Editor’s note: This is the second article in a four-part series on integrated business planning (IBP). Part 1 (“How to Plan for Sustainable Growth”) explored the value of IBP in building sustainable business growth. Next week, Part 3 will look at how the growing sophistication of IT systems has freed finance resources to be redeployed away from traditional accounting.
The adoption of integrated business planning (IBP) over the last ten years has allowed organisations to develop an agile approach to planning and execution in an increasingly challenging external environment. It has also demonstrated its value in enabling the finance function to deliver excellence in its emerging role as a business partner across the organisation.
Whilst the deployment of IBP represents a significant organisational change, considerable insight on the key success factors for the execution of IBP has now been accumulated. This deployment learning is crucial when planning the adoption of IBP, and, as outlined below, the finance function plays a key role in this.
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.
The graphic “Key Success Factors for IBP Deployment” summarises four points for effective adoption of IBP based on deployment experiences over a wide range of industry sectors.
Key success factors for IBP deployment
Source: Camelot Management Consultants.
Historically, due to its evolution from sales and operations planning (S&OP), IBP has often been seen as a supply-chain-centred process. However, experience shows that the enterprise-wide benefits of the process are not achieved or sustained when deployment is approached in this way.
A key feature of IBP deployment is the creation of genuine cross-functional collaboration to deliver enterprise goals as reflected in the key success factors:
- Cross-functional C-suite sponsorship: IBP entails significant change not only in processes and systems but also in mindsets and behaviours across the business. For this reason, strong senior leadership sponsorship is critical. Furthermore, the cross-functional and interdependent nature of IBP has been shown to be more successfully deployed when the collaborative character of the process is reflected in the C-suite’s sponsorship of the programme. In particular, joint sponsorship by the key functional leaders (finance, commercial operations, and supply chain) has proved very powerful in role-modelling the teamworking that underpins effective IBP.
- Senior enterprise leadership: Ideally, IBP deployment should be led by a senior manager with either a commercial or financial background and strong cross-functional awareness and connections. This differs from the traditional handling of IBP (and S&OP), as outlined above, where supply chain leaders have often been tasked with deployment. This senior enterprise leadership provides the credibility and commercial acumen to lead change across the various parts of the business.
- Building cross-functional teams: Most organisations are not set up, either structurally or culturally, to excel in cross-functional working. It is therefore essential to invest time to support the development of the cross-functional teams that are at the core of creating value through IBP. This goes beyond basic team building to include, for example, the development of team-based reward-and-recognition approaches and cross-functional metrics and goals.
- Coaching and mentoring: In common with many organisational changes, IBP deployment has often focused on the process and system aspects (which are undoubtedly important). However, applying new cross-functional leadership practices and executing a new corporate process requires hands-on support, especially for managers working in IBP for the first time. Coaching and mentoring have been shown to be very effective approaches for rapidly building new capability and driving quick wins from the process.
In addition to these broad deployment learnings, it is also clear that the finance function has a critical role in ensuring successful and sustainable deployment of IBP in four key areas:
As one of the key C-suite sponsors, the CFO has a very significant role in the sponsorship of IBP adoption. IBP leads to a major change in the philosophy and execution of business planning (typically a key part of the CFO remit), from major annual or biannual activities to a rolling monthly financial planning cycle. This change has far-reaching effects across functions and, hence, the road map for change and its organisational benefits must be strongly owned and promoted by the CFO.
An important part of this sponsorship role is working directly with C-suite peers to maintain a disciplined adherence to the IBP process, especially in the early stages of deployment. IBP sets out a clear and structured approach for performance review, empowered decision-making, and forward planning. This approach can often challenge existing ways of working amongst senior leaders who over time have built personal networks and practices that allow them to access business data and make decisions, often from a siloed perspective.
A key role of the CFO is therefore to model the behaviours of the senior leader within IBP, supporting and leveraging delegated responsibilities in the IBP cycle and not overriding decisions outside the designated process.
CFO sponsorship of IBP is also critical across the finance function itself. The IBP approach shifts current practices in business and financial planning and creates new and increased expectations for finance staff to operate as business partners with a broader influence beyond the traditional accounting role.
The role of the finance partner in IBP is vital (as described further below), and, hence, the CFO must engage and inspire the team to respond to this opportunity. Whilst extending the expectations of the finance staff beyond the core of traditional accounting to a broader business role is exciting for many, it also presents challenges.
Leading this functional shift as part of IBP deployment is a key role for the CFO to ensure that high-quality finance support is present throughout the various cross-functional IBP teams and when decisions are made.
Cross-functional partnerships and influence
Finance leaders play a key role on the newly formed IBP teams to build the connection between commercial and supply chain teams. Traditionally, these teams have often not established an open and trusting partnership, with the supply chain team often seen as a back-office or “arms-length” provider to the commercial organisation. However, the finance team is typically experienced at working across teams in the process of aligning and reconciling financial plans.
This experience, and the trust built with these teams, enables finance to play a critical role in focusing the cross-functional IBP teams on enterprise outcomes and metrics. Over time, trust and collaboration is built through the positive experience of executing IBP, but finance is often a key catalyst to accelerate this.
A key foundation for enterprise-optimised decision-making in IBP is rigour and transparency to create a common, cross-silo view of business performance and outlook. This is a crucial role for finance, leveraging its traditional strengths in management accounting and financial stewardship.
An important feature of IBP is the application of standard data sources, definitions, and metrics (typically supported by the business ERP system). This consistent foundation for situation analysis and decision-making is essential in aligning cross-functional perspectives and creating transparency for decision-makers. This can often be problematic in the early stages of IBP adoption, where there can be considerable resistance to letting go of silo-based data or interpretations.
Here finance has a key responsibility to help educate cross-functional partners on the new data sets and metrics and their importance in supporting decision-making optimised at the enterprise (rather than the silo) level. Finance members of IBP teams often also take on a “champion” role to ensure adherence to this new approach in the monthly IBP meetings, and this has been shown to both improve the quality of individual IBP team outputs, but also the overall flow and decision-making efficiency of the overall IBP cycle.
Investing in new skills for finance
Given both the key role of finance in deploying IBP, and the degree of change in the finance team to deliver this, it is vital that the function invests to build the capabilities required.
Key finance capabilities for IBP
Source: Camelot Management Consultants.
This capability development can be categorised into three themes, as shown in the graphic “Key Finance Capabilities for IBP”:
- Cross-functional leadership: Finance leaders have an important role in supporting the integration of the new cross-functional teams that are central to IBP and in enabling strong, coherent team outputs. Capability development should include the rational, task-focused aspects of building cross-functional teams, such as aligning around common goals, agreeing roles and responsibilities, and defining team metrics. However, it is important that this is complemented by capability building in softer topics such as an understanding of team dynamics, personality types, generational differences, and communication styles, and how to translate this understanding into effective team leadership.
- Business acumen: The finance role in IBP demands a broad judgement of business issues to understand and influence responses to risks and opportunities. A common element of this role is also the development of scenario plans and advocating the optimal business response. It is important that finance staff members are able to leverage strong analytical inputs with business credibility. This can be developed, for example, through job rotations across functions and with coaching/mentoring support within finance.
- Advising and influencing business leaders: IBP delegates decision-making throughout the various cross-functional teams. This requires that the decision-maker in each case is briefed in order to ensure that rational, enterprise-optimised decisions can be made. Finance has a key role to play in this, and this often creates a need for relatively junior finance staff to build their capability and confidence in advising and influencing the relevant business leader. Developing skills in presenting, influencing, and negotiating are therefore key for finance staff as increasing demands are made by IBP.
New mindsets and behaviours for finance
Expanding finance’s traditional skill base can be a key mindset change for the finance function, which requires clear direction and sponsorship from the CFO, as well as engagement and support from all functional leaders.
A further success factor for finance staff working in IBP is the ability to balance the need for championing financial rigour whilst adopting a dynamic and agile approach to driving the business.
The rolling monthly cycle requires a major mindset change from traditional (typically annual or biannual) financial planning processes. Monthly IBP discussions focus on changes, outliers, and closing performance gaps; and a key strength of the process is the ability to dynamically create robust updates to the business and financial outlook. This discipline brings finance closer to the operational edge of the business and is a key asset in ensuring the resilience and relevance of the business plan and associated financials. The capacity of finance to adapt to this new way of working is a key success factor in IBP, providing a competitive advantage in a volatile and complex market environment.
— 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.