments. Good planners seek broad stakeholder participation in their plans, and use a variety of foresight methods, including scanning, expert groups, trend research, forecasting, and scenario planning, as front ends to strategy, to generate new options, uncover hidden threats, and generally improve outcomes.
Forecasting now has a number of professional associations (IIF, IBF&P, and scores of economic forecasting groups) and these need to be better integrated with our primary professional foresight communities. Scenario planning is outlined in Peter Schwartz’s The Art of the Long View (1996), describing his experiences at Shell and Global Business Network in the 1980s and 1990s. An excellent practitioner book on “scenario learning,” the use of scenarios to test strategy and make plans, is Fahey and Randall’s Learning from the Future: Competitive Foresight Scenarios (1997). Thomas Chermack’s Scenario Planning in Organizations (2011) is also a great practitioner’s book, covering more evidence-based methods of building, applying, and assessing the impact of scenarios in organizational planning.
Decision support, a blend of human and computer processes and tools, is an emerging M&P function that uses Analysis and outcomes-testing to do more evidence-based foresight work. Decision modeling approaches like real options analysis, used by large firms for long-term capital investment decisions, is another state-of-the-art M&P foresight method. See John Mun’s Real Options Analysis (2005), and associated software, for more on this quantitative foresight technique. As connectivity, sensors, analytics, and cloud services grow in adoption, many more powerful tools and platforms for M&P foresight will emerge in coming years.
To recap, Metrics & Planning is home to the following key foresight functions: Metrics, all the ways we account for and measure business operations; Forecasting, using both crudely and highly quantitative methods and models to estimate or predict probable futures; Investing, forecasting and creating superior economic returns on invested capital; Analysis, logically reducing a complex system or problem into interrelated parts and arriving at decisions; and Planning, techniques to coordinate and direct the firm’s resources and actions toward chosen desirable futures. With five functions, M&P leadership is responsible for the largest group of our core Twenty Foresight Functions.