Planning problems: is xP&A the new IBP?
08 May 2023
In 2020, Gartner identified extended planning and analysis as an emerging trend, coining the acronym xP&A. It stated that “xP&A heralds a transformation of financial and operational planning by providing a single platform with the integration and support needed for finance and business teams to collaborate”. But is that correct?
Further, Gartner’s research predicted that by 2024, traditional financial planning and analysis (FP&A) would “evolve to encompass xP&A, a strategy where the ‘x’ denotes breaking down traditional silos between enterprise financial and operational planning processes in order to deliver new levels of transformative business value”.
Admittedly, xP&A has become something of a buzzword in the business world, partly because of Gartner’s influence. It is viewed by many Finance and CIOs as a pioneering and detailed approach to planning and forecasting, often through the use of advanced tools and technologies. However, one could argue that it is FP&A with another badge. A fundamental here is that Gartner do not talk to the best practice process and clearly, for obvious reasons, are focused on technology hence without a clearly defined process and behaviours it’s likely that automation will drive resource benefit but not business performance.
Moreover, it’s essential to understand how xP&A compares with integrated business planning (IBP) – which Oliver Wight offers – and the critical role of leadership in both approaches to drive effective business outcomes.
Events of the last three years, the shift to digitalisation, and the need for greater business agility have made the promise of xP&A eye-catching to leaders. It has gained traction as businesses seek ways to streamline their planning processes and generate more accurate forecasts.
The question remains: is xP&A simply a new way to create a long-term forecast, or does it genuinely differ from IBP?
Less is more
IBP is a comprehensive planning process that integrates all business aspects – including finance, operations, and sales – to create a unified and strategic view of the future. This approach ensures that financial integration and forecasting are central to the planning process, leading to more informed and effective decision-making.
Some argue that xP&A and IBP are essentially the same things, with xP&A proponents merely rebranding their solutions to appeal to a broader audience. The core difference between the two options lies in the level of detail and integration provided by xP&A. This approach, though, can sometimes overshadow the focus on realistic planning and decision-making. Meanwhile, IBP includes all of the financial integration that businesses require. So perhaps less really is more? I would though align to the need for the system to support improved analysis and projections.
Indeed, a key concern with xP&A is that it may encourage organisations to focus on creating more efficient processes for generating forecasts rather than addressing the fundamental issue of developing a realistic view of the future. This can lead to businesses investing significant time and effort into creating overly complex plans that fail to deliver the desired outcomes. It’s likely that the outcome if this approach is followed will be more than one set of numbers to run the business.
Despite the subtle distinctions between xP&A and IBP, it’s crucial to recognise that both approaches inherently rely on creating the right plan, which comes down to good leadership. Whether a company chooses to adopt xP&A or IBP the success of its planning efforts will be largely determined by the leadership team’s ability to drive strategic decision-making and ensure that forecasts are grounded in reality. The process outcome relies on the quality of plans and this relies on the need to change to a contemporary way of running a business.
Three vital components must be present in any forward-planning process:
- Creating a realistic view of the future.
- Comparing it to the company’s ambitions.
- Making decisions to close the gap between the two.
Regardless of the tools or processes used, it is the responsibility of leaders to promote a culture of realistic planning and decision-making. Their behaviour has to evolve. More specifically, they have to delegate decisions to trusted colleagues.
The finance community plays a crucial role in this process, as they must move beyond a forecasting role and actively participate in shaping the business’ future. By doing so, finance professionals, empowered by leaders, can help ensure that the planning process remains focused on delivering realistic and achievable outcomes instead of simply generating impressive-looking forecasts.
IBP, with its focus on financial integration and strategic alignment, remains a highly effective approach to driving the future of modern business, provided that it is underpinned by strong leadership and a commitment to realistic planning.
Ultimately, whether a company opts for XP&A or IBP, the leadership team is responsible for ensuring that the chosen approach delivers value and drives the organisation towards its desired future. Without good leadership, even the most sophisticated planning processes can fall short of their potential.