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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

Ventana Research recently released the results of our Next-Generation Business Planning benchmark research. Business planning encompasses all of the forward-looking activities in which companies routinely engage. The research examined 11 of the most common types of enterprise planning: capital, demand, marketing, project, sales and operations, strategic, supply chain and workforce planning, as well as sales forecasting and corporate and IT budgeting. We also aggregated the results to draw general conclusions.

Planning is the process of creating a detailed formulation of a program of action designed to achieve objectives. People and businesses plan to determine how to succeed in achieving those objectives. Planning also serves to structure the discussion about those objectives and the resources and tactics needed to achieve them. A well-managed planning process should be structured in that it sets measurable objectives and quantifies resources required to achieve them. Budgeting is a type of planning but somewhat different in that is financially focused and is done to impose controls that prevent a company from overspending and therefore failing financially. So while planning and budgeting are similar (and budgeting involves planning), they have different aims. Unlike budgeting, planning emphasizes the things that the various parts of the business focus on, such as units sold, sales calls made, the number and types of employees required or customers served.

Integrating the various business planning activities across a company benefits the senior leadership team, as I have written by enabling them to understand both the operational vr_NGBP_02_integrated_planning_works_betterand the financial consequences of their actions. There are multiple planning efforts under way at any time in a company. These plans typically are stand-alone efforts only indirectly linked to others. To be most effective, however, an individual business unit plan requires direct inputs from other planning efforts. A decade ago I coined the term “integrated business planning” to emphasize the need to use technology to better coordinate the multiple planning efforts of the individual parts of the company. There are good reasons to do this, one of which is accuracy. Our new research reveals that to be accurate, most (77%) planning processes depend to some degree on having access to accurate and timely data from other parts of the organization. For this reason, integrating the various planning processes produces business benefits: In our research two-thirds of companies in which plans are directly linked said that their planning process works well or very well. This compares favorably to 40 percent in those that copy planning data from individual plans to an integrated plan (such as the company budget) and just 25 percent of those that have little or no connection between plans.

Technology has been a major barrier preventing companies from integrating their planning efforts. Until relatively recently, joining the individual detailed plans of various departments and functions into an overall view was difficult because the available software, data and network capabilities were not sufficient to make it feasible and attractive to take this approach. To be sure, over the past decades there has been steady progress in making enterprise systems more accessible to ordinary users. But while dedicated planning software has become easier to use, evidently it’s still not easy enough. The research reveals that across the spectrum of corporate planning activities, three-fourths of organizations use spreadsheets to manage the process. We expect this to change over the next several years as the evolution in information technologies makes dedicated planning software a more compelling choice. One factor will be enhanced ease of use, which will be evident in at least two respects. Software vendors are recognizing that a better user experience can differentiate their product in a market where features and functions are a commodity. Ease of use also will extend to analytics and reporting, making it easier for business users to harness the power of advanced analytics and providing self-service reporting, including support for mobile devices. The other factor will be the ability to make the planning process far more interactive by utilizing in-memory processing to speed calculations. When even complex planning models with large data sets can be run in seconds or less, senior executives and managers will be able to quickly assess the impact of alternative courses of action in terms of their impact on key operating metrics, not just revenue and income. Having the means to engage in a structured conversation with direct reports will help executives be more effective in implementing strategy and managing their organization.

Technology is not the only barrier to better planning. The research demonstrates the importance of management in the process, correlating how well a planning process is managed with its accuracy. The large majority (80%) of companies that manage a planning process well or very well wind up with a plan that is accurate or very accurate. By contrast, just one-fourth of companies that do an adequate job achieve that degree of accuracy and almost none (5%) of those that do it poorly have accurate or very accurate results. Additionally, managing a planning process well requires clear communications. More than three-fourths (76%) of companies in which strategy and objectives related to plans are communicated very well have a process that works very well, while more than half (53%) with poor executive communication wind up with a planning process that performs poorly. And collaboration is essential to a well-functioning planning process. Most (85%) companies that collaborate effectively or very effectively said that their planning process is managed well, while just 11 percent of companies that collaborate only somewhat effectively expressed that opinion.

vr_ngbp_03_collaboration_is_important_for_planningCollaboration is essential because the process of planning in corporations ought to get everyone onto the same page to ensure that activities are coordinated. Companies have multiple objectives for their planning processes. Chief among these is accuracy. But since things don’t always go to plan, companies need to have agility in responding to changes in a timely and coordinated fashion. In a small business, planning can be informal because of the ease of communications between all members and the ease with which plans can be modified in response to changing conditions In larger organizations the planning process becomes increasingly difficult because communications become compartmentalized locally and diffused across the entire enterprise. Setting and to a greater degree changing the company’s course requires coordination to ensure that the actions of one part of the organization complement (or at least don’t impede) the actions of others. Coordination enables understanding of the impact of policies and actions in one part of the company on the rest. Yet only 14 percent of companies are able to accurately measure that impact, and fewer than half (47%) have even a general idea. Integrated business planning address that issue.

In most organizations budgeting and operational planning efforts are only loosely connected. In contrast, next-generation business planning closely integrates unit-level operational plans with financial planning. At the corporate level, it shifts the emphasis from financial budgeting to planning and to performance reviews that integrate operational and financial measures. It uses available information technology to help companies plan faster with less effort while achieving greater accuracy and agility.

For companies to improve competitiveness, their business planning must acquire four characteristics. First, planning must focus on performance, measuring results against both business and financial objectives. Second, it must help executives and managers quickly and intelligently assess all relevant contingencies and trade-offs to support their decisions. Third, it must enable each individual business planning group to work in one central system; this simplifies the integration of their plans into a single view of the company and makes it easy for planners in one part of the business to see what others are projecting. Fourth, it must be efficient in its use of people’s time. Success in business stems more from doing than planning. Efficient use of time enables agility, especially in larger organizations.

Today’s business planning doesn’t completely lack these features, but in practice it falls short – often considerably. Senior executives ought to demand more from the considerable amount of time their organization devotes to creating, reviewing and revising plans. They should have easy access to the full range of plans in their company. They must be able to engage in a structured dialog with direct reports about business plans, contingency plans and business unit performance. Information technology alone will not improve the effectiveness of business planning, but it can facilitate their efforts to realize more value from their planning.

Regards,

Robert Kugel – SVP Research

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