Dear Clients and Friends,
If your firm is over a certain size, it is likely composed of multiple business units, which may be a combination of market-based or discipline-based departments, groups, studios, and/or offices in a multi-office firm. In most firms, these business units develop annual business plans.
A firm with multiple business units can approach its strategic planning from one of two orientations: top-down or bottom-up. In a top-down approach, the firm’s leadership, which typically consists in part of business unit managers, develops the firm’s strategic plan, then pushes it down to provide direction for each business unit’s annual plan. In a bottom-up approach, the business units are charged with developing their own plans, which may then be rolled up into the firm’s annual plan.
There are pros and cons for each approach.
- Pro: The firm’s strategic plan—through its future vision and primary issues, goals, and strategies—provides strong guidance for the entire firm as well as for each of the business units.
- Pro: The primary components of a strategic plan—its vision and goals—are intended to be effective for several years, providing stability and continuity for the business units’ annual planning.
- Pro: The business unit managers who participate in the strategic planning have first-hand knowledge of major firm-wide decisions, and presumably they have bought into those decisions.
- Pro: The strategic plan should identify potential synergies and opportunities for collaboration among the business units.
- Con: A firm-wide strategic plan may unintentionally stifle the desire of entrepreneurial business unit managers to explore new opportunities beyond the bounds of what is articulated in the strategic plan.
- Con: There may be less buy-in at the business unit level when managers see their planning as being too constrained by the firm’s strategic plan. When a strategic plan feels imposed on the business unit managers, it is more difficult for them to achieve a genuine sense of accountability for performance at the business unit level.
- Pro: Each business unit can flex its entrepreneurial muscles as it identifies its own opportunities.
- Pro: A new idea created in one business unit’s plan may prove applicable to another plan, or even to all of them.
- Pro: When business units develop their own plans, there can be greater accountability for the unit’s financial performance and for the implementation of its own plan.
- Con: When business units are too focused on developing their own plans, they often overlook potential collaboration opportunities with their peer business units. Thus, the firm’s roll-up results in simply the additive sum of all of the business units, rather than the product of potential synergies.
- Con: The cumulative impact of the additional resources requested in the business unit plans, such as strategic hires, capital expenses, acquisitions, and other investments, may be more than the firm can afford.
- Con: Some firms that roll up all of the annual business plans come to believe—mistakenly—that they have developed a strategic plan.
Is there one right answer? Not really. Like almost everything in business (and in life), there are trade-offs to consider. I have seen many firms succeed using a hybrid approach, thoughtfully combining the two orientations to derive the best value from each. Firms need the top-down aspect because the firm’s strategic plan provides a roadmap for the entire firm. Firms also need to leverage the bottom-up approach because the “horsepower” that generates the firm’s revenue and profit resides in its business units, and to mix metaphors, it’s at that level where a firm’s rubber meets the road to give the plans traction.
Is there a single wrong answer? Yes. Going too far to either extreme—top-down or bottom-up—at the expense of the other deprives the firm of valuable input into its planning.
A few final takeaways:
- A top-down firm’s strategic plan can offer a strongly articulated vision for the firm, backed up with clear measurable goals to serve as a “big tent” into which the business units’ annual plans should fit.
- A bottom-up firm should have, at a minimum, firm-wide strategies or initiatives to span across the business units to lend continuity and consistency to their plans as well as to provide corporate support for meeting their goals.
Both long-term strategic planning and short-term annual business planning are vital for any firm. If you have thoughts about this important topic, I’d love to hear from you at email@example.com.