Editor’s note: Two previous articles in this four-part series (“How to Plan for Sustainable Growth” and “How to Successfully Use Integrated Business Planning”) introduced the concept of integrated business planning (IBP) and its value in supporting sustainable business growth. They also explored the key contribution that the finance function makes to the successful deployment of IBP. Next week, Part 4 will review steps that can be taken to help the finance function evolve into a custodian of organisational value.
Integrated business planning (IBP) builds organisation-wide capability in agile cross-functional planning and is a powerful enabler of the finance business partner approach. This approach has become more widespread as businesses have evolved to address the increasing volatility and complexity of the market environment.
IBP as presented in this article is not integrated thinking or integrated reporting, as they might be used in developing an integrated report using the International Integrated Reporting Council’s Integrated Reporting Framework. The use of the terms “sustainable” and “sustainability” in the context of this article refer to adoption of an IBP approach as outlined in the article and not the adoption of a multi-capital 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. As presented in this article, IBP is an operational planning system with origins in supply chain planning systems. Sustainable growth in IBP refers to the maximum rate of growth that a company can support without taking on new financing, and not to broader environmental, social, and governance factors that are taken into account in a broader definition of sustainability.
As many finance tasks have been supported by the growing sophistication of IT systems, finance resources have been freed for redeployment away from traditional accounting to this broader management support role.
Typical expectations of the finance business partner approach are summarised in the graphic “Expectations of Finance Business Partnering”. Delivering on these expectations requires the development of several interdependent factors:
- Building capability in finance business partners — in both hard and soft skills.
- Adopting ways of working (formally or informally) to leverage business partner input.
- Cultural change in the organisation to value and support this new way of working.
Expectations of finance business partnering
Source: CGMA report Building a Better Business, Together: Welcome to Finance Business Partnering, May 2018.
Capability-building programmes for finance business partners are relatively straightforward to create and deploy, but adapting ways of working and the culture of the organisation can present barriers to effective deployment of finance business partnering. IBP is a key enabler of these factors as explored in the examples in the graphic “How IBP Supports Key Requirements of Finance Business Partnering”, which illustrates how IBP enables the key expectations of business partnering.
How IBP supports key requirements of finance business partnering
Source: Camelot Management Consultants.
Supporting decisions at the group level
Finance business partners are expected to act as a two-way conduit for management information between their business unit and the CFO. This helps ensure the alignment of operational plans with company strategy and financial targets, but also provides senior finance leaders, including the CFO, with a dynamic view on business performance.
IBP is a key enabler in this area. The monthly planning cycle (see Part 1, “How to Plan for Sustainable Growth”, for more details) provides a regular disciplined review that compares business unit goals and plans with corporate expectations (for example, fiscal-year budgets, latest estimates, or key performance indicators (KPIs)) using one agreed set of financials. This creates a foundation of transparency that allows the business partner to focus on influencing and addressing the business issues rather than debating and aligning the data sources across the various functions (a common barrier in the early stages of business partner deployment).
The monthly executive review meeting in IBP also provides important support for the finance business partner role. The output of the executive review meeting is an alignment of senior functional leaders (for example, the CFO, CSCO, COO, and CEO) on the topics of performance versus plan, decision-making on corrective actions, and the 24-month business outlook. This cross-functional alignment ensures that ongoing activity in each business unit or function is aligned with corporate strategy, which provides the accepted reference point for finance business partners that can then be used to maintain strong stewardship on adherence to corporate strategy in individual business units.
In both examples, the tangible process improvements delivered through IBP also create new norms for cross-functional collaboration and transparency in decision-making. These new norms lead to the development of a culture where the contribution of a finance business partner is valued for the support provided to key decision-makers in the business units and functions as they work together to propose integrated plans to senior executives throughout the monthly cycle.
Decision support at the business unit level
As outlined in the graphic “Expectations of Finance Business Partnering”, a key element in business unit decision support is leadership of planning and budgeting. A traditional role for finance managers in planning, especially in headquarter teams, has been the reconciliation and alignment of plans from across functions and business units. Despite financial planning processes being launched with common sets of assumptions and data sets, the resulting plans from across the organisation often do not readily align. Considerable resources are then used to reconcile and integrate these plans. Furthermore, this is often a major set-piece activity, run annually or biannually, that creates resource bottlenecks during the planning period.
However, IBP supports finance business partners to orchestrate a less resource-intensive and more aligned financial planning process. The IBP process creates a rolling 24-month outlook and financial plan (approved by senior executives) through an ongoing cross-functional contribution, especially from the commercial and supply chain teams. This continuous alignment eliminates much of the reconciliation effort for finance business partners. The ongoing process also means that financial planning largely becomes a “little and often” activity rather than a major event executed across the organisation every six months, which frees business partners to deliver higher-value-added business support to dynamically drive performance.
Other requirements for decision support in the finance business partner role are also facilitated through the discipline and structure of IBP.
A key benefit of IBP for the business partner is the ongoing involvement in the monthly review process in which all the key drivers of performance are reviewed in detail and with financial rigour. This means that business partners are always well informed on the dynamics of the business, enabling them to provide high-quality support to key decision-makers. This is both a change in process and, in many cases, a key cultural change where the presence and influence of finance as a core business influencer is firmly established.
IBP also provides specific process features that facilitate decision support, including:
- New product introduction: This is a key feature of the IBP monthly cycle, in which the portfolio review meeting assesses new launches, product discontinuations, and other portfolio changes versus corporate plans (for example, “stage-gate” metrics for new launches) and develops clear financial expectations for these that support rational and evidence-based decision-making.
- Scenario planning: This is typically used in IBP for decision support, especially where the market environment is uncertain and volatile. A key discipline introduced in IBP is comprehensive financial rigour, applied from an enterprise as well as a business unit perspective. This is used in scenario planning to ensure that the overall organisation implications for revenue, costs, and working capital are evaluated and considered in any business unit decision-making. This enables the finance business partner to provide a level of scrutiny and rigour that is often impossible in a traditional planning setup.
IBP provides a corporate standard for performance management, with each monthly cycle focusing on the fundamentals of current performance, the 24-month rolling outlook, and agreeing an integrated cross-functional plan to close any performance gaps versus plan. Whilst this process standard is important, establishing common data sets, transparency, and cross-functional trust and openness are critical cultural shifts that are driven by IBP and enable enhanced finance business partner delivery.
IBP facilitates various elements of performance appraisal by the finance business partner. Typical examples of this include:
- Budgetary control: The discipline created by a monthly cycle in which financial measures are reviewed both at the business unit (or functional) level and at the enterprise level creates a collaborative focus on delivery of both expenditure and working capital targets. Without IBP, performance management can tend to be driven by top-line commercial requirements to meet customer needs without a detailed assessment of the wider cost and capital implications. IBP supports finance business partners to both carry out this assessment and facilitate decision-making supported with this insight.
- Ensuring alignment of KPIs: As described above, IBP establishes common data standards and data sets and aligns KPIs across functions. These are then consolidated to create an integrated enterprise view of the business. This readily allows finance business partners to analyse and evaluate business scenarios and highlight the broad financial implications of decisions without the need to seek or obtain buy-in for common metrics.
- Risk management: IBP is a useful tool for identifying specific risks over a 24-month outlook that relate to the delivery of products or services to end customers. In particular, it focuses on any operational risks in the supply chain (for example, potential lack of manufacturing capacity, shortages of raw materials) and also commercial dynamics (for example, competitor activity, new market regulations, deviations from planned launch schedules). It then quantifies these risks and uses scenario planning to develop robust plans to manage them. As such, this approach should be aligned and integrated with the wider enterprise risk management process used by the business, which typically has a wider scope, and IBP risk management should be seen as a key input to this.
—Neil James is an associate partner in 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.