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It’s stating the obvious to say that how well executives manage planning processes has a big impact on how well a business unit or company plans. However, one significant source of the value of our benchmark research is that it establishes hard evidence – the numbers – that transforms mere assertions into proof points. This is particularly important when people within an organization want to improve a process. Change management is facilitated by providing senior executives with facts to back up assertions related to solving a business issue. Our recently completed next-generation business planning research provides insight into the importance of managing the planning process well and identifies some components of good management.

vr_NGBP_04_quality_of_planning_variesWe use the term “business planning” to encompass all of the forward-looking activities in which companies routinely engage. Our research covered 11 of the most common types of planning that go on in businesses, including sales, production and head-count planning as well as budgeting. In the research fewer than half of participants said their organization manages processes well or very well. Overall, the research finds that the best managed plans are those covering capital spending, workforce planning and demand planning. The ones at the bottom the list are sales forecasting, sales and operations planning and supply chain planning. To some degree, these findings reflect the difficulty of having to take into account external factors such as market demand. By contrast, capital spending plans involve mainly internal decisions made by a relatively small group, and the process from planning to execution is highly controllable. And while workforce plans may be subject to changing market conditions, in a stable economic environment staffing needs are relatively predictable.

The research also quantifies the impacts of important ingredients of a well-managed process. For example, communication is an essential element of successful planning. Nearly all (85%) companies in which executives communicate strategy and objective well or very well said their planning process works well or very well. By contrast, only 18 percent of companies in which executive communication is only adequate or poor have a well-functioning process. All aspects of business involve making trade-offs in allocating resources, and clear communication of strategy and objectives works to keep everyone on the same page. When the strategy is not plainly laid out, individuals must rely on tacit understanding of or guesses about it and the trade-offs that support it best. These assumptions may not be accurate or consistent across a company and can prevent concerted effort in the required direction.

Unfortunately half of the participating companies said their management doesn’t communicate strategy and objectives well. Often this is because executives think they’ve made this clear without confirming that is. An email message at the start of the annual budget process isn’t enough. Ambiguity also is inevitable when strategy is laid out are at such an abstract level that the way to achieve results is open to wildly different interpretations.

The solution to the communications issue is consistent repetition of objectives and their strategic context and framing planning and review discussions in that context. The research demonstrates the need to maintain clear, effective messaging. Companies in which executives communicate well the need to adapt plans during the planning period have a planning process that works well or very well (83%) more than three times as often as those that don’t (25%).

I’ve stressed the importance of integrating planning across business silos because it can make all planning processes more effective. One key aspect of integrating planning is having ready access to other business units’ plans. For example, Manufacturing and Operations should be able to see the latest plans of Marketing and Sales either as they create their initial plans or perform periodic revisions to them. Almost two-thirds of organizations in which planners have a good understanding of how decisions they make about their plans will affect other parts of the organization said they have a planning process that works well, compared to just 17 percent that don’t have a good understanding.

Those are some of the ingredients necessary for a well-managed vr_NGBP_05_quality_of_planning_is_criticalplanning process. The research also demonstrates the value of a well-managed process. One of the most important objectives for effective planning is accuracy because correctly anticipating how the business will evolve and perform over time can lead to optimal allocation of resources and coordination of efforts. The research confirms the perhaps obvious assertion that companies that have a well-managed planning process produce plans that are more accurate. The numbers also illustrate the stark consequences of not managing the process well: Most (80%) of those that do it well create plans that are accurate or very accurate, while just one-fourth of those that only adequately manage the process and almost none of those that do a poor job achieve such accuracy.

An important measure of planning efficiency is the appropriateness of the time spent on the process. Spending too much time obviously is wasteful, but so is spending not enough time, since a hastily constructed plan is likely to be subpar. Indeed only 16 percent of companies that spend too little time have plans that are accurate or very accurate, compared to two-thirds of those that spend the right amount of time and one-third that spend too much time.

Using the right software to support the business planning also is a factor in managing the process well. I have noted that desktop spreadsheets work well for individuals who create planning models and work with limited sets of data, but they are not well suited for recurring collaborative enterprise processes. Our research shows that companies that use a dedicated application more often have a process that works well or very well than those that use spreadsheets (60% vs. 47%). To be sure, technology is only one factor and simply buying software designed for planning without changing the people and process elements or failing to address data availability, consistency or timeliness issues makes it difficult to improve results. Still, a dedicated application is an essential component to support a change in planning processes. Companies need software that facilitates access to other business units’ plans, simplifies the collection of data, facilitates analysis and the ability to drill down into detail, offers dashboards that are easy to create and modify as well as supports automated and self-service reporting eliminates many barriers to more effective integrated planning in organizations. We advise them to evaluate such products as part of a comprehensive effort to improve all facets of business planning.

Regards,

Robert Kugel – SVP Research

As I noted in a recent analyst perspective note the recurring revenue business model is gaining increasing use worldwide. Our recently completed recurring revenue benchmark research shows that companies are using this business approach because they find that it can convey a strategic advantage in creating additional sales opportunities, making future revenues more predictable, enhancing their customers’ experience  and increasing customer loyalty. However, recurring revenue businesses have unique challenges, especially in finance VentanaResearch_RR_BenchmarkResearchand accounting departments because most ERP systems (the ones that handle the accounting function) are not designed to manage the specific requirements of a recurring revenue businesses.

One of the root causes of the problems finance and accounting departments encounter with managing the invoicing and billing of recurring revenue is that the order-to-cash process often is fragmented, with each part of the business doing its own thing and managing its activities. Our research on information optimization confirms that this is a common issue. A choppy process leads to fragmentation of data as it is entered multiple times in multiple systems. And because of such multiple entries, inconsistencies and errors are almost inevitable. For example, last-minute changes in a contract or a purchase order may not be entered everywhere or at the same time. After a couple of months customers may add or subtract services, and these changes may not be reflected accurately in every system at the same time. Creating new services or products thus can generate complexities that take time to implement. All these complexities and changes can create billing errors.

Finance departments wind up bearing the brunt of data fragmentation, a fact that is rarely appreciated by the rest of the company. Since they can’t take for granted that the billing data is utterly reliable, they construct monster spreadsheets to vr_Recurring_Revenue_06_finance_less_satisfied_with_invoicingreconcile the information about the customers’ services, pricing, the contract terms, usage and other factors that are stored in each of the systems. It takes time to work through the reconciliation spreadsheets, and this job requires experience. The more variations in the services and products offered, the more complicated and time-consuming the reconciliation process becomes. Therefore, it shouldn’t be a surprise that our research reveals that those working in finance and accounting organizations are far less happy with their company’s invoicing process than everyone else: only 29 percent of them are satisfied with invoicing, compared to nearly half (47%) of people vr_Recurring_Revenue_07_dedicated_system_users_are_more_satisfiedworking in other parts of a company. One way of dealing with such complexities is to put tight controls on what sales people can offer and what product managers can introduce. But this isn’t a good solution. It might save time spent by the accounting department but can make the company less competitive. Moreover, it’s unnecessary.

Dedicated billing systems that are designed for companies that offer recurring or subscription services enable finance and accounting departments to get what they need to perform their jobs well without diminishing the company’s ability to introduce new products or features quickly, and without severely limiting sales teams’ flexibility in negotiating pricing, terms and conditions. These dedicated billing systems provide finance and accounting groups with controlled, accurate and up-to-date billing information so that invoicing becomes easier and more reliable. They can substantially reduce or even eliminate errors (which can speed up collections), and they enable companies to handle customer billing inquiries quickly. Automating the process means reducing the need for administrative or operational overhead, thereby cutting costs. This probably accounts for the finding from our recurring revenue research that almost all (86%) users of dedicated billing systems are satisfied or somewhat satisfied, far more so than those that use spreadsheets to support their process and those that rely on their ERP system.

A well-designed recurring revenue billing system usually will automate the revenue recognition process to make it completely reliable and easier to audit. Companies that try to manage revenue recognition in desktop spreadsheets almost certainly will find that keeping track of even slightly complex services is difficult and time-consuming. It’s all the more difficult because in many recurring revenue businesses, customers frequently modify or change their contracted services or products. Using spreadsheets to track what revenue can be recognized and when is even more difficult when customers decide to add or drop features, bring on new users or respond to a new marketing offer.

The business case for investing in a dedicated billing system often can be made simply on the time (measured in full-time equivalent employees) saved in bringing on new customers, modifying their contracted services and preparing and checking invoices. It’s also important to be able to quickly add or modify a company’s offerings and to give sales people the ability to adjust the terms and conditions of contracts (within reason, of course) as needed to close a sale. I recommend that CFOs, controllers and heads of accounting in a business with a subscription or any other type of recurring revenue business model that are not using a dedicated billing system investigate this software; they should admit that most ERP systems are not designed to handle the specific requirements of these types of business. These dedicated systems usually are available as a cloud-based service, so they are relatively easy to deploy, and most vendors have experience integrating their offerings with ERP systems.

Regards,

Robert Kugel – SVP Research

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