As I discussed in the “Strategy and Enterprise Architecture” series, business capabilities are the link connecting strategy and business model to enterprise architecture and the underlying technology that executes the strategy. Understanding this link enables companies to align resources, people, and processes to transform themselves in response to market dynamics to maintain a competitive edge.
The game plan for strategy execution
Another important dimension, which drills through one specific capability, is integrated business planning. This capability translates strategy down to operations through the enterprise architecture.
For many decades, business planning focused almost entirely on financial and budgeting activities. Meanwhile, operations developed its own short-, mid-, and long-term planning processes, sometimes including its own separate financial projections after the fact. As a result, different functions of the organization made decisions on individual conflicting plans, disconnected from the corporate strategic priorities and objectives.
Two main factors have driven this situation. The first factor is the established paradigm of considering short-term financial metrics as the sole indicator of organizational health. The second is the lack of adequate technology and applications to support integrated business planning – to bring all functions together to work on a common model, considering the impact of each other in a common environment.
Harnessing technology for end-to-end business planning
Of these two factors, the technological limitation has been eliminated in the past few years. We now have applications that support end-to-end business planning that integrates the organization vertically and horizontally. A few of the main capabilities to enable truly integrated business planning are:
- Short-, mid-, and long-term demand planning using traditional forecast methods as well as advanced techniques based on machine learning
- Demand sensing in the short-term horizon based on signals from multiple sources
- Pattern recognition and demand shaping to drive accurate deployment and replenishment
- Integration with product portfolio management
- Integration with strategy planning
- Integration with financial planning and budgeting
- Integration with operations planning
- The ability to simulate multiple scenarios across functions
This technology is capable of generating different sets of plans aimed at different audiences that are nonetheless consistent with each other. A common model and repository allow cause-and-effect tests and analysis of different perspectives of the business – whether finance, manufacturing, supply chain, sales, product development, human capital management, and so on.
Integrated business planning is central to any organization. Vertically, it integrates the company’s strategy with tactical and operational plans and execution to realize the strategy. Horizontally, it integrates the various functions to align the corporate strategy with functional strategies and objectives. It sets the backdrop for informed and data-driven business decisions across the organization. Ultimately, it provides the means to continually test and challenge the strategy in light of changing circumstances, enabling an adaptive organization to evolve in the process of becoming an intelligent enterprise.
A business plan consists of several component plans: marketing, research and development, purchasing, production, headcount, investment, finance, and risk management, among others.
Changing organizational behavior in the way business performance is measured
Many companies are updating their legacy planning systems to next-generation integrated business planning applications. However, without changing the old behavior, it’s impossible to realize the benefits of this approach.
Why have just a few companies broken out of this paradigm and achieved excellence in integrated business planning? The short answer is that business planning in most organizations continues to focus on budget and financial planning alone. Planners don’t integrate the different functions of the business, such as product management, market demand, and operations. In other words, they don’t look at the business from multiple perspectives – let alone plan and measure those varying views of the business in a balanced way.
Supplementing financial metrics with key business perspectives
Integrated business planning, coupled with a balanced measure of the different perspectives within an organization, is a better indicator of its health than the short-term financial metrics alone. It will enable the company to continually test its strategy for relevancy. In addition, it balances lagging indicators (financial view) with leading indicators (market demand, new product development, effect of emerging technologies, etc.).
Different companies will determine the relevant perspectives for their performance management systems. However, the general perspectives below apply to most organizations. The balanced scorecard supplements traditional financial metrics with the following dimensions:
- Customer perspective
- Internal business processes perspective
- Learning and growth perspective
Measuring these three perspectives in a balanced way, as opposed to focusing only on the financials, is a way for companies to overcome the inability to connect long-term strategic priorities with short-term actions.
Robert S. Kaplan and David P. Norton came up with the concept of the balanced scorecard in 1992. It revolutionized conventional thinking about organizational performance. The balanced scorecard challenged organizations to go beyond the traditional financial measures of performance.
The balanced scorecard closes the loop of strategic planning throughout the organization via the integrated business planning process by measuring the different aspects of the strategy to determine its efficacy.
Integrated business planning translates the organization’s higher vision and strategic objectives into operational terms, providing useful guidance for actions at local levels. The balanced scorecard measures the progress and performance of those actions against the organization’s strategy. It is a beautiful combination when orchestrated well and seamlessly integrated throughout the organization based on state-of-the-art technology.
Want to learn more?
- Integrated business planning, Oliver Wight
- SAP Integrated Business Planning, integrated business planning software
- Using the Balanced Scorecard as a Strategic Management System by Robert S. Kaplan and David P. Norton
And please join our “Pathways to the Intelligent Enterprise” Webinar Tuesday, June 11, featuring Phil Carter, chief analyst at IDC, and SAP’s Dan Kearnan and Ginger Gatling. Register here.