Robert Kugel's Analyst Perspectives

Business Planning: Establish a Continuous and More Effective Path to Planning

Posted by Robert Kugel on May 17, 2019 6:00:00 AM

Business planning in most companies is a relic, a process hemmed in by obsolete conceptions of what it can be. “Business planning” encompasses all of the forward-looking activities in which companies routinely engage, including marketing, sales, customer, supply chain and workforce planning as well as budgeting. In our view companies today can fundamentally change how they plan thanks to the maturation of information technology. Current systems can support better business planning as well as traditional budgeting. Dedicated software can increase the business value of the time spent planning and budgeting by enabling all parts of the business to share their plans. It can substantially cut the time spent creating and updating plans. And it can allow senior executives to see a consolidated view of the plan and quickly explore alternatives and contingencies.

But before organizations can take the first step to fundamentally change how they plan into the next generation, they first must realize that a more effective and continuous process is possible and then must decide whether it’s worth the investment.

To better understand these challenges we recently launched our Business Planning benchmark research, which is designed to investigate the current methods and processes used in each of the major lines of business. This research will examine and analyze existing methods for budgeting and planning, compare potentially better ones to them and identify types of tools that can help organizations adopt them. It will examine the need for business modeling and analytics — especially forward-looking approaches such as predictive analytics — and will explore the needs of analysts and management in modern business planning processes.

The next generation of business planning offers both continuity and a substantial departure from what most companies do. Typically, the only company-wide business plan is the budget. Budgets of course are necessary for financial management and control, but they are not especially useful for running an organization. Today’s budgeting and operational planning efforts are only loosely connected and often uncoordinated. In contrast, a more recent approach to business planning closely integrates unit-level operational plans with financial planning. At the corporate level, the emphasis shifts from financial budgeting to planning and to performance reviews that integrate operational and financial metrics. This approach uses available applications and information technology to help companies plan faster with less effort while achieving greater accuracy and agility. Our benchmark research will document the gaps that currently prevent companies from improving planning and indicate ways in which IT can help bridge these gaps.

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 that 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 connected 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 by being more collaborative and intelligent.

Today’s business planning doesn’t completely lack these features, but in practice it falls short — often considerably. The benchmark research will measure organizational planning maturity and show the correlation between information technology and better planning.

Success in business requires more than just planning. Time efficiency enables agility, especially in larger organizations where more time is spent on optimizing the plan and less is spent on ensuring participation. People from star CEOs on down have been griping about budgeting for decades, yet little has changed. Several factors encourage its persistence, starting with the innate conservatism of large organizations and the organizational incentives to preserve the status quo. Companies need a financial plan to ensure that they will remain solvent, and budgeting fits into this slot. Another reason is that until recently technology wasn’t available to support a substantial transformation of the corporate planning process. Now, in-memory processing, big data and advanced analytics can change the dynamics of planning to make it far more interactive and immediate. Our business and Office of Finance research agendas will continue to illustrate the connection between improved planning and better results. We will suggest practical solutions to achieve better results from use of planning software.

Today’s tools can support a structured dialogue across an organization in ways most people img1-6find easy to use. Of particular impact is that most companies continue to use standalone spreadsheets to manage planning processes, despite the fact that spreadsheet technology constrains the effectiveness of the process itself and the ability to share information; in effect, spreadsheets prevent integration.

Dedicated planning and budgeting software has been around for decades but it is not widely used. Our earlier research on this topic shows that two-thirds of larger companies still use desktop spreadsheets for budgeting. Pulling together a budget and plan from a tangle of spreadsheets requires a great deal of effort. Furthermore, spreadsheets eliminate accountability because it’s hard to drill back down into the numbers to get to the underlying assumptions. Spreadsheets are rife with errors, and disputes over what constitutes the “right” number often add to the time required to complete the process and undermine cooperation.

Industry analysts and we at Ventana Research have focused attention on the connection between better planning processes, integrated planning across departments and silos, and the importance of using dedicated planning software to support a better process. If executives in sales, operations, finance and IT departments are to consider change and adopt truly integrated operational and financial business planning, they must understand the real cost of maintaining the status quo. They must be convinced that they can gain tangible benefits from change and that the available options pose only limited and easily mitigated risks. To prepare for marketing battles ahead, particularly against “new and improved” spreadsheets, financial planning software vendors must be able to communicate a vision of a more effective planning process that contributes value to the bottom line. This will require change in their own approaches.

In the past, vendors of planning and budgeting software have approached buyers with two value propositions:

  • Make the planning process much more efficient (that is, reduce the time and money spent and the inconvenience) by eliminating stand-alone spreadsheets and/or manual systems.
  • Redefine planning processes to produce more effective results.

These, we believe, continue to form the nucleus of planning value propositions.

To lay the groundwork for a successful sales cycle is to provide that internal champion with factual ammunition to demonstrate that the software-driven initiative will benefit senior finance executives — the ones who will have to approve the purchase. Proof points from a respected source of independent research are a vital element in making this case.

This research is designed to be the source for fact-based research notes that connect individual benefits to empowering a more strategic finance organization as well as data points that demonstrate how better use of technology improves departmental efficiency and effectiveness.

Click here to participate in this research, and here to learn more about Ventana Research’s methodology and large body of business research. Ventana Research also has conducted research in related areas including Next-Generation Enterprise Resource Planning, Total Compensation Management and the Office of Finance.

Robert Kugel
SVP & Research Director

Topics: Office of Finance, Financial Performance Management, Price and Revenue Management, ERP and Continuous Accounting, robotic finance, Predictive Planning, revenue and lease accounting

Robert Kugel

Written by Robert Kugel

Rob heads up the CFO and business research focusing on the intersection of information technology with the finance organization and business. The financial performance management (FPM) research agenda includes the application of IT to financial process optimization and collaborative systems; control systems and analytics; and advanced budgeting and planning. Prior to joining Ventana Research he was an equity research analyst at several firms including First Albany Corporation, Morgan Stanley, and Drexel Burnham, and a consultant with McKinsey and Company. Rob was an Institutional Investor All-American Team member and on the Wall Street Journal All-Star list. Rob has experience in aerospace and defense, banking, manufacturing and retail and consumer services. Rob earned his BA in Economics/Finance at Hampshire College, an MBA in Finance/Accounting at Columbia University, and is a CFA charter holder.