Primary or profit objective - Strategic Management

What does strategic planning have to do with fundraising? Absolutely everything. Without a clear vision and direction for an organization–a clear path forward–what donor wants to invest? No one wants to throw money at a problem. People want to understand what they are buying, or investing in. What is the end goal? How are you going to get there? How do you know this is the right approach? Even the smallest donor will give more over a longer period of time if they can understand how what they are giving fits into a larger picture and will result in some significant change in their community. So an overall organizational strategy will reap tremendous financial rewards.

But any effective strategic plan must have an integrated financial plan. What are the resources at your disposal (staff, technology, buildings, materials, programs), how much will they cost and how will you generate the money to pay for them? You cannot have a realistic strategic plan without a corresponding financial plan. The financial plan lays out the revenue and expenses over the period of the strategic plan. What is it going to cost to get to your goals (expenses) and how will you pay for them (revenue)? Going back to the critical importance of aligning your mission ,resources and core competencies, you must weigh your expenses against your realistic ability to raise that amount of money. Can you really raise enough money, given where you are right now, to meet all the goals of your strategic plan? If not, then one of two things has to change. The first option is to limit the goals of your plan to make them more affordable. The second option is to increase your revenue engine to meet the cost of these goals. Therefore the strategic plan and financial plan have to be created in conjunction with each other. It is a back and forth process where one plan feeds and is altered by the other.

Once you have a realistic financial goal, you need to create the annual revenue plan to get there. Notice I didn’t say “fundraising plan.” Nonprofit organizations need to elevate how they think about the money required to reach their organizational goals. Fundraising, raising money from private sources (individuals, foundations, corporations), is just one part of the revenue options available to nonprofits. Other options include: earned income (selling a product or service), government grants, fee for service, corporate sponsorships, debt, growth capital, and so on. By using the term “revenue plan,” as opposed to “fundraising plan,” a nonprofit begins to explore other revenue opportunities. That is not to say that every nonprofit should explore every revenue opportunity. Nonprofit organizations do, however, need to expand their options.

Just like a strategic plan, a revenue plan should have 3-5 broad goals. So, perhaps you break your revenue types into 3-5 buckets. Then create the road map for hitting those revenue targets in each area. What infrastructure needs to be in place, what campaigns will you take on, how will you go about bringing that money in the door, who is responsible for each activity, what is the timeline? And you begin to craft a comprehensive revenue plan. It can seem like an overwhelming process, but if you are strategic and systematic about it, you can break an overwhelming goal down into manageable chunks and pretty soon you are raising more money that you thought possible. I did this at KLRU, increasing annual operating revenue by $1.6 million. And I’m helping several of my clients create and implement similiar revenue plans. There is a way, even in the midst of a recession, to generate the money necessary to achieve your goals. But it requires an integrated, strategic approach.

A feeling for profit must be held by all managers in the organisation if the company is to be successful. A business whose individual members have no sense of profit responsibility is a depressing sight. Successful businesses tend to develop a climate in which profit is taken into account during the planning process. Any company run by managers who argue that profit does not matter to them is very sick.

One more general point should be made about profit, and this is that the philosophy is not simply one of short-term but of long-term profit growth allowing for corporate renewal, which is something better than survival. In all decisions the company’s future should be given due consideration. Most companies could increase today’s profit at the expense of tomorrow’s: for example, by reducing advertising, abolishing research and development, cheating the customer, or innumerable similar actions. The management task is to balance the need for current profits against the need for the company to progress in the future (of course, organisations have been set up to make a ‘quick killing’ and then close down, but these are unlikely to be interested in the concepts of management discussed here).

That there is a need for current profits is also beyond doubt. The company that forgets this will perish, just as surely as the people who pack up eating at Easter and devote all their efforts to contemplating their next Christmas dinner. Shareholders are right never to be satisfied with Alice Through the Looking Glass jam – there must be some for today. A main difference between companies which practise effective strategic management and those which have a more traditional approach to management is that the strategic companies are not satisfied with words alone. Much more meaningful is a specific quantitative statement of what profit is required.

The planning company will also want to tie a time period to the profit concept. It is interested not only in what profit it requires this year; it needs to state its aims for as far ahead as it is willing to plan. Perhaps the first step is for the company to define what it means by ‘profit’. This must be established in accounting terms, and the definition should be used in all future plans. A company should never delude itself into believing it has achieved targets merely because it changes its chief accountant for one who has a different approach to the problems of reserves, depreciation, goodwill, and the like. The objective should cover two dimensions of profit – quantity and efficiency.

A number of factors must be taken into consideration when an chief executive sets profit targets:

  • Trends over previous years (these provide a baseline for growth)
  • Progress by other companies of a similar size or in the same industry
  • The performance of the leading companies quoted on the Stock Exchange
  • Opportunities for more profitable investment elsewhere (for instance, shareholders tend to lose interest in a company which yields them less than an equivalent investment in a bank savings account)
  • The vision of the chief executive, and intention to give the shareholders more than they have had in the past
  • The strategic need for growth to reach a size which enables the company to

at least maintain its position of influence in its trade, and to provide a cash flow to generate future growth and the replacement of assets.

  • Rates of inflation. There should be an improvement in real terms
  • Acceptable levels of risk.

The usual efficiency ratios, particularly return on capital and return on Share holders’ funds, should be utilised in the study. A new chief executive who inherits a company earning a miserable 1 per cent return on capital employed will probably have a long way to go to give shareholders the type of earnings they have a right to expect: on the other hand, he or she might consider that there is a lot of scope for improvement, as things cannot get much worse.

All rights reserved © 2018 Wisdom IT Services India Pvt. Ltd Protection Status

Strategic Management Topics