Linking Strategy and Planning to Budgets

SAP released “Enterprise Performance Management” in response to customer demand for strategic management integrated within their solution. In this paper we address a long standing and fundamental conflict between strategy planning and budget setting. Strategy challenges are frequently long‐term and call for cross business initiatives. Budgets are inherently biased towards the short‐term and departmental and functional silos.

The Balanced Scorecard approach is used worldwide as a tool for implementing enterprise strategy. A recent trend has seen their evolution to bridge the gap and link strategy and budgetary processes – through a portfolio of strategic themes and initiatives. SAP’s Enterprise Performance Management suite offers a unique opportunity to implement a harmonised process.

Analysis of those organisations that have adopted this approach has identified 6 principles for success: present your strategy within strategic themes; assign executive accountability for each strategic theme; set stretch targets defined through cause‐and‐ effect and scenario analyses; develop a portfolio of cross‐functional initiatives to underpin strategic themes; integrate functional plans with the strategy; and create a special budget category.

An integrated strategy planning and budget process is a pre‐requisite for successful delivery of strategic goals but has to address the two key structural issues: the cross‐department and functional nature of strategy compared to budgeting; and synchronising long‐term strategy with short‐term budgets.

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