The Role of Planning

We live in an unpredictable world where the future is uncertain. If it was then we would all make a fortune by making strategic ‘bets’ on certain outcomes – we would know what products and services to back, what level of stock and staffing to have, and when and where to market our capabilities for maximum effect.

But the world is not like that. When we use the word ‘unpredictable’ or ‘volatile’, what we are really saying is that the mechanisms we use for predicting the future are inaccurate. Things happen that we either didn’t foresee, or that impacted differently from what we expected. Most of these ‘things’ are typically external and beyond our control. For example, a competitor changing their price, a company introducing a disruptive technology, the impact of natural events such as the weather, a change in government policy, a significant change in the local economy, or a combination of any of these. However, senior executives are expected to navigate their organizations through all of these challenges. They are charged with ensuring that limited resources are allocated to the right products and services for maximum return. That the organization is moving towards long-term strategic goals and to provide a reasoned explanation as to when, where and how it expects to get there.

Planning is the only way an organization can do this. But in today’s business environment it requires sophisticated tools and techniques if this practice is to achieve realistic results.

Increasingly Complex Business Environment

A better word to use in the place of ‘unpredictable’ is the word complex. Businesses today operate in increasingly complex markets. Over the past 30 years we have seen two major shifts in the business environment – most of which are the result of technology:

Speed of Business: The pace of change in the business world is dramatically increasing. Through the use of technology, competitors can enter a market from anywhere and communicate their value almost instantly. As a result this can trigger a market response that can be measured in days, which in turn can increase demand for raw materials with a resultant impact on price and availability. And as the abilities of technology itself changes, products can often have life cycles that are rarely measured in years.

Complexity of business: The on-line, 24/7 world, has resulted in products and services that are becoming more focused on individual needs. Some luxury good manufacturers such as cars and PC’s, build products to order, rather than have them in stock. We’ve also seen the introduction of intermediaries, particularly in the supply of insurance and utilities, where the company selling the product/service may be sourcing these from a variety of producers. And then there is the impact of economic and political stability, as well as the increasing influence of social networks sites that no company can now ignore.

As a result of these two, the planning horizon that organizations can comfortable predict with accuracy has been reducing. In the past the practice of annual budgeting, quarterly forecasting and monthly reporting were adequate. Incidentally most of the management practices used today were developed in the 1920’s when the business world was a very different place! Today, most organizations are looking to implement continuous planning, where changing events and market activity drives content. To help executives cope with speed and complexity, there has been a proliferation of tools and management techniques. They try to get those managing the organization to focus on what’s important and have included methodologies such as Six Sigma, Balanced Scorecard, Performance Prism and more recently the Beyond Budgeting movement.

In response, software application vendors have continually produced new and better planning and analysis products, although it’s interesting to note that spreadsheets still dominate. But many of today’s specialised tools are simply not good enough to cope with the needs of real world planning and in supporting modern methodologies that show how strategy is to be implemented, measured and monitored.

If you are interested, I have developed a white paper on what to look for in a planning system which can bedownloaded from here.

By Michael Coveney, EPM Contributor, from: http://www.stw-consulting.co.uk/Articles/339457/STW_Consulting/The_CPM_Blog/Planning/The_Role_of.aspx

Michael Coveney, who is based in the UK, has more than 35 years of experience in the financial analytic software industry, helping enterprises combine ‘best management practices’ with technology to improve the efficiency and effectiveness of their performance management processes.His energetic style and insightful views has led him to become a regular speaker at international events, a course leader with the Antwerp Management School, and the author of many articles and books including his latest ‘Strategy to the Max’ – a down to earth look at all you need to know in setting up systems that support the implementation of corporate strategy.