Planning for long-term growth in a volatile world

Rapid change is creating an ever-increasing array of challenges to building businesses that are profitable over the long term. These challenges (see the chart "Emerging Business Challenges and Their Impact on Planning") affect all operations but place particular pressure on business planning.

Volatility, uncertainty, complexity, and ambiguity (often termed the VUCA environment) demand 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 as 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 a business partner.

Emerging business challenges and their impact on planning

Integrated business planning (IBP) has evolved over the last decade to become widely used and valued as a proven approach to enterprise-wide planning and is used by leading organisations across a range of industry sectors including AkzoNobel, Cisco, GlaxoSmithKline (GSK), Heineken, Johnson & Johnson, Nike, Shell, and Unilever.

IBP is also a very significant process for the finance function, as its successful deployment relies greatly on committed and high-quality finance support, leverages its business partnering capability, and also helps develop many of the key capabilities required in the finance team of the future. (See the sidebar, "Distinguishing the IBP Approach", for a discussion of how IBP differs from business planning systems that employ seemingly similar terminology.)

The IBP process

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. 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 also 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 (see the chart "The Key Elements of IBP").

The key elements of IBP

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.

GSK, a global healthcare company with a turnover of $40 billion, recently deployed IBP. Within months of deployment, the IBP process was able to deliver quick wins for the business in the fundamentals of balancing demand and supply. An early example of this was deciding the allocation of scarce supply across regions. The IBP process allowed a holistic evaluation of this problem to ensure that medical criticality of supply was taken into account alongside the range of financial and service measures in order to optimise outcomes for the business as well as healthcare professionals and patients.

As process maturity and capability developed, more strategic benefits were achieved. For example, when the potential for a future demand spike or capacity constraint was identified in the rolling 24-month outlook, the IBP process provided the structure and discipline to manage these proactively. GSK used the cross-functional process to develop scenario plans in order to prepare a series of strategic and tactical options that laid out the potential impacts on customers and patients and also underpinned these with comprehensive financial evaluations. The ongoing monthly IBP reviews then provided the means to constantly review the robustness of these plans and allow ongoing refinements.

In order to realise these benefits, GSK adopted a thorough change management approach. This identified and addressed various challenges to IBP deployment, including both hard issues (such as process design or systems requirements) and soft issues (such as the mindsets and cultural themes required to support the process). Enabling the cross-functional collaboration required for IBP was a key area in the change management programme. An example of this was the requirement to update key performance indicators (KPIs) and create team-based incentives to promote and reward team behaviours and optimise decision-making at the enterprise rather than the silo level, and also ensure that the company's strategy and values were being supported through the decisions taken in IBP. The business focused significantly on behavioural change to support this, ensuring that teams and leaders had clarity on decision-making rights and accountabilities. This was crucial to support a key principle of the IBP approach in enabling informed decision-making at the lowest possible level and ensuring that the disciplined and evidence-based nature of the new process was embraced and supported.

The chart "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 KPIs.

The monthly IBP cycle

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 (for example, a general manager), this review creates the forecast for customer demand over the coming 24-month period and 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, which 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 to create the rolling 24-month operating and financial plan at the enterprise level. Typically, this review involves a review of forecast performance versus plan but is also, importantly, 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 (see the chart "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 silos 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

In addition, IBP offers a proven response to managing the increasing complexity and volatility that are now commonplace 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.

IBP and the finance function

Whilst IBP has been widely demonstrated to deliver value as an enterprise planning approach, it is also commonly found that it creates many opportunities to leverage and develop the core capabilities of the finance function.

For example, the deployment of IBP relies heavily on the contribution of the finance function. CFO sponsorship is a prerequisite to drive the changes required in moving an organisation to a rolling business planning process with integrated financial management and planning. Finance teams across the business also play a critical role in the process, applying financial rigour and aligning across functions to create a robust enterprise-level view of business performance and outlook (see the chart "Finance Team Contributions to the Execution of IBP").

Finance team contributions to the execution of IBP

At the same time, many finance organisations now employ a finance business partnering approach to deliver support to the business. This approach demands not only the development of relevant capabilities in the finance team but also the evolution of ways of working that leverage business partner input and a culture that supports and values the contribution made by the business partner team. A CGMA report (see Finance Business Partnering: The Conversations That Count) showed that finance business partnering typically focuses on decision support (both at the business unit and the overall enterprise level) and performance management.

These themes are an integral part of the IBP process, where information flow, cross-functional interaction, and financial rigour underpin a disciplined approach to decision support and performance management. This leads to a specific finance role in IBP, enabling rigorous business analysis and decision-making. Significantly, IBP also creates a cultural norm where the finance team works with cross-functional partners throughout the process from performance review and diagnosis through the development of options for performance improvement to senior executive decision-making. This underpins and supports the concept of the finance business partner as a key management support at all levels in the business.

The chart "Key Features of IBP Underpinning the Finance Business Partner Role" summarises the key features of IBP that support the core components of the business partner contribution.

Key features of IBP underpinning the finance business partner role

However, many organisations are now seeking to further extend the finance remit beyond that of business partner (see the CGMA report The Changing Role and Mandate of Finance). Typically, this involves the widening of the remit of finance beyond analysis and insight generation (and enabling this with both capability-building programmes and increased empowerment) to a more active role, enabling the cross-functional development of new business solutions to drive value.

This widening remit is often based on the capability of the finance professional to apply sound business acumen in a cross-functional setting, and influence and negotiate in order to achieve the best outcomes for the overall business. These capabilities are central to the operation of IBP (as summarised in the chart "Finance Team Contributions to the Execution of IBP"). IBP therefore provides the opportunity to bridge and extend from today's business partner approach to this future finance model.

Finance team contributions to the execution of IBP

IBP offers practical, on-the-job learning for future finance leaders to work on real business problems, build an awareness of various cross-functional perspectives and challenges, and gain experience in influencing to drive decision-making to optimal business solutions at the enterprise level. In addition to supporting learning on these tangible business capabilities, IBP is also important in starting to shift mindsets on the transformation to the future finance model. This applies both to raising the expectation across the whole business on the contribution of the finance team but also to building the confidence and belief within the finance function itself. This strong conviction that the finance team is empowered (and expected) to take a more dynamic and central role in the management and development of the business is equally critical to the success of the future finance model.

As outlined above, the learnings from businesses that have adopted IBP underline the critical role of the CFO and the wider finance team in its deployment and ongoing operation. In addition to streamlining traditional financial planning approaches, finance teams also report that the plans created using IBP are more transparent and robust and are executed more effectively. At the same time, the philosophy of IBP to drive cross-functional collaboration backed by financial rigour provides the foundation that many finance leaders value in building competencies for current and future business needs. This increasingly means that IBP, once seen as an extension of supply chain planning, is now a fundamental tool for best-in-class planning that attracts strong finance advocacy and leadership.

Distinguishing the IBP approach

Integrated business planning (IBP) as presented in this article is not integrated thinking or integrated reporting, as described in the International Integrated Reporting Council’s Integrated Reporting Framework. The use of the terms “sustainable” and “sustainability” in the context of this article refers to the adoption of an IBP approach as outlined in this article and not the adoption of a multicapital approach to sustainable management.

IBP is a specific process for using specific business goals to develop precise financial and operational resource requirements with the goal of minimising risk and maximising either cash flow or profit. IBP is a system with origins in supply chain planning. Sustainable growth in IBP refers to the development and execution of strategies that support the achievement of ongoing revenue and margin growth (rather than the environmental, social, and governance factors that are taken into account in a broader definition of sustainability or the adoption of a multicapital approach to sustainable management).

Source, all charts: Camelot Management Consultants

Neil James is an associate partner with Camelot Management Consultants in the UK. To comment on this article or to suggest an idea for another article, contact Sabine Vollmer, an FM magazine senior editor, at Sabine.Vollmer@aicpa-cima.com.