A case of mistaken identity
The advertisement below is the latest in a long list of events, articles and activities we’ve witnessed that are symptomatic of a worrying trend.
Whilst it uses some of the appropriate IBP nomenclature, such as ‘implement an operational business planning strategy’ and ‘capability for continuous improvement’, the stated ambition ‘to develop and establish Sales and Operations Planning in order to drive for world-class supply chain performance and implement an operational business planning strategy for the business’ reveals it to be a case of mistaken identity. The author has unwittingly advertised for a traditional Sales & Operational Planning (S&OP) manager.
We at Oliver Wight, are increasingly concerned that people are being sold Integrated Business Planning (IBP) when what is delivered is simply traditional S&OP under a different name.
In conference venues and meeting rooms all over the world, ‘Integrated Business Planning’ is being casually misused in seminars and keynote speeches, when the discussion is in an exclusively supply chain context. This is not to downplay the importance of effective supply chain planning – in fact this critical element of business is probably more important than it has ever been, and we are busy helping many clients improve in this area.
What’s in a name?
The point is that Integrated Business Planning is not a supply chain process; it has a much broader reach. Oliver Wight is the pioneer of both S&OP and IBP.
They are two very different processes; the latter representing the modern-day evolution of the former, which was first developed by Oliver Wight in the 1980s. So it is also really important to be clear that our concern is not about the name. Actually, it doesn’t really matter what you call the process – some of our clients have a great process that is called neither S&OP nor IBP – it’s about what it does and, crucially, the value it adds.
Integrated Business Planning doesn’t just facilitate improvement, it helps creates transformation. By failing to fully recognise IBP’s potential, organisations often set the ambition too low by limiting ‘success’ to aims such as a reduction in inventory; process improvement or cost efficiency. The true purpose of IBP, however, is to achieve sustainable, business growth and this should be the primary goal.
Integrated Business Planning is the way we run the business. Simple. The CEO or MD is the ultimate decision-maker for the organisation. They are the driving force behind improvement, providing the vision for the future and establishing the ambition against which all forthcoming success will be measured. CEOs are also responsible for setting the organisation’s strategy, articulating it through specific business objectives to deliver the company goals. It is IBP that enables the deployment of the business strategy. So, by definition, the CEO must own and lead the process.
All too often, it’s supply chain that has ownership of the IBP process – either because they are the instigators of its implementation, or the business leadership mistakenly believes IBP is a supply chain responsibility. This typically results in a disproportionate emphasis on operational issues rather than strategy deployment, with IBP used to provide updates on capacity, inventory and other supply chain led activities. Supply chain may well have the passion to push improvement, but it doesn’t have the influence or power to instigate company-wide participation – that’s the business leader’s responsibility.
If you are already excited about the potential of IBP or just starting to explore the possibilities, here are some guidelines to help make sure you get the most from the process and know what to ask for:
IBP Fake News Checklist
What it is: Owned by the head of the business
What it isn’t: Owned by supply chain
By claiming it as their process, the CEO or MD is inextricably intertwined with IBP’s success and consequently, is more committed to realising its full potential as the means for true transformation.
The owner of the business must be the champion of the IBP process not only in name but with their heart and soul. They have to truly feel it is their process. Only then will it function as intended. Through the IBP Management Business Review (MBR), or Corporate Business Review (CBR) the CEO can constantly check on the progress of plans against the business strategy. One Oliver Wight customer, the CEO of a multinational company, declared the MBR as a “must-do meeting, because that’s where we make all the key decisions.”
Integrated Business Planning is way more than just a monthly meeting. It is a company framework to surface and solve problems and continually re-optimise plans as circumstances change. By leading the implementation of IBP and owning the process, the CEO enables it to gain momentum and become that way the organization operates. As declared by the CEO of a leading UK energy provider, “IBP is the way we run our business.” While another CEO says, “It is a process by which we ensure senior managers are making the right decisions for the right reasons. I can’t imagine how we ran our business before IBP”. So, it is important to ask, is Integrated Business Planning the way you run your business? Or is it seen as ‘on top of everything else we do?’
IBP is the crucial link between the strategy and business plans – it’s very purpose is to inform and direct the business plan and determine an organisation’s ambitions over the medium and long-term. By establishing horizons –usually between 24 and 36 months – properly run IBP is a proactive process that predicts change and allows early intervention. It is the mechanism for effective strategy deployment, creating the path towards the ultimate business goals of growth and increased profits.
The principles of IBP properly applied work and add value in any organisation. At Oliver Wight we work with a huge range of client organizations: large and small; public and private; manufacturing and service. There are core principles that apply to Integrated Business Planning regardless of the nature, size or shape of the enterprise. However, it is essential the process is tailored to fit the specific needs and structure of the individual organization.
IBP Fake News Checklist
What it is: A process designed and adapted to suit each individual organisation
What it isn’t: An ‘out of the box’ process or software solution
Our observation is that a lack of true understanding and expertise often leads to an IBP structure that is overly complex. This in turn, leads to inefficiency and often impedes decision-making. We spend a lot of time working with our clients to ensure there is the correct organizational fit for maximum effectiveness; accountabilities are in the right place and decision rights have been clarified and articulated.
Where the structure of IBP is wrong, we often see organisations trying to bridge the gap with systems. IBP is not a software tool. It is a process, that when most effectively implemented, incorporates a number of key operating principles in a design ‘owned by’ the process participants, and embedded in the organisation as ‘the way we do things here’. The integration of people, processes and software tools is something the Oliver Wight organisation has continually identified as a key ingredient for business success over the past 50 years. This remains the case for IBP. Software plays an important part in enabling an effective IBP process but it is not a solution in isolation. Without people engagement in an IBP process design, adapted to suit the specific organisation, IBP will fail. No amount of investment in software will prevent this.
Predict the unpredictable
There is a common misconception that IBP is a supplementary aid to an already healthy business, and that it’s incompatible with unstable or overly dynamic markets. In fact, helping businesses to survive and thrive in ‘white water’ situations is precisely what IBP is designed do.
To view it merely as an enhancement to a business already in a stable and predictable environment is fundamentally wrong. A business can’t waste time waiting for the arrival of the perfect environment or process solution for IBP, because it needs the process in place to get the traction required to improve the business.
Unpredictable environments are the very markets in which IBP can demonstrate the full power of its capabilities, as it allows organizations to execute an effective strategic response to any and every situation, using tools such as analytics and scenario-planning to create contingency plans when circumstances change.
IBP Fake News Checklist
What it is: A focus on deploying the strategy
What it isn’t: Agreeing a forecast so Supply and Operations can plan production
This applies to high growth as well as emerging markets. Although the nature and scope of volatility may be unknown, there is a certainty in uncertainty and there should be an expectation that things will change.
It is impossible to predict the future with precision. Significant events, such as the global financial crisis in 2008, have clearly demonstrated that if organisations have the right processes and people in place, they can make good decisions in the face of adversity, trigger a strategic plan, refresh to incorporate new issues as they arise and update the business plan accordingly.
To make it resolutely clear, if we haven’t done already; Integrated Business Planning is not a supply chain planning process. It is the process which connects the strategy to the business plan and ensures the delivery of both. IBP’s purpose is not to drive a better forecast with which Supply Chain can plan. It is the process to bring focus on the deployment of the business strategy and provide the framework for effective decision-making to deliver growth.
This means it cannot be confined to the constraints of an annual budget – it is impossible to plan effectively for the future if you’re looking no further ahead than the end of the financial year.
Growth and optimization
So the process works through a 24-36 month rolling horizon, allowing the early identification of issues and opportunities and confirming the organization’s capability of delivering the expected results.
Conversations are about margin growth and the optimization of the business, with growth best generated by meeting and exceeding customer expectations. In turn, this gives opportunity for reinvestment and a reinvigorated focus on continuous business improvement and sustainable progress.
By definition, best business practice must be demand driven. Organisations can streamline the supply chain to be more cost-effective and responsive, but this alone doesn’t make them positioned to deliver growth for the business in line with the overall strategy. The most effective IBP processes have an outside-in focus, not inside-out. It’s a good challenge to ask yourself how much time is spent discussing market insights, future trends and what to do about them versus time spent on last month’s cost position.
A true IBP process is primarily driven by the strategic goals of the organization and the key targets contained within the business plan. In many cases growth is a strategic imperative. Understanding changes in the external environment in areas including customers, markets, competitors, regulation, technology and the geo-political outlook, on a month to month basis, is essential to allow the organisation’s plans to be adjusted and optimised to deliver that growth.
IBP Fake News Checklist
What it is: Customer focused and demand driven
What it isn’t: Internally focused and supply driven
Demand planning is much more than simply producing a ‘forecast’. Many key business decisions are driven from what we believe we will sell. Organizations need a fully integrated demand planning process, with multiple inputs based on both volume and value, driven by demand analytics and market insights.
Even today there are still organizations that view the demand plan as a supply chain task – this is a big mistake. Having a good understanding of what generates customer and consumer demand is the key component to developing the most reliable demand plan possible.
Consequently, those who are closest to the customer and have the greatest under-standing of activity at the point of consumption – sales and marketing – must take ownership of the demand plan. This is one of the identifying characteristics of true Integrated Business Planning.
A key differentiator of IBP is the integration of financial plans throughout the process. The finance function provides effective decision support by including members of the finance team as key participants in the five core elements of the monthly IBP cycle: the Product Management Review, Demand Review, Supply Review, Integrated Reconciliation and the Management Business Review.
IBP Fake News Checklist
What it is: Full financial integration throughout
What it isn’t: A review of volume with a ‘cash up’ at the end
The Integrated Business Planning model
This delivers much greater value to the organization as the finance team collaborates with its business partners and the facilitators of each of the IBP core elements to help develop and critique the plans at each review and translate these in financial terms. The resultant outcome is a company-wide focus on gap identification, gap closure and in mature processes, continuous re-planning and re-optimization.
Understanding the financial implications across the full horizon of the 24-36 month rolling IBP plan – the costs, the risks, the benefits and the margins – is an essential element of IBP. Where misalignment of functional plans or gaps to annual plan, strategy or business objectives are identified and require corrective action in order to re-align or get back on course, the financial impact of the recommended actions must be clearly understood and communicated to decision makers.
The active participation of the finance team as key business partners in the monthly IBP reviews, contributing to the testing of various scenarios and adjusting plans accordingly, in real-time, safeguards the integrity of the financial projections.
As the CEO of one Oliver Wight client organization says:
“Finance has evolved from ‘just keeping score’ to being key to business activities and decisions.”
One of the common and destructive issues in organizations lacking a true IBP process, is the problem of ‘debating the numbers’. Without a cross-organizational collaborative structure in place, working in isolated silos inevitably results in the creation of different sets of contrasting numbers from the various departments, and no set of ‘true knowledge’ from which to produce even basic forecasts, let alone make strategic decisions. Leadership teams arguing about whether numbers are right or wrong, is symptomatic of a dis-integrated organization. The whole point of IBP is to determine what to do about the numbers.
Insights and analysis
IBP enables an organisation to create an aligned, cross-functional plan for the future, based upon key assumptions. These assumptions, documented and updated each month, are based on insights.
These insights come from analysis of past organizational performance and also from externally focused data analytics, feeding one empirical set of numbers. This comprises the streams of customer and consumer information that are assessed by data analysts, providing the business with intelligence on ever-changing customer behaviors, consumer attitudes, and the market environment.
These insights allow for the calibration and recalibration of assumptions to meet the overall objective of optimizing the customer experience, whilst reducing the cost-to-serve.
The essence of IBP is:
- The identification of actual or potential gaps between the latest ‘whole of organization’ plan, updated each month based on any changes to assumptions, and the ‘committed plans’ of the organization, i.e. the annual plan, business plan, strategic plan and performance goals.
- Seeing these gaps early enough so cost-effective action can be taken to get back on track or ‘course correct’. Similarly, identifying significant risks or significant opportunities early enough so alternative plans can be developed, is another feature of IBP that helps the organization meet its committed plans and deliver its goals.
IBP Fake News Checklist
What it is: Identifying gaps and making gap closing decisions
What it isn’t: Debating the numbers
But how are these gaps identified? The MBR is the final element of the IBP monthly cycle where the latest ‘whole of organization plan’ is reviewed by the leadership team against the committed plans and gaps in projected performance that have not yet been resolved are called out, over the 24-36 month horizon.
A key principle of IBP is that issues and gaps should be resolved at the lowest practicable level in the organization, in other words not every issue should be elevated to the leadership team to address. Only the major decisions, appropriate to the pay grade of the leadership team should make it to the MBR.
The team working in the Integrated Reconciliation process, is often made up of the facilitators of the Product Management Review, Demand Review, Supply Review, Finance business partners and the IBP process leader. It is tasked with identifying and recommending to the leadership team the following actions so the leadership team can make decisions:
- Actions to close any gaps identified
- Actions to mitigate significant risks to the latest plans presented
- Actions to position the organization to seize any opportunities identified over and above the latest plan
IBP has evolved from S&OP over the last 40 years or more as the organizations that have implemented it have developed the process to increase the scope of functional alignment: model and create readiness for alternative outcomes; drive deployment of strategy; and enhance collaboration across supply chains.
As described earlier in this paper, there are a number of key principles upon which IBP is based but the secret to success is the application of those key principles to continuously improve the process within an organization based upon learnings from each monthly IBP cycle and the organization’s changing needs.
This is something we have seen for over four decades of helping organizations implement and improve their S&OP and IBP processes.
The evolution of Integrated Business Planning
IBP Fake News Checklist
What it is: A process that is constantly being developed and evolved by leading organizations that have adopted it to best meet their requirements
What it isn’t: A fixed, rigid process designed by academics
Every IBP cycle teaches an organization more about its ways of working, how its customers work and think, and how its competitors work and think, so that assumptions and plans can be changed accordingly and effective and timely decisions made.
An IBP process that stands still is one that is slipping backwards. Without a plan to continuously improve process maturity, performance and organisational outcomes, IBP becomes stale and participants lose energy. To drive improvement and create new ways for organisations to create improved outcomes it is essential to constantly evaluate the contribution IBP makes to the effective operation of the organisation, and identify and action improvements to the process, each and every cycle.
The real deal
As ‘Integrated Business Planning’ is subsumed into the everyday language of business, it is important that its true meaning isn’t corrupted.
Take a closer look at your business planning process to check you’ve subscribed to the real deal. Using the guidelines above, you can identify whether your process truly is Integrated Business Planning.
Below, is what an advertisement for a Head of real IBP should look like. If you’ve gone through the guidelines above, and identified that the IBP process in your organization has more of the characteristics described as ‘what it isn’t’, then you need to take a step back and reassess your IBP process.
On the other hand, if your process is lacking in the characteristics describing ‘what IBP is’ and failing to deliver value for the whole business, then the good news is, you have opportunity to improve your process to achieve significantly improved outcomes.
A tangible passion
However, it’s crucial to realise that IBP is a process of continuous improvement.
If you can’t tick all seven of the ‘what it is’ boxes today, (summarised in the IBP mini-checklist to the right), it’s still possible you could have an IBP process that is part way along a constantly-evolving improvement plan.
So, before you panic, it’s worthwhile looking back to see how far your organization has come since you began with IBP; what benefits have been delivered? It’s easy to take things for granted and lose sight of progress when you’re in the thick of things.
One acid test is whether there is a tangible passion within your organization for your business planning process – as opposed to a workforce operating on autopilot. If the very suggestion of stopping IBP would spark riots in the corridors, then you are very much on the right lines.
IBP Fake News Checklist
- Owned by the business leader
- Process through which business strategy is deployed
- Financial integration throughout
- Customer focused and demand driven
- Sales and Marketing own the Demand Plan
- Continuously re-aligning functional plans in reaction to internal and external changes
- Gaps to committed plans identified early
- Gap closing actions owned at the lowest practicable level
- Risks and opportunities identified and actions to mitigate/take advantage identified and executed
- Scenario planning generating “Plan B” to deal with alternate outcomes