“Who put a stop payment on my reality check” (author unknown) is a favorite adage that comes to mind when I think of the topic of business planning across lines of business. The reality is that most companies have limited ability to cascade down tangible strategic goals derived from strategic planning initiatives. They also face similar constraints when tying operational metrics to operational plans and effectively aligning them with strategic goals and plans. The “stop payment” is a combination of technology solutions and internal change management. Yes?
Effective business planning integrates strategic planning, financial planning, and operational planning with performance measurement, profitability analysis, and effective resource utilization. Easier said than done!
Business Planning in the Early Years
Very early in my career, I was tasked with delivering what we then called MIS reporting on a weekly basis for a machine tool manufacturer with its own foundries as a supply source. The reporting consisted of numerous metrics from demand signals to supply plan, and manufacturing schedule to order fulfillment. A management accounting summary that provided COGS, gross margin, and net margin based on expected revenue was the ultimate objective. These metrics would be used to match against operational objectives as well as financial goals in terms of revenue, cost, cash flow, and margins.
Lagging indicators and associated remediation plans typically required reassignment of working capital. If only we had the right tools to support early signals and better planning! A calculator was the most advanced technological support we had.
Tightening plan synergies between the strategic plan and deviations in our operational plan helped forecast capital consumption more accurately. We were able to achieve this via a manual process, partly because of our low-volume, made-to–order, high-margin business. Imagine having to do this manually for a multi-product-line, high-volume, fast-moving, globally growing company!
The Three Pillars of Integrated Business Planning Today
Today, many business-planning gurus talk about tangible goal setting, top-down cascading of goals, and effective measurement as the three pillars of effective execution against strategic objectives.
- Financial and operating plans need to align, and the impact of changes to one or the other need to be continuously monitored.
- Measurement of key performance indicators on an ongoing basis and the impact to cost and therefore profitability by product, customer, or channel are key.
- Measuring past and current performance alone is not sufficient – predicting performance impact based on changes in demand-supply patterns compared against well structured rolling forecasts is paramount.
Financial metrics provide a tangible measurable base, but it’s critical not to ignore the intangible performance measures, such as customer satisfaction, brand value, etc.
Are you there yet?
- Have you solved the puzzle of integrating strategic planning, financial planning, and operational planning?
- If yes, what were the main tipping points?
- If not, what are your challenges?
- What do you need to make planning across your enterprise successful?
I’d love to hear about your experiences in this area.
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