What is the relationship between enterprise budget and strategic management?

In an article published many years ago, Professor Tang, a famous management accountant, put forward a budget target system model based on company strategy, regarding how to improve the correlation between company's "strategy" and "budget" and how to eradicate the "two skins" of these two systems in the same company.

The budget target system model based on company strategy makes the budget target directly reflect the choice of competitive strategy, the improvement of competitive advantage and core competitiveness, and the multi-dimensional factors are integrated, designed and directly linked. This model is especially suitable for those companies that are centralized or in urgent need of strengthening headquarters control to arrange corporate resources as a whole, emphasize balanced management, and pay attention to the consistency of pre-planning, process monitoring and result evaluation.

The budget target system model based on company strategy is shown in figure 1. ?

The design ideas of this model include:

First, the company's strategic orientation can never be one-dimensional, and it has always been pluralistic and inclusive.

It is true that talking about the company's vision is inseparable from "increasing shareholder returns" and "improving corporate profits", and people often understand this "profit" as current net profit and return on investment. Even if "cash priority" was emphasized later, it only seemed to attract more attention to the cash flow statement.

"Throughout the history of these forward-looking companies, trying to' increase shareholder wealth' or' pursue profit maximization' has never been the main motivation or primary goal. A visionary company pursues a set of goals, and making money is only one of them, and it is not necessarily the most important goal. "(Evergreen Foundation).

The business objectives set by Hewlett-Packard Company include seven aspects: gaining profits, guiding customers' needs, focusing on professional fields, emphasizing growth, satisfying employees, organizing and managing, and making contributions to the community and society.

The diversification trend of enterprise goals may make the specific content of different enterprise goals different, but in summary, its essence is to pursue the company's lasting vitality and competitive advantage in order to maintain the company's sustained and healthy development. Therefore, it is necessary for us to reposition the task of value management: profit should not be the only focus of strategic management tasks. Only by completing the three tasks of "scale growth", "return on investment" and "risk control" can our company go more steadily and further.

From the financial point of view, the concept of income and risk equivalence is based on the "process" of financial management, while from the perspective of designing company strategy and financial planning, the consideration of income and risk must be based on the necessary premise of "scale sustainable growth", and the growth rate of enterprises should be based on the core competitiveness, sustainability and stability from the strategic point of view. "Return on investment" emphasizes that profit is the basis of company value, and also highlights the relationship between input and output. "Risk management" is to ensure the control of business processes and financial risks from the system and ensure the safety and effectiveness of cash operation. Therefore, the budget target system corresponding to strategic management should be diversified, not unitary. This three-dimensional strategic goal is not to completely subvert the importance of "profit", but to make the strategic goal more specific and perfect from a multi-dimensional and three-dimensional perspective.

Of course, the diversified budget target index system listed above is not irreconcilable. With the different strategic key projects, products and specific competitive strategies of enterprises at different stages, the specific emphasis on key indicators will be different, and even some indicators can be replaced. However, this paper emphasizes that budget objectives should be designed and selected according to three dimensions: growth, return and risk control, and no one dimension can be balanced.

Second, the budget target indicators are reflected and implemented in key performance indicators (KPI). KPI is the decomposition of the company's strategic objectives, which is constantly revised with the evolution of the company's strategic priorities. It is a measurement parameter that can effectively reflect the change of key performance drivers. KPI is the reflection of key value drivers and key business actions, not all operational processes. Through KPI, senior leaders can clearly understand the business operation that is most critical to the enterprise value, managers can diagnose the problems in the business and take timely actions, which can effectively promote the implementation of enterprise strategy, provide objective basis for performance management and communication between superiors and subordinates, and enable enterprise managers to concentrate on the main aspects that have the greatest driving force for performance.

Third, the three-dimensional value orientation guides the selection of KPI and the base of performance contract. On the one hand, the determination of specific KPI budget indicators of each enterprise must reflect the characteristics of budget management mode under the guidance of strategy and budget management mode under the guidance of stable strategy: paying equal attention to sustainable growth, return and risk control. On the other hand, when using KPI for budget target planning, we should choose an index system that logically conforms to KPI principles, but at the same time connects with specific budget preparation, and at the same time determine the benchmark value of assessment, which is convenient for process monitoring and assessment.

Theoretically speaking, the selection of KPI system and the determination of benchmark value should follow the SMART principle, that is, KPI should be specific, and KPI should focus on specific work indicators, not general; Measurable, KPI is quantitative or behavioral, and data or information to verify these performance indicators can be obtained;

Achievable, indicators can be achieved through hard work, and avoid setting too high or too low goals; Related to responsibility, the indicators are real and can be proved and observed; There is a clear time limit, otherwise it is empty shouting.

Fourth, pay attention to the cross-use of absolute value and relative number to further promote balance management. From the mathematical principle, we can see that simple absolute numbers and relative numbers in management have their own advantages and disadvantages. It is one-sided to emphasize only a certain absolute number or relative number. For example, if only the relative number of returns is emphasized, then the operator may ensure the realization of the return on net assets by reducing the total net assets or negatively treating the growth of net assets, which may lead to such a situation: the operator is unwilling to accept the necessary resources allocated by the budget decision-making body, because it is not necessary to increase his own resources to increase the performance pressure and budget responsibility when the budget goal can only be achieved by maintaining performance.

Fifth, the three-dimensional design and KPI index system can frame and lock the basic state of the estimated income statement, balance sheet and cash flow statement, and can be directly used as the basis for compiling operating budget, capital budget and financial budget. In other words, the KPI selected as the budget basis must also be able to plan three expected financial statements. The principle is that when we determine the growth rate of main business and the total net profit, it is the top item in the income statement. And the last item has been determined, which can be used as the basis for compiling the operating budget. Issuing these two budget targets already means that the budget decision-makers can roughly control the competitive strategy selection of budget units, such as sales market positioning, product differentiation strategy or cost leadership. , urge the budget execution unit to tap its own potential and reduce the comprehensive cost rate; At the same time, the adjustment space of the unit is limited to the structural adjustment of the cost items in the middle of the income statement. When the budget committee thinks that the budget execution unit should establish the technological leading edge and cultivate the customer loyalty in the product growth period so as to make the manufacturing industry enter the barrier, on the one hand, it can increase the investigation on the growth rate of the main business, on the other hand, it can reduce the requirements for net profit, leaving more space for the budget execution unit to spend on advertising fees and R&D expenses, thus forming a suitable business model and profit model. Looking at the budget balance sheet again, when the return on net assets and the total net profit are determined at the same time, taking into account the current capital investment budget, if the net assets at the beginning of the period are given, the estimated net assets at the end of the period in the statement can be obtained. In addition, combined with the requirements of asset-liability ratio management in the target system, it is also convenient to calculate the estimated total assets and total liabilities at the end of the period. Finally, the cash flow statement is the most important part of the cash flow statement, which can directly calculate the estimated net operating cash flow from the estimated net profit through the profit target net cash flow rate. The cash flow generated by investment activities and financing activities can be measured by combining capital budget and asset-liability ratio. The completion of the three expected financial statements means the basic end of budget preparation.

Sixth, it is convenient for budget management and budget adjustment. In the above figure, the adjustment and addition in the process of budget execution can be divided into the following two situations: first, only the budget data in the budget report can be adjusted, but the KPI performance contract cannot be adjusted; Second, adjust the budget report data and KPI performance contract base synchronously. These two situations have different effects on the company's strategy. The former will not affect the realization of the strategy, but it belongs to "on-balance-sheet" digestion and structural adjustment, and the approval authority of such budget adjustment can be appropriately delegated; The latter is the adjustment of strategic arrangements, and the approval of this budget adjustment must be centralized.