In my previous post “5Ps for a Business Plan – Part 1“, I had talked about the 5 Ps – the elements of Product, Patron, People, Profile and Profit – which, when used in preparing a business plan, will make the planning process qualitatively better and the plan will be a business plan rather than just a financial exercise. In this post I will elaborate how this concept can be applied in practice.
How do we use 5 Ps in practice?
For each of the 5 Ps, I will recommend a 5 step budgeting process to be followed as below.
i) First, define a set of benchmark parameters, say two or three, (more if necessary), for each P factor. The parameters will be those by which you will judge the performance of that particular P element against a target, which may be qualitative or quantitative or both.
For example, for Product you will need to decide on which parameters to use in order to benchmark ‘product quality’ and move up the scale from current level of quality to that benchmark – will it be perception of your product quality by the industry peers or will it be satisfaction levels of your clients or both?
ii) Second, (a) decide the measure to be used for evaluating performance and (b) determine the benchmark values for each of these parameters. Based on where the market or competition is or will be, you decide where you wish to be in 2 to 3 years time with reference to them.
Take the example of Patron (client) and lets say we have decided that client satisfaction level is a parameter to benchmark and we will need to (a) decide how to measure client satisfaction – will it be an annual review by the client and a rating form filled in by the client or some other method and (b) determine whether a client rating of 7 on 10 is the benchmark value to target or a higher value of 8.
The measures for the qualitative parameters are tricky – they need to be high in objectivity, as far as practical.
One of the problems that we often face with the evaluation measures is that they are often too late, in the sense that there is a time lag before the measure can be used, or they are too rigorous or expensive (e.g., market research) to be done frequently. These lag measures are still important and useful in that they are the final measure of the outcome of business performance in the area of each of the 5 Ps, but they are not so helpful in measuring day to day or month to month progress. We will need a second set of measures for overcoming this aspect, which I have dealt with below.
iii) Thirdly, decide on periodic (say, half-yearly or annual) milestones that the business needs to cross on way to achieving the benchmarks. In other words, the final target to reach will need to be broken up into shorter manageable steps. These milestones will form the basis of budgets and targets.
iv) A key step in planning or budgeting is where we review and modify the processes followed in the business, both inter-functional and intra-functional, relating to each of the 5 parameters. This process review step is one of the main purposes of the entire budgeting exercise, and the real benefits of budgeting are derived from this step. Review, modification as necessary and better implementation of the processes will quicken the pace of reaching the milestones and benchmarks.
v) Finally, establish a set of lead measures that will evaluate implementation of the processes as agreed. The lead measures are frequent and instant checks (unlike the lag measures) on whether the processes/modifications, as prescribed to reach the milestones, are being properly followed or not. They are quite useful and practical for monitoring purposes and taking corrective steps.
In the following part of this series, I will furthere elaborate the practice of 5 Ps through a case study, using an advertising agency as an example.Email This Post 0