Medium-term Business Planning
A medium-term management plan clarifies what is to be achieved in the medium term over a shorter period of three to five years under a long-term vision of around 10 years for the realisation of the company’s management philosophy. Generally, the plan sets out a concrete roadmap and clearly defines the process of achieving each year’s targets in terms of numerical values such as sales, operating profit targets and ROE, and also incorporates the management issues to be solved at the level of specific measures.
Three steps required for medium-term management planning
1. changes in the market environment
There have been emergencies such as new types of infectious diseases that have brought economic activity to a halt on a global scale. In Japan, the risk of a major earthquake is always apparent. These and other risk factors are assumed as part of the market environment. However, it is difficult to assume sudden factors such as the outbreak of war, and it will be necessary to decide to what extent to factor these in as risks. However, specific impacts such as a rise in oil prices or non-life insurance premiums must naturally be assumed. In this context, although it is difficult to qualitatively assume events with a low probability of occurrence, the highest and lowest foreign exchange and oil prices of the past 10 years or so must be assumed.
2. Sustained improvement of the company’s core competences
In a society where the volatility of market change has increased (climate change risk should be included in the volatility here), what kind of business should be conducted to increase corporate value without changing the relative position of the company in society? This is the question. As an example, Microsoft in the US established the world’s number one position in the business of selling PC operating systems and office software, but as individuals began to carry internet terminals in the palm of their hand with the advent of smartphones, the heavy operating system of Windows’ high versatility became a weakness, and the company lost out in competition to Apple and Google. and Google. The company successfully resurrected itself as part of GAFAM by changing to a subscription-based business model, stopping the sale of software and bundling it with PCs. Thus, we can see that it is very important not to cling to traditional strengths, but to redefine and ensure the implementation of the core competence of providing what the customer needs.
3. based on 1 and 2 above, which are very difficult to express, how can KPIs such as milestones and performance evaluations be set and awareness shared throughout the company so that employees share the vision and achieve the goals? This is the most difficult part of formulating a medium-term management plan. Japanese people are not good at distinguishing between ends and means, and in some cases, as discussions drag on, the means become the ends and the discussions derail. The ability to share issues is the most important first milestone in building a strong organisation, and is determined by the ability to draw a picture of steady progress towards the goal, following each milestone firmly.
If it’s just a token medium-term management plan, it’s one way to stop it.
In today’s highly complex and fast-changing world, it has become extremely difficult to even look three years into the future. As a result, the divergence between optimistic good scenarios and pessimistic bad scenarios is widening, and in many cases, an average low-growth scenario is being drawn. However, it must be recognised that the inability of a company to grow because it is difficult to foresee the future is a matter of life and death for the company, which is a question of raison d’etre. It should be possible to quantify, from a qualitative perspective, how the company should establish and maintain its position in its business domain while adapting to a changing society, and how it should allocate resources and set sales prices to achieve this. It is also a responsibility to all stakeholders. That is the significance of developing a medium-term management plan, and if a company cannot gain the support of its stakeholders due to its half-baked significance, it may be worthwhile considering a medium-term plan or delisting.