At the annual World Economic Forum (WEF) in Davos, prominent leaders from a range of backgrounds come together to shape global, regional and industry agendas. A key element of the discussions at this forum is forecasting and preparing for the business environment of the future. At this year’s event one such discussion focused on competitiveness requirements for the 2020s.
A central prerequisite for sustained business success over the next 10 years was identified as ‘mastering the new logic of competition’. This requirement includes the capability to increase the rate of learning and adaptation of business, driven and supported by new technologies, and the importance of resilience, or the ability to weather unexpected shocks in the business environment.
This vision for competitiveness sets a very clear challenge for organisations to build robust capability across a range of themes related to enterprise-wide planning and execution;
- Creation of a clear business strategy and excellence in its execution
- Routine monitoring, learning and adaptation of both execution and strategy
- Rapid decision-making to keep pace with external challenges
- Planning and execution approaches which align cross-functional contributions in order to drive customer satisfaction
- Strong financial management which supports agile decision-making aligned to the range of enterprise financial goals
Whilst many organisations recognise the critical need for this range of competencies in the emerging business environment, few organisations have successfully overcome the challenges to develop and apply them consistently. However, the process of Integrated Business Planning (IBP) is increasingly adopted by leading global corporations (eg Shell, Nike, Heineken and Unilever) as the framework for agile strategy development, execution and adaptation.
Further detail on the IBP approach is available on the CAMELOT blog site but in summary, the core characteristics of IBP which have led to this growing adoption include;
1. Alignment of business strategy with enterprise-wide operational execution
The IBP process creates a structure in which the organisation defines its key strategies and their critical performance measures. This provides the common starting point for the creation of operational plans across all core functions especially commercial and supply chain teams. A key feature of IBP is that it drives alignment in these plans, not only through common, top-down enterprise-level goals and assumptions but also by ensuring that the bottom-up foundations for functional plans are dynamically reconciled and agreed. For example, at a detailed level, revenue forecasts in commercial plans are aligned with the manufacturing and supply chain teams in order to ensure that realistic and actionable operational plans are developed across the business.
This provides the critical foundation for the dynamic planning and execution management required in the increasingly volatile and complex environment described in the 2019 WEF discussion.
2. Performance Monitoring
IBP is based on a monthly cycle of performance review and decision-making. The process defines the decision rights of key stakeholders and identifies the information flow to enable this decision-making. Importantly, IBP supports a range of information inputs both from internal and external sources. Internal data, spanning both lead and lag indicators, is crucial to monitor the performance of the overall business towards its operational and strategic goals. However, IBP is also a very effective vehicle for the use of external data to challenge and support decision-making. This can take a range of forms, from detailed daily customer transaction data to broader lead indicators of key economic, technological or other business drivers.
The monthly review cycle also encourages the exchange of top-down and bottom-up perspectives on performance and outlook as IBP meetings involve a range of stakeholders from operational leaders in commercial and supply chain teams to C-suite executives. This ensures a robust evaluation of both performance and business outlook in the medium term (2-3 years) horizon.
Importantly, this provides a consistent and regular forum for business leaders to review both past performance and forecasts and then drive aligned decision-making across functions, adapting and improving both strategy and execution.
3. Agile decision-making
IBP represents an ‘always-on’ approach to planning and review, updating a rolling 24-month plan in each monthly cycle. This enables an agile and responsive adaptation of enterprise operational plans. Traditional set-piece enterprise planning processes are often annual exercises which do not include regular review of actual performance and planning assumptions in order to continuously focus and refine operational plans. IBP supports agile decision-making by defining clear decision-makers and decision rights for key issues. An underlying principle of IBP is that decisions should be taken at the lowest possible level and that decisions are only escalated upwards through management levels where decision rights at lower levels have been exceeded. This drives a culture of management by exception and ensures that senior executives are able to focus on a small number of business-critical issues. This approach is also enabled by a process of scenario planning which informs senior leaders on key issues, proposes enterprise-level solutions and provides rapid feedback on decisions to ensure aligned cross-functional execution of the outcomes.
This agility is an important feature of IBP which enables businesses to build the capability to sense and respond rapidly to change in the external environment.
4. Cross-functional collaboration
IBP supports information flow both bottom-up and top-down as outlined above. However, a central feature of IBP is facilitating regular, disciplined cross-functional collaboration. Competitive advantage is ultimately built on the ability to achieve sustained customer satisfaction and this in turn is the result of strong cross-functional collaboration, enabling excellence in joined-up end-to-end delivery by R&D, marketing, sales, manufacturing and supply chain teams.
IBP builds cross-functional collaboration as a key routine in the business. The monthly IBP cycle involves leaders from both commercial and supply chain teams reviewing common data sets and making decisions optimised at enterprise (rather than functional) level. This process drives clear expectations to create a consistent enterprise view and decision-making across functions, but in doing so also develops a cultural norm in which cross-functional groups work together to solve business challenges rather than simply pursue (often internally-focused) functional targets.
5. Integrated financial management
IBP builds a way of working and culture in which the business performance and outlook are routinely reviewed in cross-functional teams in order to drive optimised, enterprise-level decision making. In addition, this approach is underpinned by strong Finance participation which ensures the transparent and rational consideration of key financial outcomes for the business.
In mature cross-functional execution of IBP, not only do teams find aligned solutions to business problems, but these solutions are also critically evaluated and selected according to a balanced assessment of key financial outcomes for the organisation. This is critical in a business environment characterised by increasing change and complexity where risk and opportunity management must be both rapid and robust.
IBP also provides the planning foundation to replace traditional monolithic annual financial planning processes with a more agile and lighter approach. The rolling 24-month plan generated in IBP represents a more reliable and current view on the business and is supported by an ongoing process of review and adaptation, in contrast with annual financial plans which can tend to quickly become disconnected from business reality and are not helpful in tracking and driving business performance in a rapidly-changing business environment.
Developing IBP for the Enterprise
Despite the broad range of enterprise-level benefits of IBP, many organisations have so far deployed the process (or its forerunner, Sales & Operations Planning (S&OP) with only a narrow focus on supply chain planning. This offers a significant opportunity in these businesses to build on this foundation and extend the reach and value of IBP in building future competitive capability as outlined at WEF 2019.
Common features in successful deployments of IBP at enterprise level include;
- Strong senior executive engagement and advocacy
- Clear positioning of IBP as a core cross-functional business process
- Strong functional ownership beyond the supply chain, with commercial and finance leaders being key to the process
- A broad approach to defining deployment requirements which go beyond technical process and systems to include softer cultural aspects such as mindsets and behaviours
Businesses wishing to leverage the planning and execution value of IBP should therefore aim to build strong multi-disciplinary deployment teams which can create a compelling and execute a practical vision for the role of IBP across the organisation.
Further insights on a range of these topics can be found in the Future Value Chain section of the CAMELOT blog.