Planning Within Your Organization

A Guide to Promoting Your Credit Organization’s Future

CRF thanks Cliff Miller for his work on this section

Like police and politics, the word is derived from the Greek idea of a society, which makes rules and laws in an attempt to establish order. Such discipline carries many negative connotations, yet the Greeks realized that orderly rules in their daily lives would result in a more civil and polite world.

This same ancient civilization was often led by a general, strategos, from which we derive the word, strategy. This leader would concern himself with long-term goals. As opposed to individual foot soldiers who would fight in small skirmishes and separate battles, the strategos was concerned with the ultimate results of war. It is not over simplifying to say that the soldiers followed rules (or policies) while the generals provided strategies for long term survival.

This discussion, of course, is pertinent to our modern business world. While companies and departments can increase efficiency by utilizing well-defined policies, their long-range survival depends on a sense of strategy. No entity, whether a civilization, commercial business or a department within a firm, will continue to exist without a plan for the future. For this insight, we are indebted to the Greeks.

In this section, we will begin by considering some elements of strategy. We will then review the reasons for a department to develop its own strategic plan, present a method for such development, and guide you through a step-by-step process that will result in a plan that is tailored to your own special needs.

The Theoretical Elements of Business Strategy

There are four elements that should be considered in a theoretical study of strategic plans. While academic in nature, it is useful to start by briefly identifying these points so we can understand the direction to be followed.

The first element is time

Strategic plans will normally address longer intervals than policies and procedures, but how long should the period be? Years ago, it was common for companies to develop five and seven year strategic plans. On the other end of the spectrum, some modern managers’ long range plans have consisted of where they will go for lunch. The selection of a proper time frame is critical, and how it is done will be discussed later.

The second element is deduction

This means that strategy is not developed by putting together bits and pieces – commonly referred to as inductive reasoning – and arriving at a coherent whole. Instead, the method is one of visualizing the larger concept first, and then finding the mechanisms that will help one reach that goal. We deduce specific actions from our greater strategic view.

The third strategy is often intuitive in nature

When Gary Kasparov battles with a chess computer, he is competing with a machine that can compute millions of moves in a second. His human advantage is one of intuition; that is, he immediately knows, without resorting to abundant mathematical calculations, that his attention should be centered on a few strong or weak points around the board. This is the same approach that is used in developing a business strategy. We cannot become overwhelmed with details, but a forward thinking strategy relies on an intuitive feel for our organization’s strengths and weaknesses.

The fourth strategy is holistic

A department’s plan must be all encompassing, fitting neatly with the goals of the organization as a whole. Specific parts of the plan cannot be mutually exclusive.

Thus, we have four theoretical elements that relate to strategy:

1. it must be long term in nature
2. deduced by visualizing a larger concept
3. contain intuitive truths
4. and addresses the business holistically.

Hard Core Reality: Why Departments Plan

Considering the above analysis, one might ask if there are real, practical benefits to developing a strategic plan for a single department. Hardcore reality says, “Yes,” and that is because of reasons that involve organizational effectiveness, leaving the crisis mode, and personal security.

Any unit, no matter how individually efficient, must be in tune with its parent organization. Just as a splendid troop of horse cavalry would not be productive in a mechanized army, outdated departments become nothing more than misfits in a modern business environment. As companies change, it is the responsibility of managers to see that their own areas of responsibility remain on the same page with the rest of the organization, and this can only be done with advance planning. For an organization to be effective in a holistic sense, the separate departments must perform at similar levels.

We can look at this from a different perspective. What happens to a unit that does not rely on strategic plans? Inevitably, its members find themselves outside of the overall organizational structure, struggling to meet expectations of its sister departments. While other units are meeting customer needs in a given time frame, the out-of-sync department finds itself achieving belated results. Because it has not planned for expansions, new products or cultural changes, the misfit unit is constantly operating in a crisis mode. In turn, this results in lower personal satisfaction and a downward spiral of productivity.

Finally, from a purely selfish standpoint, one must think of strategic planning as a means of insuring personal survival in the corporate world. As businesses eliminate their silos (or to be more accurate, as new silos replace their older counterparts), it is common for departments to absorb each other’s functions. Whether it is a customer service area that begins its own purchasing, an accounting department that absorbs credit, or a sales division that hires its own human resource specialist, the realignments continue. While strategic planning does not guarantee security, it will help to define your department’s future role and benefits to the organization as a whole.

For the manager who wants to have an efficient department in the future, one which does not operate chaotically and is not devoured by other predator departments, the strategic plan is a necessity.

Developing Your Plan

The starting point for a strategic plan is to visualize your company as a whole. Your goal, remember, is to have a department that contributes to the entire organization. Just as a football team would not hire a great passing quarterback if their offense was designed for a running attack, your department – no matter how great its achievements – will be unsuccessful unless it operates in the same manner as the corporate team. Your goal is to visualize what your firm will look like in the future and develop a department that will excel in this environment.

This sheds light on the issue, which was raised before: What time frame should we use? The answer is found by rephrasing the question. How far ahead can we visualize when we think of our company as a whole? The answer, whether it is one year or five, will be the point for which you must plan.

It is important to realize that this visualization will require input from many parts of your firm. You may need to consult with marketing, production, systems and financial personnel to arrive at a concept of where and what your firm will be. Some of their comments may even seem mutually exclusive. Still, recalling that strategies are often intuitive, your challenge will be to come up with the most likely picture at a future point in time.

How long should it be?

By now, one can see that there is no absolute answer to this question. As a rule of thumb, though, it is unlikely that in our modern changing world we will be able to see more than three years into the future. In our coming example, we will use that time frame although you may choose other numbers for your own plans.

Summarizing, a departmental strategic plan is a series of actions that will help move your department from its present state to an environment that your organization will encounter in the future. It should be thought of as a connector between two pictures of your firm, the present and the future.

A Strategic Plan involves seeing two pictures of your organization: how it looks today and how it is visualized in the future. The department manager must plan the move between these visions.

A Structured Approach

You are now ready to begin designing your plan by using the following four-step process:

1. Picture your present organization.
2. Picture your organization at a future point in time.
3. Select actions, which prepare for the changes.
4. Place these intended actions in a narrative format.

The first three steps can be handled by completing a relatively simple matrix. (Exhibit 1) Our method will be to examine nine critical factors that comprise the make-up of any organization, recording assessments of the present state and one that is anticipated in the future. After listing this information in the appropriate matrix columns, you will be able to compare two pictures of your firm and recognize the actions that are necessary for the transition.

The following discussion of the nine critical factors should be of help in your analysis. Also, we have used Sample Company to illustrate this process (Exhibit 2) and will follow the thought process of its credit manager as she strives to develop her department’s strategic plan.

(1) Size

As your company grows in size, there will be requirements for either greater manpower or improved efficiency. Conversely, if a shrinking market is anticipated, your own department must adjust accordingly.

Size can be judged in a variety of ways. Historically, many firms have relied on sales volume and the number of customers to provide a reasonable measurement of workload, yet there are other considerations. In some cases, where an individual customer places many small orders, it is more appropriate to base decisions on the number of invoices that are generated. In industries where it is customary to have many price corrections or allowances, one might consider using the number of deductions, which are generated in any particular plan. Finally, a factor worth considering is the number of branch locations within your own company, since this requires interfacing with a different amount of people.

In the example which we are using (Exhibit 2), the firm has chosen to rely on the first two factors. The credit manager has spoken to the President and learned that, in the next three years, sales are expected to increase from $72 million to $120 million. She has also been told that the number of customers would increase by over 20%, so these estimates are listed in the first two columns. The manager knows that this will require additional credit personnel, so she approximates an appropriate staff size and places this in the final column.

Note: You may now wish to complete this first line of information for your own firm and then follow along in a step process. You may prefer, however, to finish all nine sections and then begin your own analysis

(2) Products

The type of items that are sold, whether they are goods or services, will have a major impact on your department. For example, if a firm markets large, expensive equipment, the credit department may find itself dealing in secured transactions. Smaller items that are sold in high volume may result in a need to handle quantity discounts. Perishable products will require a quick collection of receivables, while complex machinery could lead to long range financing or leasing arrangements.

When considering a strategic plan, one must be alert to a change in product mix. If your firm will be marketing new items or differing lines of the same product, there will probably be an impact on your department. While creating new challenges, this can be seen as an opportunity for specialization within your area.

In our example, Sample Company intends to broaden their product line. Instead of simply selling standard widgets as they do today, they plan to develop lines of deluxe and multi-use widgets within the next three years. The credit manager has listed these changes in the first two blank columns, and she has drawn an obvious conclusion.

Since they will no longer deal with a homogeneous product, it is likely that different pricing structures will come into play. Realizing this, she concludes that a system will need to be developed which can monitor price deductions, and this is listed in the “Action Required” column

(3) Location

This refers to your firm’s physical location and the areas in which it markets. These geographical factors can raise many long-term questions. How will you deal with people from different cultures? Will you need to change your hours to cover various time zones? As distances grow, will you have enough time for customer visits and new travel requirements?

Some credit departments have tried to address such problems by decentralizing operations. While there are apparent advantages to this approach, one should be aware of inherent disadvantages. Among them is a lack of backup for personnel, the difficulty in handling national accounts, economies of scale with regard to centralized credit sources and systems, and a loss of functional expertise, which is associated with a centralized operation. While we are not presenting a complete argument for either approach, you should be aware that this is one of the more complex issues that can be addressed.

In our example, Sample Company had previously operated and marketed in a region around a single city, Springfield. The organization plans to expand by opening two branch offices for sales, and they are even considering exporting widgets to Mexico. After listing this information, the credit manager has decided that this limited expansion does not warrant a decentralized approach. On the other hand, she realizes that additional travel may be necessary and is considering the cost-effective approach of obtaining a company car. She also knows that she will need to become more familiar with export credit procedures, and that it could be advantageous to eventually hire a bilingual collector.

This last point illustrates an important advantage to our process. Over the next few years, the credit manager may have to hire several people because of attrition or expansion. By realizing that there will be an eventual need for a bilingual collector, she can be on the lookout for such an individual during her normal hiring procedures. It will not be necessary to wait until the firm enters the Mexican market and encounters Uncollectible receivables; instead, a person with such talents can be hired well before that critical stage. By planning strategically, one avoids managing by crisis.

(4) Competitiveness

This factor is a primary determinant of whether your credit policy will be liberal or conservative. The strength of your position, relative to your competitors, governs how your department can respond to customers and sales opportunities.

In our example, the company is planning to expand into new markets. Leaving their established area where they enjoy a healthy 60% market share, they will be moving into other cities where they will be relatively small players. Looking at these facts, the credit manager has decided on two courses of action. First, she recognizes the necessity of learning about these new areas of opportunity so she will seek out trade associations in these cities. Second, she realizes that this lower market share will most likely require a more liberal approach to credit. As a result, she will need to work with the senior people in the organization to define an acceptable level of risk.

(5) Internal Restructuring

There are very few modern corporations that have not undergone some form of restructuring in recent years. This should continue, for as Heraclitis reminded us many centuries ago, the only thing constant is change. One function of a strategic plan, then, is to anticipate the internal structure of your organization in the future: the relationship between departments, their functions, the roles of individuals and the people themselves. Will departments be phased out or engulfed by others? Who will control whom?

In our example, the expansion to three product lines will result in changes. After consulting with senior management, the credit manager has learned that the firm will most likely create two new sales manager positions to market the new lines. Moreover, the company is considering handling each line as a separate profit center.

After recording these anticipated changes, the manager considers how the credit department can best perform within this new environment. Obviously, there will be a need for receivable reports to be generated for each sales manager. Furthermore, anticipating a more aggressive sales posture among these new leaders, it will be necessary to provide them with incentives to control bad debt losses. The manager feels that charges against their individual Profit and Loss Statements may accomplish this aim, so her goal becomes one of developing reports and chargeback mechanisms for each sales manager. Finally, to assist them with their special needs, it appears that credit responsibilities could be structured along product lines so that sales personnel could have one-to-one relationships with their credit counterparts. All of these thoughts are summarized in the final column.

(6) Economic Trends

Predicting the economic future is rarely easy, and even experts will frequently disagree. It is said that President Truman once asked the Treasury to send him a one armed economist so he would not have to hear the words, “On the other hand.”

Still, economic projections are possible and useful. As tariff agreements are reached, one can decide whether this will open new markets for a firm or result in losses to lower priced foreign competition. As new tax laws or environmental rules come into being, one can calculate the effect on an organization’s profitability. As the Federal Reserve gives signs of future activity, one can estimate the company’s future cost of capital. Generally, your company’s treasurer will have an estimate of future economic trends, and you can base your own thoughts on those assumptions.

In our Sample Company, the single projection relates to interest rates. The company is expecting to see an increase in the prime rate during the next three years, and the credit manager has adjusted her thinking accordingly. Historically, such an increase results in a greater attention to days sales outstanding. It is noteworthy that during the late 1940’s, when interest rates were in low single figures, a credit manager’s main responsibility was to eliminate bad debts; in the 1970’s, when interest rates exceeded 15%, the role had changed to one whose primary concern was cash flow. Knowing all of this, our credit manager decides to prepare a plan, which will institute late charges.

(7) Culture of the Organization

All institutions have a basic style or culture, often reflecting the temperament and leadership of senior managers. These can range from a strict environment where orders are given and obeyed (like the military) to one where decisions are arrived at by consensus (like a Quaker Church). While there are advantages and drawbacks to both methods, it is important that each department follows the general approach of the organization as a whole. A drill sergeant will not be effective in a Quaker Meeting House.

Sample Company had developed in a very structured atmosphere. There had been a strict chain of command for each department, and all major actions were initiated from the top managers. Now, as the firm anticipates a high rate of growth, the President feels that it will be impossible to micromanage the firm and has expressed his desire to empower the employees to make most daily decisions. Knowing that this will be a change in culture, the credit manager sees a need for two courses of action. First, her staff will require greater technical training so they can truly make decisions. Second, it will be necessary to establish a department vision, so that the empowered individuals will understand the directions they are to take in the future.

(8) Systems

While computers began as a tool which would assist workers in their performance, their role has now expanded (for better or worse) to one which determines the working practices of its users. With this in mind, any strategic plan should consider the technology, which will be used in future years.

Sample Company has relied on a variety of personal computers and business packages. After speaking with technical support personnel, our credit manager has learned that the long-range goal is to integrate most departments into one system. While no real work has been done in the area yet, a number of departments such as accounting, purchasing, and sales have seen the benefit of such an approach.

The credit manager, after listing these factors in the first two blank columns of the systems line of the matrix (Exhibit 2), considers possible actions. Not wanting to leave the selection of a credit system to others, she decides to preempt the rest of the organization by making this her own department’s strategic goal. She will explore various credit systems and determine the most appropriate ones that will also be compatible with future accounting and order entry processes. In this particular strategic area, the credit department will assume a leadership role.

Furthermore, as she considers the concept of an integrated system, she sees an additional opportunity for helping the organization. Remembering that pricing deductions are expected to become a greater concern for the credit area, she realizes that greater efficiency could be achieved be allowing her to absorb the billing function. While this will need to be discussed with those who presently have this responsibility, she adds this to her action plan on the matrix.

(9) Legal Requirements

Obviously, any organization should behave ethically and legally. As departments change, however, it is easy to forget to review new activities to assure such compliance. This is especially true when markets are expanded into new locales that have different ordinances and regulations. Additionally, laws themselves change.

If nothing else, your strategic plan should include a general study of procedures from a legal perspective. New personnel should be trained in ethical standards and legal requirements of antitrust issues.

As we look at Sample Company, we see that they will be selling in different states and in larger amounts. Understanding that security matters can differ, the credit manager plans to review UCC procedures in these areas. She determines that this will best be accomplished with the advice of counsel, so establishing a relationship with a corporate attorney who is versed in credit matters will become a strategic goal. Finally, she will need to consider the late charges that will be implemented so they do not violate state usury laws.

The Final Steps

Once you complete the matrix for your own firm, the key elements of your strategic plan will appear in the final column. It is now time to read these action items as a whole. You may find that several comments complement each other, and they can be combined into one succinct comment. On the other hand, if you find elements that are mutually exclusive, it will be necessary to make choices. There is no sense in having a plan that cannot be implemented.

Two more points deserve emphasis

First, while we have presented a method of forming a plan that will respond to your organization’s needs, it is quite possible that you will have other ideas to increase efficiency. Perhaps they will involve reduced costs or assuming new roles. These ideas can certainly be included in your plan, as long as they coincide with the organizational goals.

Second, as a team player, you will want to consult with any other departments that your plan will impact. If you feel it is beneficial for your group to absorb another area’s function, it is appropriate to discuss the matter with your fellow managers. Their input will be meaningful, and if there are disagreements your strategic plan can leave room for further study of these issues.

The final step is to place these ideas in a narrative form. While it does not have to follow the order in which the items were listed on your matrix, it should include the essential ideas. An example for Sample Company appears in Exhibit 3, and you will note that the manager has provided some reasoning behind the changes.

Once written, to whom should you show the plan? In truth, the greatest benefit will be to you personally, for you will have a strategic sense of where your department will go. Yet it may also be useful to share this document with your supervisor and senior management. They can be invaluable in helping you reach the goals, which you have outlined, or in a worst case scenario, they can let you know if your goals are unrealistic from the organization’s view. This will be an excellent mechanism for comparing your direction with those above you. Finally, your strategic ideas can be shared with your own staff, for they will be more effective employees if their vision matches your own.

Exhibit 1

Our Corporate Picture

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Exhibit 2

Sample Company’s Corporate Picture

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Exhibit 3


3 Year Strategic Plan

Credit Department (start year) – (end year)

In the following three years, the credit department plans to improve efficiency and make significant contributions to our corporate growth. To do this, we will implement programs and approaches that are summarized below.

Human Resources and Training

With an appreciation for the potential growth in sales revenue, customers, and selling locations, we anticipate a need to gradually increase our credit staff by 2 exempt persons. An effort will be made to acquire an individual with bilingual skills so that we will be prepared for an eventual entry into the Mexican market.

Additionally, we will increase our training of credit personnel. This will be done with NACM sponsored correspondence courses and seminars, and it may be supplemented by courses at our local university. It is our intention to establish a vision so that every credit department member will understand our corporate goals and be able to act with a high degree of independence.

In conjunction with our bank and attorney, we will develop greater expertise in the area of export credit and secured financing.


Because of the implementation of new product lines, we expect to encounter an increase in price disputes. We will purchase a system which specializes in monitoring deductions, and add we will establish procedures for prompt resolution. We will also consider ways for the credit department to assume or improve the invoicing function.

We will help our management determine acceptable credit risks in our new markets.

To coincide with a projected sales realignment, we intend to establish credit reports, goals, and incentives for each sales division. If expansion meets the projected levels, our credit department assignments will be delegated along product lines.
A system of late charges will be designed and implemented. This will be coordinated with our corporate attorney so that we remain in full compliance with lending laws.

Travel will be dramatically increased as we extend service to branch locations. We will find cost-effective ways to handle this increased service, recognizing that this may include the use of a company vehicle.

Capital Projects

We will explore available credit systems, and find ones that offer compatibility with projected accounting and order entry systems. The collection, cash application, and credit referral areas will be included in any new system to meet our projected needs.

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