S&OP 3.0 – The Future of Planning

Sales and Operation Planning (S&OP) made it’s break through in the 80’s, when Material Requirement Planning (MRP) was the hottest planning methodology around, computer screens had monochrome green letters, our music and dress sense were questionable, and it was common for companies to have a command and control management style.

With it roots in the supply chain, this S&OP 1.0 had a strong focus on supply chain performance like improving customer service, decrease inventory and drive asset utilization. The beauty of S&OP 1.0 was that it tried to align the master production plan with sales through a structured process of cross functional conversations and agreements. This was ahead of the zeitgeist of siloed performance management and a top down management style.

The following 20 years S&OP 1.0 matured in to S&OP 2.0. It developed broader capability in end to end business performance. S&OP 2.0 integrated more business functions, even supplier and customer collaboration. It added end to end business objectives like integrated portfolio management, a rolling financial forecast, enterprise resource re-allocation and strategy deployment. By some S&OP 2.0 was re-branded Integrated Business Planning (IBP).

S&OP 2.0 done well seamlessly integrates planning across the whole enterprise and ultimately deploys a company’s strategy; the nirvana of planning. Beside some minor changes, the last 10 years S&OP 2.0 has not significantly developed itself. It has tried to deliver on its promise, unfortunately with limited success. Many S&OP 2.0 projects stall, make little progress and most businesses never reaped the real benefits of the S&OP 2.0 promise.

Shortcomings in S&OP 1.0 and 2.0

S&OP 1.0 and 2.0 were mostly focused on KPIs, process, meetings, scorecards and the technicalities of planning. S&OP 1.0 and 2.0, anchored in planning technicalities and supply chain thinking, came only later to the conclusion that it can only be effective and sustainable with the right company culture and management styles. Some early S&OP 1.0 pioneers assumed that with the implementation of S&OP, the company culture would automatically follow. This assumption was wrong. A command and control management style or a company culture of fear does not change without a significant extra change effort additional to S&OP.

A command and control management style or a company culture of fear does not change without a significant extra change effort additional to S&OP.

With an end to end business focus S&OP 2.0 expected there would be value in this business planning process for all executives and executive sponsorship would follow swiftly. However, this assumption was wrong too. Some executives will never like the rigidness or openness of S&OP and many functions, including people & culture, procurement, marketing, strategy to name some, got limited value out of most S&OP 2.0 implementations. S&OP 2.0 simply never provided meaning and value for all business functions.

Up until this day, a misfit with the company culture and a lack of executive interest and employee engagement are some of the main contributors to stalling and ineffective S&OP 2.0. S&OP 2.0 never provided a solution on how improve its own performance, to really change the company culture for the better, provide meaning for all executive functions and include the employees with the outcomes of planning to improve their engagement and performance.

Through market feedback, behaviours got included in S&OP 2.0, but it remained a side thought next to supply chain focused language and solutions. Culture remained a footnote or a couple of slides in a death by powerpoint presentation. Culture, behaviours, emotional competence and executive meaning remained something supply chain focused consultants and coaches were not really comfortable talking about. These elements are still being brushed over in many S&OP 2.0 implementations.

Similar to the command and control management style from the 80’s, that is now mostly obsolete, not seriously including company culture, and provide executive meaning and employee engagement in an S&OP implementation will become obsolete too.

This is where S&OP 3.0 comes in.

The objectives of S&OP 3.0

Additional to S&OP 2.0, S&OP 3.0 will strongly focus on company culture and employees to provide meaning to all executives and get their support. Executives can play an active role in improving business performance – as in S&OP 2.0 – but also help to drive an effective company culture and employee well-being, engagement and performance.

Companies who work on S&OP 3.0, will have defined a clear vision, with goals, measurements and targets around at least the following three areas; influencing the company culture, supporting employee well-being and team effectiveness and improving employee engagement.

Influence the company culture

To be most effective, S&OP requires a positive, growth-oriented, mentally tough mind-set as well as emotional competence and constructive behaviors. These mindset and behaviours are not just superior for S&OP effectiveness, they also increase employee well-being, performance and life satisfaction.

It is unlikely that a critical mass of these effective behaviors is present in every company. Indeed, research shows that 30% of people are selfish and 20% are takers rather than givers.

S&OP 3.0 will identify and address traits that at are not conducive for effective S&OP, will define effective mindset and behaviours and will use S&OP 3.0 to deploy those and influence the company culture for the better. Rather than being dependent on the company culture, S&OP 3.0 will actively shape the company culture for the better and improve S&OP itself and employee well-being and performance.

Support employee well-being and team effectiveness

In S&OP 3.0 a key objective for senior leaders is to create an environment where open challenge and feedback is accepted. When people feel safe and have no fear to put ideas and critical topics on the table, it increases psychological safety. This is a shared belief where team members feel accepted and respected. A study by Google of over 180 organizations reported that psychological safety is by far the biggest contributor to team effectiveness.

Employees within these high trust environments, report 74% less stress, 106% more energy at work, 50% higher productivity and 29% more satisfaction with their lives. By focusing on creating a psychological safe environment, S&OP 3.0 will therefor actively improve employee well-being and team effectiveness.

Improve employee engagement

In the US in 2016, more than half (51%) of the workforce was not engaged. Only 22% of US employees strongly agrees that the leadership of their organization has a clear direction and only 15% strongly agrees that the leadership makes them enthusiastic about the future (Gallup, 2017).

When S&OP 2.0 outcomes – like performance versus budget and strategy status – are clearly communicated to employees, business goals are better understood, and employees get a clear idea on how their role contributes to the strategy.  These S&OP 2.0 outcomes, are among the most impactful employee engagement drivers (HBR, 2013). However, S&OP 2.0 doesn’t use these outcomes as employee engagement drivers.

As part of an overall vision, S&OP 3.0 defines clear objectives for executives to address and communicate these outcomes, keep employees informed about the strategy, company direction and the future. In this way S&OP 3.0 actively includes the improvement of employee engagement. 

S&OP 3.0 and the future of work

S&OP 3.0 focuses on effective behaviours and emotional competence, providing a psychological safe environment and structurally talk about the future with employees. This results in positively influencing employee well-being, satisfaction, engagement and performance, and provides more meaning to executives. This soft focus is great to improve S&OP 2.0, however it might become essential in the future for a business to survive.

According to the report the future of work, it is expected that jobs require reconfiguration to leverage uniquely human skills like empathy, social and emotional intelligence. These soft skills and behaviours are not just required to create a trusted environment in S&OP 3.0, in the future they are essential to differentiate humans from Artificial Intelligence.

Another prediction in the report is that the relationship between employer and worker will further shift. “Where once most workers were full-time, employers of the future will be engaged in alternative work arrangements, from freelancing to crowdsourcing to contract-based work. Organizational structures are evolving from traditional hierarchies to networks of teams that extend well beyond the boundaries of any individual organization.”

These employees need to stay connected with your strategy, kept up to date and engaged with the business whilst they might be working offside or in other businesses. This will be a key challenge in the future of work. Companies that start with S&OP 3.0 now, can grow along with this changing employer – worker relationship.

Finally, in the future of work, employees are likely to focus more on intrinsic rewards, including the purpose and impact of their work and the opportunity to grow and develop. Employees and new talent, who see that S&OP 3.0 includes meaningful objectives like increasing employee well-being and engagement, will likely see more rewards compared to S&OP 2.0 which has kept a dogmatic focus on process and KPIs.

Focusing on employee well-being and engagement in S&OP 3.0 will likely get more executives on board. And for now, S&OP 3.0 might just be a way to improve the effectiveness and sustainability of your S&OP 2.0. However, in the future of work, S&OP 3.0 will be an essential part of an engaged and satisfied workforce, and maybe even essential for a business to survive.

4 thoughts on “S&OP 3.0 – The Future of Planning

  1. Hey Niels,

    I really believe you’ve hit the nail on the head with S&OP 3.0. Call it what you may, it all comes down to whether the employees get it, believe in it, and follow it. And when I say “it” I mean whatever integrated business-running process. It’s way more about people than the process or the tool.

    But how do you convince a company that their culture is really holding them back from successful S&OP 1.0 or 2.0 integration? I’ve been working for a company that’s about S&OP 0.8, looking to upgrade to IBP (a.k.a. 2.0). But I see way more challenges in the way of culture than re-defining and educating on a new process.

    I would think any culture change would have to be aligned or precede any process change. How do you get the attention of leadership to not miss this critical aspect? The big consulting firms aren’t really that motivated to deal with culture as they rarely get blamed for an implementation that fails in that aspect. Usually, the enthusiasm and energy put in the implementation effort lasts for a few years. Then slowly the best practices, metrics, and cross-functional cooperation start falling apart. By year five, most companies are back where they started with an entirely new leadership team that sees it as their opportunity to fix things. Nobody either connects the dots or thinks to hold the implementers accountable for poor cultural change.

    I’d welcome you thoughts and comments.

    On a side note, I’m in the process ending my 25-year career with this company as I’ve just tired of the poisonous culture and lack of leadership engagement in addressing it. I don’t know what I’m going to do, but I think it’s going to be in this area.

    Best regards,
    Rob

  2. Hi Rob,
    Thanks for your comment. First of all, I hope you find a good solution to get out of your toxic environment. It will be better for your health and well-being, believe me. I worked in one.
    S&OP in any form, also it simplest, can add value. The promise of IBP makes sense, however in reality it might just require too much integration and alignment for humans to handle.
    Over 20 years, I’ve seen dozens of companies, business units, leadership teams and none of them – except for startups – had this natural alignment and integrated working approach. Some environments were indeed toxic. Maybe I just had bad luck, but then some research says that only 30% of people naturally collaborate. That means the other 70% don’t.
    My call for S&OP 3.0 is less about S&OP itself maybe, but more about the realisation that we have to start creating healthy environments for employees to work and thrive in. It is good for health and business. S&OP can play a role in that.
    Your employer has probably a lot of health and safety measures, but in fact the toxic work environment itself adversely impacts the health, well-being and performance of the employees.
    In the future of work, I hope companies can’t get away with these destructive environments anymore. My S&OP 3.0 suggestions are examples on how leaders can use S&OP meetings and outcomes to improve employee engagement, well-being and life satisfaction. That S&OP improves with this as well is a welcome side effect, but not the main objective of my message.
    Stay well,
    Niels

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