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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

In our benchmark research at least half of participants that use spreadsheets to support a business process routinely say that these tools make it difficult for them to do their job. Yet spreadsheets continue to dominate in a range of business functions and processes. For example, our recent next-generation business planning research finds that this is the most common software used for performing 11 of the most common types of planning. At the heart of the problem is a disconnect between what spreadsheets vr_NGBP_09_spreadsheets_dominant_in_planning_softwarewere originally designed to do and how they are actually used today in corporations. Desktop spreadsheets were intended to be a personal productivity tool used, for example, for prototyping models, creating ad hoc reports and performing one-off analyses using simple models and storing small amounts of data. They were not built for collaborative, repetitive enterprise-wide tasks, and this is the root cause of most of the issues that organizations encounter when they use them in such business processes. Software vendors and IT departments have been trying – mainly in vain – to get users to switch from spreadsheets to a variety of dedicated applications. They’ve failed to make much of a dent because, although these applications have substantial advantages over spreadsheets when used in repetitive collaborative enterprise tasks, these advantages are mainly realized after the model, process or report is put to use in the “production” phase (to borrow an IT term). To date most dedicated applications have been far more difficult than spreadsheets for the average business user to use in the design and test phases. To convince people to switch to their dedicated application, a vendor must offer an alternative that lets users model, create reports, collect data and create dedicated data stores as easily as they can do it in a desktop spreadsheet. Spreadsheets are seductive for most business users because, even with a minimum amount of training and experience, it’s possible to create a useful model, do analysis and create reports. Individuals can immediately translate what they know about their business or how to present their ideas into a form and format that makes sense to them. They can update and modify it whenever they wish, and the change will occur instantly. For these business users ease of use and control trump putting up with the issues that routinely occur when spreadsheets are used in collaborative enterprise processes. Moreover, it’s hard to persuade “spreadsheet jockeys” who have strong command of spreadsheet features and functions that they should start over and learn how to use a new application. Those who have spent their careers working with spreadsheets often find it difficult to work with formal applications because those applications work in ways that aren’t intuitive. Personally these diehards may resist because not having control over analyses and data would diminish their standing in the organization. Nevertheless, there are compelling reasons for vendors to keep trying to devise dedicated software that an average vr_ss21_spreadsheet_maintenance_is_a_burdenbusiness user would find as easy and intuitive as a desktop spreadsheet in the design, test and update phases. Such an application would eliminate the single most important obstacle that keeps organizations from switching. The disadvantages of using spreadsheets are clear and measurable. One of the most significant is that spreadsheets can waste large amounts of time when used inappropriately. After more than a few people become involved and a file is used and reused, issues begin to mount such as errors in data or formulas, broken links and inconsistencies. Changes to even moderately complex models are time-consuming. Soon, much of the time spent with the file is devoted to finding the sources of errors and discrepancies and fixing the mistakes. Our research confirms this. When it comes to important spreadsheets that people use over and over again to collaborate with colleagues, on average people spend about 12 hours per month consolidating, modifying and correcting the spreadsheets. That’s about a day and a half per month – or five to 10 percent of their time – just maintaining these spreadsheets. Business applications vendors started to address business users’ reluctance to use their software more than a decade ago when they began to use Microsoft Excel as the user interface (UI). This provides a familiar environment for those who mainly need to enter data or want to do some “sandbox” modeling and analysis. Since the software behind the UI is a program that uses some sort of database, companies avoid the issues that almost arise when spreadsheets are used in enterprise applications. There also are products that address some of the inherent issues with such as the difficulty of consolidating data from multiple individual spreadsheets as well as keeping data consistent. Visualization software, a relatively new category, greatly simplifies the process of collecting data from one or more enterprise data sources and creating reports and dashboards. As the enterprise software applications business evolves to meet the needs of a new generation of users, as I mentioned recently, it’s imperative that vendors find a way to provide users with software that is a real alternative to desktop spreadsheets. By this I mean enterprise software that provides business users with the same ability to model, create reports and work with data the way they do in a desktop spreadsheet as well as update and modify these by themselves without any IT resources. At the same time, this software has to eliminate all of the problems that are inevitable when spreadsheets are used. Only at that point will a dedicated application become a real alternative to using a spreadsheet for a key business process. Regards, Robert Kugel – SVP Research

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