Although S&OP – the heart of modern IBP approaches – is over 30 years old, it has the potential to address many of the key planning challenges presented by the VUCA environment in the contemporary business context.
Organisations face an ever-increasing series of challenges in order to build sustainable and profitable business. These challenges are manifested in various aspects of business operations but especially in planning.
The VUCA environment creates a requirement for businesses to plan strategically but also maintain the capability to flex dynamically to manage increasing levels of unpredictability and uncertainty. At the same time, customers demand increasing levels of service at reduced prices as global competition and new standards for delivery and customer service rapidly transfer from consumer to business-to-business sectors. This creates a need for excellent end-to-end (E2E) planning, collaboration and execution, backed with excellent integrated financial management in order to drive profitable growth.
The Value of IBP
Sales & Operations Planning (S&OP), the core of today’s IBP approaches, was developed over 30 years ago. However, its value in addressing the contemporary challenges of planning and managing business performance across an enterprise has never been greater, as my recent experience as part of the CAMELOT team in deploying IBP at a range of organisations has demonstrated.
In particular, IBP provides several critical contributions to a business competing in today’s environment;
1. Operational plans and execution driven by strategic vision
At the core of the IBP philosophy is the connection between strategic, tactical and operational levels of planning in the organisation. In practical terms, this means that the overall context for any lower-level planning in the business is set by the strategic plans and goals for the organisation created by the senior executive team. This overall context would include the hard measures (such as financial targets, but also core markets and portfolio priorities) needed to set boundaries and ‘guiderails’ for more detailed planning throughout the organisation whilst still allowing the flexibility to deal with the realities of the VUCA environment.
However, a key feature of IBP is that this strategic context is not simply provided as a one-off static input on an annual basis. IBP typically includes a monthly executive review of the process outputs and provides senior executives with the opportunity to resolve any escalations and make key decisions. This is also an opportunity to ensure that the company mission and strategy is being understood and applied consistently in the tactical and operational setting as it enables dialogue between the senior team and the key cross-functional stakeholders driving execution.
A further benefit resulting from this regular dialogue is an ongoing feedback loop to test and refine strategy based on tangible performance and financial data created through the monthly IBP cycle. This means that senior executives are regularly exposed to the realities of applying company strategy and can use this insight to continuously improve strategic plans rather than see this as a set-piece annual activity.
2. End-to-End (E2E) focus enabled by cross-functional dialogue
Most businesses are organised on functional lines. This means that pursuing customer-focused initiatives (which are my definition E2E, cross-functional activities) is typically very difficult to plan and execute efficiently.
However, IBP provides a proven and transparent approach for focused cross-functional working. Key participants in the IBP process include commercial, supply chain and finance stakeholders. A central feature of IBP is that key enterprise goals and metrics are defined and are adopted across these various functions. The resulting analysis, discussion and decision-making by the cross-functional IBP teams is then focused on these over-arching enterprise goals rather than siloed targets which may have become detached from the strategic intent of the business. Many companies find in executing IBP that, for the first time, cross-functional working has a transparent and disciplined focus that drives E2E performance enhancements.
Both strategic and tactical planning can often become siloed, despite best intent of the participants. This can mean that sub-optimal customer propositions are developed which do not join up the best that each function has to offer, or in some cases due to lack of alignment potential winning propositions are rendered inexecutable. The increased cross-functional dialogue and resulting awareness created by IBP means that E2E customer proposition development becomes a more natural and expected way of working. For example, innovation in product design, matched to novel manufacturing and distribution or service concepts offer the potential for significant competitive breakthroughs that would never become evident in a one-dimensional or sequential development journey from one silo to the next.
3. Optimising decision-making at enterprise level
As described in (1) above, IBP creates joined-up plans from strategic through to operational levels. This is a critical step towards ensuring dynamic enterprise alignment on an ongoing basis.
However, IBP also provides a further tool to optimise decision-making in the VUCA environment. In the fast-moving environment, the time available to analyse risks and opportunities, and then discuss and agree the way forward is constantly being reduced as markets become more competitive. IBP addresses this challenge in 2 important ways;
In addition to driving regular and disciplined collaboration between the commercial and supply chain functions in particular (as summarised in (2) above), IBP also creates financial transparency to support decision-making. This means that the overall enterprise (rather than just silo) implication of decisions is routinely presented. This could mean that for a new product line or customer service, incremental revenues are analysed but also for example the broader cross-functional capital investment, opex and working capital implications. When the holistic enterprise outcome is robustly presented in this way, and compared with the strategic plan guiderails and mission, optimised enterprise decisions can then be made.
IBP also underpins this clear enterprise focus for decision-making with clear guidelines for empowered decision-making. A key requirement in the VUCA world is the need for rapid, but well-informed and strategically-aligned, decision-making. IBP facilitates this by setting out a clear approach to decision rights through the process. An important principle in IBP is for decisions to be taken at the lowest possible level in the process. This means that only exceptional items need to be escalated to the most senior executive team for decision-making. Consequently, many decisions, especially at tactical or operational level, can be made rapidly but still within the strategic context set by the senior team by thoughtful application of decision rights or accountability limits. For example, as supply planner could take a decision to build inventory or to change a shift pattern within a clearly defined empowerment framework without the need to escalate for senior approval.
It is clear that although S&OP (the heart of modern IBP approaches) is over 30 years old, it has the potential to address many of the key planning challenges presented by the VUCA environment in the contemporary business context.
In particular, as described above, IBP offers the ability to
- Create dynamic strategic alignment throughout the business
- Drive E2E business performance resulting in enhanced customer service and market performance
- Drive rapid and aligned decision-making across functions and management levels