For the sake of simplicity in this article, strategy and planning will be used to mean the same thing. Budgets and goals are related, as is the implementation of the business strategy. The implementation of a business strategy is considered as the final stage in the business strategy (before monitoring and control). It could be defined as the translation of strategy into organizational action through organizational structure and design, resource planning, and strategic change management. several components to carry it out are successfully integrated.
The organizational structure and design aspect of the definition has to do with how human resources are used, mobilized and organized in the organization to be found through the use of the organization; and the design aspect is that most employers can leave the company if they are not motivated or if they are not given the right position to operate in the organization, in other words, if they are not used.
The next aspect in implementing a business strategy, resource planning, establishes which resources should be created and which should be discarded. It is about identifying the necessary resources, how those resources will be deployed and controlled to create the skills needed to successfully implement the strategies. This resource configuration depends on the protection of unique resources, i.e. when a strategy depends on the uniqueness of a particular resource, such as legal means, resource pooling (i.e. mixing resources to create competition), reengineering of business processes (i.e., to create dynamic improvement in performance) and exploit the experience by continually learning and improving to improve competition. One of the many problems is the conflict that arises between departments over the allocation of funds, especially when the money is involved in the implementation of the business strategy.
Strategic change management is the next component in the implementation stage. This change involves incremental change that simply builds on the skills, routines, and beliefs of the organization for the change to be efficient and transformational, which requires the organization to change its paradigm over time.
In building a strategic management system, the budgeting process must be linked to business strategy. Thus, beginning the budgeting process, budget directors set budget objectives and organizational goals for the next budget period, the main task of which is to produce a master budget that combines budgets from business units and functional periods. From the period budgets, the budget director builds the master budget. This is then adjusted to calculate the expected share value, which in turn acts as a test of corporate strategy. This is the point where the strategic analysis can be verified. If the strategic blueprints do not create shareholder value, they undergo a cycle of strategy modification. Once the master budget and therefore the strategic plans are completed, the budget to be used and the strategy to be implemented are established.
Obtaining a sufficient budget is one of the main requirements for the efficient implementation of the business strategy. The question is where does budget implementation and business strategy interact?
There is evidence of numerous waves of failure to implement business strategies and plans despite reasonable analysis. Someone has said that good planning can greatly reduce the risks of business failure.
A plan is a projection of future activity. It usually translates into a budget if it is quantified. Thus, for a near period of time in which the budget expressed in monetary terms is related. It is defined as a financial or quantitative statement, prepared prior to a specified accounting period, containing the plans and policies to be followed during that period.
In general, budgets are prepared in a procedural and systematic way, usually followed by most organizations (although the procedures may differ depending on the size, type and leadership style of the organizations) and are as follows:
Communication of details: Those responsible for preparing the budget must know and stay informed of the strategic plans (plans or objectives) of the company so that the budget is adjusted accordingly. This means that the long-term plans of the organization must be taken into account when developing the budget.
The main budgetary factor that limits the performance of an organization. It is usually sales demand. If an organization cannot make and sell more of its products because consumers will not accept that price, it restricts the company’s demand. Management may not know the limiting factor, eg machine capacity, distribution and sales resources, until a draft budget has been prepared. This is the starting point in preparing the budget. Once this factor is determined, the rest of the budget is established to be prepared.
Sales Budget Preparation: This is typically the primary or base budget prepared based on sales forecasts and from which most other budgets stem because it has been established to be the primary budgeting driver for most businesses. organizations. This leads to the initial preparation of budgets for the following: stock of finished goods, production, resources for production, general expenses, raw materials (stock), raw materials (purchase)
It is when all the budgets are completely in line with each other that they are summarized in the master budget made up of the budgeted profit and loss account, the budgeted Balance Sheet and the cash budget.
The cash budget is one of the most important planning tools that any organization can use. Its usefulness is felt when it shows that there are not enough cash resources to finance the planned operations. The cash budget can show four positions or scenarios that give management an indication of potential problems that could arise so management can avoid such problems.
Job involvement is one of the areas where budgeting interacts with the implementation of business strategy. For example, when the cash budget shows a short-term surplus position, management is urged to make short-term investments, pay creditors early to get a discount, or increase sales by increasing debtors and inventories. In the event of a short-term deficit, the appropriate action for management to take includes increasing creditors, reducing debtors, and arranging for overdrafts to finance the deficit. The other long-term cash-surplus position is addressed by making long-term investments, expanding organically or through acquisitions, or diversifying, among others; and the long-term deficit could be managed by obtaining long-term financing or divestment opportunities.
The budgets and objectives (strategies) are clearly assigned to those areas and activities of the organization that are considered a priority. If important goals are to be achieved and priority strategies are to be implemented, resources must be provided.
However, research in interorganizational settings identifies the acquisition of resources (ie, the budget), the acquisition of cooperative interaction, and the acquisition of organizational power as the difficult part of the implementation processes. Therefore, struggles between organizations for larger budgets also influence budget planning and affect strategy implementation. For example, when resources are limited and finite, strategic opportunities may be restricted. Since budget planning is typically annual, budgets are often different from current situational needs, especially toward the latter part of the budget period. Because of this, flexible budgets are designed to allow for changes in activity level, which can result from adaptive changes in functional and competitive strategies.
It should also be noted here that while the role of today’s financial managers is rapidly advancing strategically, the challenge becomes even greater in light of the accelerating pace of change. This reality is making traditional corporate governance approaches, such as static 3-5 year annual planning and static budgets, obsolete. To provide useful financial information, sooner rather than later managers should think of business strategy as a process of continual course correction more like a series of real options than a single statement of projected cash flows.
The implementation of a business strategy could be likened to a human body without a soul (budget). If there is no soul in a body, it is considered dead; in the same vein, the budget is that soul (especially when implementing a new business strategy) for the implementation of a business strategy; therefore, the two are linked and interdependent.