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Managing Volatility with IBP – Lessons from the Developing World
6 October 2016
In our turbulent times, managing volatility is critical to business success, but this has always been the case in developing markets. Deciding on the right strategy to balance business and market is critical. However when the business environment is unstable, or can change quickly, your business also requires an ability to respond effectively to external change, while reducing unnecessary internal amplification.
Integrated Business Planning (IBP) is used by more and more organisations to plan ahead, and one of the key benefits is the structured way it facilitates a response to external changes in the market or business environment.
However, when we speak to executives in rapidly changing environments, they are often nervous to commit to IBP. There main concern is that because of the forward looking nature of good IBP (we recommend 24 months plus), a certain level of stability or predictability is required. This is simply not true. In fact, I believe strongly that the way IBP works in the developing world has lessons for all organisations when managing volatility.
For example, when it comes to predicting growth in emerging markets, there is often no clear history to base estimations on. Consumers grow into markets, often at an extreme rate, while market behaviour is strongly influenced by external factors. Brave decision making is required to invest in uncertainty, and this must be linked to a good awareness of the total environment, and not just internal growth plans. Looking beyond our history is often an important first step in managing the future.
As we all know, the most important question our IBP process should ask every month is “what has changed, and how must we respond?”. Easily said, but often business lack the framework for this responsive type of decision making. This is where the formal cadence of IBP helps us. It enforces us to recommit to our plans, but based on the latest bottom-up view of our business. In other words, it enforces us to face reality, and deal with this.
By looking beyond the immediate horizon, the focus is on building the right capability, whether it be assets, process or people, to service the market effectively. We often find that this is the key to success in the developing world, where successful businesses invest and plan based on the future and not the current requirements.
We all know the key to a successful IBP process is the commitment of people and their behaviours, especially by leadership. Although complex and unpredictable environments provide many challenges, this also brings the added benefit of a high calibre of leadership especially in relation to understanding and managing change. Business leaders in volatile markets tend to understand that in order to move forward, it is essential to focus on what is required for the future success of the business rather than falling into the trap of having to fire fight issues and manage on a day-to-day basis. Risk is inherent in their business models, and they are often more comfortable with this. This fits well with successful IBP.
Another challenge is technology. What is often considered standard technology in more developed markets is not necessarily available or as effective in developing countries. IBP does not depend on sophisticated tools to run, and advocates effective forward planning at an aggregate level, which reduces the level of complexity. It is about being roughly right, not exactly wrong. Don’t get me wrong, IBP is an enormous enabler for complex, modern ERP systems, but it adapts to the complexity of the toolset as well.
So, don’t fall into the trap and view Integrated Business Planning as just an enhancement to a business already in a stable, predictable environment. It is not about being in a business environment suitable for IBP, it is about implementing IBP to create a successful strategic response to existing market conditions, regardless of its volatility or complexity.