Using Data to Set the Bar for the Plan – In the end, you will not only want a strategy, which includes the details of your overall direction and the details of how you plan to differentiate and execute to win, but you will also want a fairly concrete targets for your strategic plan to measure success. From my experience, it can be difficult to arrive at the right financial targets that are at once realizable and also an appropriate stretch your team.
The best methodology that I have used to establish a plan is to build one based on a market size assessment. In this model, you estimate the current target market segment size(s), the estimated growth rate of the addressed market(s), and the estimated allocation of market share held by current market competitors. Now, with this baseline, you can look at your strategic plan, and make a call on how your investments will cause you to gain share, lose share, or stay even with the competition. After that it is simple math. You should make these projections on a product family, business unit, or geographical basis, depending on your organization and the nature of your business and at a manageable level of granularity to be sufficiently detailed, but also digestible. For clarity, your calculated revenue in the following year should be the current market total revenue * (your current share + any share gain (or loss)) * (1 + the market growth percentage). This model is also very valuable in assessing the longer term view of planned investments (using the compound annual growth rates of your market and a longer term view of the financial value of your investments). This model is pretty simple to put together in excel, and the exercise forces you to stake out what you really believe about your market, your competitors, and the impact you believe you will have in terms of share gain due to your investments.
And, this model can have a very sobering impact as well. If, for example, your market is growing at 15%, but your team will only commit to a 10% revenue gain, you are saying that you are either in a bad market or you have a bad plan in that you are PLANNING to lose market share. Alternatively it could be that your sales team is understating (sandbagging) the likely results to under commit and over achieve (and get great commissions!!). I believe this is a great tool to test the quality of your strategy and your team’s confidence in it.
It is very important that the assumptions used in this analysis should come from the various stake holders and functional leaders so that everyone is buying in, and then the results should be shared, discussed, and “gut checked”, and any needed adjustments can be made to bridge from the somewhat fuzzy math to what your team will commit to. And, while some of the input for this exercise will be estimated, I submit that this path is much better than alternatives that I have seen.