(c) American Institute of Certified Public Accountants. Contact AICPA for permission to reproduce this article., Performance Management

How to plan for sustainable growth

By Neil James

Rapid change is creating an ever-increasing array of challenges to building sustainable and profitable businesses. These challenges (summarised in the graphic “Emerging Challenges in the Business Environment and Their Impact on Planning”) impact all operations but place particular pressure on business planning.

The environment of volatility, uncertainty, complexity, and ambiguity, also called a VUCA environment, demands that businesses 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 whilst global competition and new standards for delivery and customer service rapidly transfer from consumer to business-to-business sectors.

This creates a need for end-to-end planning, collaboration, and execution, aligned with excellent financial management in order to drive profitable growth. Traditional planning approaches, despite absorbing significant resources, typically fail to deliver truly integrated plans or build the resilience and flexibility to support success in a rapidly changing environment. This is a key challenge for the finance function, both in its role in leading business planning and in its increasingly important role as business partner.


Emerging challenges in the business environment and their impact on planning

Emerging challenges in the business environment and their impact on planning

Source: Camelot Management Consultants.

Integrated business planning (IBP) has evolved over the last ten years to become widely used and valued as a proven approach to enterprise-wide planning. IBP is used by leading organisations across industry sectors, including Cisco, Heineken, Shell, Unilever, Nike, AkzoNobel, and Johnson & Johnson. (The graphic “The Key Elements of IBP” highlights some essential aspects.)

The origin of IBP is in sales and operations planning (S&OP), which was introduced initially as a supply chain planning approach in the 1980s to align manufacturing and supply plans with forecast demand. Since then, the process has evolved significantly (partly through the increased sophistication of enterprise resource planning systems) and now goes beyond simple demand and supply balancing in the supply chain to an enterprise-wide scope that integrates performance management, financial planning, and collaborative cross-functional working. This integration is a core feature of the IBP approach — using a single corporate process to create and monetise an enterprise-wide plan whilst also aligning operational and strategic planning.


The key elements of IBP

The key elements of IBP

Source: Camelot Management Consultants.

This genuine integration of plans is achieved by a process of cross-functional collaboration, underpinned by planning with a common set of performance and financial data. Whereas traditional business and financial planning processes are typically resource-intensive, set-piece activities that operate once or twice per year, IBP is a continuous process operated on a monthly cycle.

The graphic “The Monthly IBP Cycle” illustrates the key monthly cycle, which results in the development of a rolling 24-month plan for the business with full financial metrics and key performance indicators.


The monthly IBP cycle

The monthly IBP cycle

Source: Camelot Management Consultants.

The five steps in this monthly cycle are:

  • Portfolio review: A cross-functional, context-setting review that assesses the overall product portfolio — including performance across the business, planned product launches, and any product discontinuations. This creates one enterprise view on the profile and financial expectations of the portfolio, which informs the upcoming cycle of planning.
  • Demand review: Owned and led by the P&L owner for a specific business area (eg, a general manager), this review creates the forecast for customer demand over the coming 24-month period and also evaluates predicted performance versus plan for this period.
  • Supply review: Chaired by the relevant supply chain leader, this review evaluates the capability of the company’s supply chain to deliver the customer demand forecast. Where there are challenges or gaps in capacity to meet demand, various options are discussed, and a financially scrutinised supply plan is proposed.
  • Integrated reconciliation: A key monthly meeting in building integrated enterprise plans, this is a cross-functional discussion. Whilst typically led by the P&L owner for the business unit, supply chain and finance colleagues are key partners and contributors. This cross-functional group reviews the business outlook and forecast performance versus plan and approves supply plan proposals to meet demand. This results in the proposed rolling 24-month operating and financial plan that is then presented to the senior executive team.
  • Executive review: The outputs of the integrated reconciliation step are consolidated from the various business units across the organisation in order to create the rolling 24-month operating and financial plan at the enterprise level. Typically, this review will involve a review of forecast performance versus plan but also, importantly, will be the approval forum for proposals that span business units or that have significant financial or other business impact at the enterprise level and therefore cannot be approved at the business unit level in the previous meeting step.

A key tangible output of this monthly cycle is the rolling 24-month operational and financial plan. However, just as significant is the alignment and integration generated by the ongoing cross-functional collaboration built in to the process.

Organisations adopting IBP report a range of tangible benefits (as shown in the graphic “The Organisational Benefits of IBP”). Some of these benefits, such as reduced working capital through decreasing inventory levels, would be expected as a result of improved collaboration between the commercial and supply chain functions. However, breaking down siloes also helps to build an organisational culture that is more focused on the external market and works in genuine partnership to create improved end-to-end experiences (and hence value) for customers. This is a powerful driver for improved market performance and ultimately sales revenue. In fact, successful adopters of IBP most commonly cite increased revenue growth as its number one benefit.


The organisational benefits of IBP

The organisational benefits of IBP

Source: Camelot Management Consultants.

In addition, IBP offers a proven response to managing the increasing complexity and volatility that are now common in many industry sectors. As outlined above, this increasingly unpredictable market environment requires organisations to be agile, to respond quickly to market opportunities and risks, but also to retain their strategic direction. It also demands that organisations have the capability to rapidly shape plans and execute seamlessly across functions.

IBP creates the ethos, the framework, and the tools to build this key competitive capability — the monthly cycle of IBP collaboration creates a common view of the business environment, joined-up plans to grow profitably in this environment, and the regular strategic sense-check from senior executives on these plans. This is a key driver in the current take-up of IBP in global companies.

Beyond these clear benefits at the enterprise level, IBP also represents an important enabler for excellence in the finance function. Finance is increasingly tasked with a number of key responsibilities beyond its traditional core accounting function. Examples of this increased mandate typically include leadership of operational and strategic planning and business partnering. In these roles finance leaders are seen as key advisers and influencers but are often limited in their impact by traditional planning, performance management, and decision-making approaches.


IBP enabling finance excellence

IBP enabling finance excellence

Source: Camelot Management Consultants.

IBP provides four key enablers for finance excellence in these areas (as shown in the graphic “IBP Enabling Finance Excellence”):

  • Planning effectiveness and efficiency: The discipline of a monthly collaborative planning effort based on shared data and assumptions leads to a rolling 24-month plan aligned with company strategy. This allows finance to focus on value-added planning contributions to the plan, rather than being stuck in the traditional cross-functional arbitration or reconciliation role it is often required to deliver.
  • Transparency: The IBP cycle allows cross-functional teams to continuously build their understanding of both current performance and medium-term outlook. Working as part of these teams, finance business partners develop a deep understanding of the market and the business in addition to codifying it through key financial measures. This enhanced transparency equips finance to challenge, support, and influence decision-making at a level simply not possible in traditional planning approaches.
  • Management of risks and opportunities: The rolling 24-month review of the business outlook is a key tool for handling risks and opportunities. Here, finance has a key business partner role in developing optimal enterprise plans, including scenario planning backed by rigorous financial modelling of proposals. This critical finance business partner contribution is again enhanced and enabled by the cross-functional discipline and shared data platform of IBP.
  • Performance management: IBP defines the corporate standard for performance management across the business. This focuses on identifying and addressing performance gaps versus plan and is based on common data standards and definitions. This approach allows the finance function to analyse and report performance at the enterprise level seamlessly across functions for review at the senior executive level and, hence, deliver its business partner role at all levels through the business.

IBP provides the key infrastructure, disciplines, and insights that enable an organisation to drive profitable growth in an increasingly complex and fast-moving environment.

The features of IBP that create shared information, collaborative cross-functional working, and a rolling 24-month outlook for the business are significant enablers for the finance function. For this reason, it is becoming a widely used corporate standard for high-quality enterprise planning with significant finance engagement.

Neil James is an associate partner with Camelot Management Consultants in the UK.