Expect the Unexpected: Strategic Planning in a Time of Economic Uncertainty

While there are conflicting outlooks on what financial institutions can expect from the economic environment in the next five years, experts generally agree that “expecting the unexpected” is a sound business practice. Major global or national events are always possible, although the potential impact is not yet fully understood or there is disagreement on what the impact may be. Thoughtful strategic planning allows the FI to prepare for unknowns and to nimbly respond to events that impact the organization. 

How does economic uncertainty impact strategic planning?

It is even more vital to have a clear direction and plan when in an uncertain economic environment. An FI’s strategic plan informs the annual business plans of all lines of business and departments. And while economic uncertainty doesn’t impact how we do strategic planning, it should absolutely impact how we use the tool.

“This is where we perhaps see the most change when economic uncertainty is prevalent,” said Mikelle Brady, PRI partner. “And this is precisely why the strategic plan must be well-defined and clear in providing direction for executive management.”

Financial Management magazine agrees that strategic planning should not be discarded even when it may feel pointless to try to develop long-term plans in a highly volatile environment.

“Maybe the problem is not strategic planning itself but how the technique is used. In times of uncertainty, clarity becomes increasingly important, and strategic planning can be a powerful tool for bringing focus to an organization by anticipating alternative scenarios and evaluating how an organization should respond.” – FM Magazine

Creating a powerful strategic plan for your organization.

Brady said that an effective strategic plan should be a three-year plan and should answer four foundational questions (see below). The best strategic plans are nimble and flexible enough to remain valid over time with adaptations and adjustments to events. The plan can be used to create different scenarios to map out if there are vastly different directions depending upon certain occurrences. These scenarios should be discussed with the management team and used to inform annual business plans.

While the strategic plan offers a three- to five-year outlook, annual business plans with more detail and flexibility will roll up underneath it. Annual business plans are by design even more nimble, flexible and can be tweaked each year to respond appropriately to changes in the economy.

FM Magazine notes two major flaws in many strategic plans: Being overly optimistic or lacking a sound financial basis.

“Frequently, strategies are based on unrealistic assumptions and may be wrong. Second, strategies often lack financial credibility by failing to adequately address risk and uncertainty in projections for growth, profitability, and capital requirements or, worse, lack any numbers at all. As organizations look to adapt to the new realities of doing business, two attributes will increasingly hallmark effective strategies: strategic resilience and financial realism.”  – FM Magazine

Effective strategic plans feature both strategic resilience and financial realism. They are not regulatory “check the box” items to be shelved after creation, but rather they are working roadmaps to guide the organization through both choppy waters and calm seas.

Begin with mission and vision.

At PRI, we start with four main questions when helping clients create working strategic plans: 

1.     Where are we now?

2.     Where do we want to be?

3.     How do we get there?

4.     How do we measure our progress?

Asking these questions allows the financial institution to lay a foundation based on who they are and where they want to go.

“Decisions and planning are rooted in a strong mission statement, empowering vision statement, and well-founded organizational core values,” Brady said. “The vision statement is forward-looking and designed for the internal purpose of getting the team on board with where the bank is going. Speaking to organizational core values and their importance to the bank helps them to hire the right people and create a strong culture.”  

Develop strategic plan elements.

While an FI does is not required to focus on the following values, common elements of a strong strategic plan often include: 

·        Growth

·        Culture

·        Employee Development/Human Capital

·        Financial Performance

·        Products/Services

·        Customer Service

In times of economic uncertainty, specific themes may rise to the top in terms of importance, or the FI may choose to focus on something that has been neglected during times of rapid growth.

 Balance board and management roles.

Also important to creating a strong strategic plan is understanding and balancing the role of the board and the role of management. Which group drives which elements will lay the foundation for setting appropriate goals and forming committees for implementation and accountability.

Communicate, communicate, communicate.

Once the strategic plan is drafted, the job is not over! Communication is vital to successful implementation of the strategic plan, and it must be ongoing, not a one-time occurrence. The most successful communication strategies include monthly implementation committee meetings, quarterly executive team meetings to report on committee progress. the use of a common tracking device to measure progress, and communicating wins organization-wide to show employees they are making an important contribution and impact.

The PRI Way.

PRI’s steps to creating a three-year strategic plan help our clients facilitate the answers to the four foundational questions: Where are we now? Where do we want to be? How do we get there? How do we measure our progress? The specific steps we take provide participation and shared ownership along with accountability to stakeholders. 

1.     Conduct Pre-Planning. PRI surveys key stakeholders to gather key information and thoughts from the board and senior management. PRI additionally offers guidance, articles and reflections to prepare all participants to be ready to look forward. 

2.     Facilitate Strategic Planning Sessions. This 2-day process is recommended to take place off-site in a retreat format. PRI facilitates independent meetings with the board and senior management, along with a session involving the board and senior management together. 

3.     Publish the Strategic Plan. Taking information from the in-person sessions, PRI will create a draft strategic plan and present it to management to review and then to the board for approval. 

4.     Strategic Plan Measurement and Follow-up. Strategic planning doesn’t end with finalization of the plan. After the plan is published, PRI conducts on-site follow-up meetings quarterly to ensure that action plans are being tracked and progress is reported to the board. 

While PRI’s approach is just one among several an FI can take, it is time-tested and comes from years of collective experiences at financial institutions of all sizes where we have learned to “expect the unexpected.” A time of economic uncertainty is not the time to scrap an FI’s strategic plan. Instead, it is the perfect time to home in on the current plan and how you can adapt it to the current and potential future environment. 

Resources:

Why Does Strategic Planning Matter Now More Than Ever? – Profit Resources, Inc 

The 5 Most Common Mistakes in Strategic Planning – Profit Resources, Inc 

When Did Your FI Last Update its Strategic Plan? – Profit Resources, Inc 

Visualizing the Rise of Global Economic Uncertainty (hbr.org) 

Uncertainty Prevails for the Economy in 2023 | National News | U.S. News (usnews.com) 

Making strategic planning relevant in an uncertain world – FM (fm-magazine.com) 

A Strategy for Embracing Uncertainty | Bain & Company

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