Integrated Business Planning innovation I

The slogan for the March 2012 IE group summit in Berlin is ‘IBP innovation’.  As innovation is defined by ‘the act of introducing something new’ it is good to see that the IE group wants to start thinking beyond the current definition of IBP.  Integrated Business Planning is often seen as a natural progression from S&OP, which came to life in the 80’s to align sales and operations. Although there are many discussions on the difference between S&OP and IBP, many agree that IBP has a larger scope then the traditional S&OP. So how can we make sure we will really innovate IBP?

If patents are an indicator for innovation, IBM is king.  In 2011 IBM earned most patents in the U.S. for the 19th consecutive time. More then impressive! In total 6180 patents, the odd 1300 more then 2nd Samsung and a staggering 3800 more then Microsoft. Apple, often perceived as the most innovative company, wasn’t mentioned in the top 10. There is proof that for effective innovation you need diverse teams with different cultural background, knowledge and values that challenge each other to create new insights and…innovate.

On IBM, Shirley Ann Jackson, the first African American woman to receive a doctorate from MIT, already noted in 2006 that if we want to cultivate and to nurture innovation in our nation, in our states, in our communities, in our universities, and in our corporations, then, we must cultivate and nurture diversity, as well.’ 1

P&G is another company well known for its innovation in consumer products. Robert McDonald, CEO and 30 year veteran at P&G, has as one of his ten leadership principles: ‘diverse group of people are more innovative then homogenous groups’. He led P&G from 15% of innovations making its profit and revenue targets in 2000, to 50% in 2010. 2

These world leading innovators understand that diversity is essential for innovation and they made it part of their core values and business principles. In this way IBM and P&G made their innovation strategy sustainable. If we now talk diversity and the future of IBP innovation, I’m getting concerned. Unfortunately there are indicators that show that IBP thinking is mostly done from a supply chain perspective, as the traditional S&OP thought leaders, consultancies and practitioners move to IBP. Some of these indicators are:

  1. Functional interest:  58% of the 142 respondents from 31 countries, who participated in my 2011 S&OP pulse check survey, are reporting in supply chain. This shows a high diversity from cultural perspective, but a narrow interest from functional perspective in S&OP.
  2. Consultancies: S&OP and IBP maturity models developed and used by consultancies in implementations are mostly starting from demand and supply perspective and define things like demand driven value networks as the highest maturity stage for S&OP. These are supply chain biased terminologies. Most of these consultancies with an IBP offering have a supply chain background, which indicates a lack of diversity.
  3. Software: there has been an explosion of S&OP and IBP offerings from software houses that previously focused on advanced planning and execution systems to support the supply chain. Picking up the S&OP/IBP trend they now flood the market with things like next generation S&OP, rapid implementation S&OP. Some software companies scream S&OP and IBP while their sales people don’t know yet what IBP is and still sell functional packages separately. It’s a scary thought if these software companies drive thought leadership on IBP.
  4. Industry depth: While a good IBP model should be applicable and have value for any industry, IBP seems mostly applied in manufacturing companies. We don’t hear many IBP success stories from the finance industry, not for profit organizations, governments etc.
  5. Lack of attention: Now we don’t need to have president Obama talk IBP, but there is no noise from strategic consultancies on IBP. Although strategic consultancies like McKinsey discussed zero based budget forecasting and dynamic budget forecasting in the McKinsey Quarterly, there has been no mention of IBP. The most visited McKinsey Quarterly article in 2011 Have you tested your strategy lately, provides 10 tests to review a company strategy.3 Although some of those tests are similar to IBP capabilities or can be accommodated by IBP, the term integrated business planning is not used in the article. Doesn’t McKinsey get it? I think they do, but IBP is not on their radar yet to track strategy and strategic capabilities.

All these factors limit diversity and therefor innovative IBP thinking as there is not enough diversity and challenge that drives thinking beyond the current IBP.  If we really want to have a business process that can plan a company’s future E2E in an integrated matter, we have to start adding additional perspectives to develop real E2E IBP, otherwise IBP runs the risk to remain ‘a supply chain thing’.

If you go to the IBP innovation summit http://operations.theiegroup.com/ibp-berlin and mingle with the visitors, you will be surrounded by 60%-80% supply chain biased thinkers. My advice if you really want or break down the walls of the functional silo’s; go for diversity and look for the 20% non-supply chain thinkers! History will help you, as it has shown that Berlin is a pretty good place to break down walls!

  1. http://rpi.edu/president/speeches/ps103006-ibm.html
  2. Harvard Business Review, June 2011
  3. https://www.mckinseyquarterly.com/home.aspx

4 thoughts on “Integrated Business Planning innovation I

  1. Is it really neccessary to contrast IBP and S&OP? As far as I am concerned integrated business planning, as apposed to IBP, is S&OP done well. Admittedly the original term, sales and operations planning, is perhaps too narrow in its scope of functions, but already the name implies planning integrated across several functions that include Sales, Marketing, Manufacturing, Procurement, and Supply Chain.

    Planning is a continuum, not neatly segmented into different buckets addressed by different people using different tools, KPIs, and analytics. It’s time we throw out the notions of Strategic, Operational, and Tactical Planning divised at a time before the internet and Excel, when technology and systems necessitated these divisions.

  2. Thanks for your comment Miles,

    the point of this blog is discussing what is required for innovation. I believe I bring some facts to the table that show that current S&OP/IBP innovation is biased and not diverse

    This blog didn’t have the intention to discuss the difference or contrast between S&OP and IBP. It is interesting that you perceive it did. You’re argument on planning continuum relates to this contrast I suppose, but that discussion belongs in one of my other blogs

    Can you please elude to your perceived difference between integrated business planning and IBP? I’m getting really lost

    And no difference at all between strategic, tactical and operational planning? Wow…now it’s really getting interesting

    To be continued I suppose

    cheers,
    NIels

  3. Niels, here I think the particular line which possibly caught Trevor’s (and certainly my) attention is: “many agree that IBP has a larger scope then the traditional S&OP”.

    As a successful S&OP and ex-FPA practitioner, the past months I’ve been reading as many IBP articles/blogs/papers as I can find. That required quite a lot of sifting out what both S&OP and IBP already have in common. In the end I’ve been able to identify three potential areas of *larger scope*… and then applied an assessment criteria of: do any of these “add” any value to the original, Oliver-Wight S&OP methodology?

    1) IBP monthly review of Core Values & Strategy. In my experience CEO’s rightly choose to convey these in an irregular cycle trusting their own right-brained intuition if they sense values and strategy are not clear or being followed, attitudes are positive, profits are up, etc. Core Values & Strategy are instead communicated on a flexible, periodic basis and probably too unwieldy and likely to add noise but no heat to the tactical, monthly S&OP planning cycle. I think Steve Jobs was a good example of this: his values and strategy were so clear even his customers (and non-customers) knew them, so no need to systematically pester internal staff each month with them again and again. Just keep doing what works.

    Result: out of scope and no added value to current S&OP.

    2) IBP transformation of financial budgeting from an annual to a monthly “dynamic” process
    In my view the positives are vague/intangible and the potential negatives are quite clear: massive extra workload for finance, for whom variable sales/marketing/supply chain activities are just a part of budget setting alongside fixed sales/marketing/supply chain costs + administrative overheads. Also a clear incentive for senior management to fiddle with original financial KPI targets in order to secure their bonuses instead of seeking creative ways to meet the original, disciplining target, because hey, the latest “one number” financial plan shows the original target is no longer achievable and for that we should be rewarded! Also an overly onerous, agility threatening focus on longer term, strategic capex investments which can be better addressed in a quarterly strategic cycle based on the longer term strategic demand side forecasts and scenarios.

    Result: no added value to current S&OP and significant potential risks of KPI fiddling and unnecessary workloads.

    3) IBP inclusion of extra S&OP planning cycles beyond the original tactical monthly planning cycle. Demand and supply need to be balanced and potentially financially + strategically assessed at other times than the tactical monthly cycle. In particular strategic, quarterly review of demand and supply requires the same functional parties to be involved as at the tactical meetings. But even at weekly operational and daily executional levels, a degree of collaboration and short meetings is/should be held between various members of these same parties. In my experience, many companies are already formally and informally cooperating at different points along the planning continuum, but not consistently referring to them all as being part of S&OP.

    Result: formally broadening the current S&OP scope to include collaboration along the full planning continuum does add value for companies. But changing the acronym from “S&OP” to “IBP” does not accurately reflect this broadening of S&OP scope and hence the name change itself adds no value.

    Interested in your or anyone else’s thoughts on the above.

  4. Thanks for your comments Conrad,

    I’m not really fussed about the terminology. Personally, I just prefer the term IBP.
    See my further comments below

    1. I don’t see Values being re-discussed, that’s out of scope indeed. But values guide in decision making, day to day and in an IBP cycle. Strategy will guide decision making as well. If we look 24 months ahead in an IBP cycle we can also check if we’re still on track to meet our strategic intent. How many people (including executives) in a business can explain the strategy in an elevator speech? Over 80% of CEO’s is happy with their strategy, only 15% is happy with the execution of this strategy. Better pester some people from time to time, this might be monthly or quarterly or whatever timing is appropriate.

    2. A company that can do monthly budgeting, zero based forecasting or whatever we call it has to be pretty integrated and has key business processes working pretty well. This is IBP at its best and where you want it to be. The argument of ‘fiddling with KPI’s’ doesn’t really work for me. Any company that has a culture of fiddling will never become great at IBP in first place.

    3. In a nutshell, to me there is planning, control and execution. All (can) have different horizons, aggregation levels, decision levels and authorities etc etc. And all are interlinked. IBP to me is generally planning and not control (although you can argue that IBP controls the strategic intent) or execution and therefore plays in a different horizons etc

    Collaboration in planning, control or execution will make the outcome in general better. This is not increasing scope to me and is not related to the use of an acronym. Just work very hard on a culture of collaboration. It will make a business generally better

    cheers,
    Niels

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s