IBP: Why is it the best bet your organization can make?White Papers
Markets that 21st century organizations are competing in are increasingly dynamic, complex battlefields. Financial success in such battlefields hinges on developing new levels of planning and execution capabilities.
With this basic principle in mind, and building on lessons learnt from helping hundreds of global corporations deal with operational complexity and variability, we have formulated a unique set of process & technology innovations. We call this set of innovations the mPower management system.Allow us to elaborate on the concept of mPower with a story.
The story of Mr. Lay (of Frito-Lay Fame)
When Mr. Lay started his packaged potato chips business, it was a small family operation. He had a friend who owned a set of retail stores. He convinced this friend to give him some shelf space for his packaged chips. His wife would make the potato chips at home, and he would package them, drive his truck and replenish stock at the stores. And when visiting the stores, he would spend time observing consumers and talking to them about what they liked and disliked about the chips they bought. He would turn those insights into feedback to his wife, who would make changes to the recipes. He would strike deals with the retail store owner to change how his stock is presented on the shelf. He would forecast how many packets he could sell, buy potatoes in bulk based on those forecasts and provide a plan to his wife on how many packets of chips to make every day. He would then change prices or strike other deals with the retail store owner to ensure that his chips were moving as fast as he was making them to optimize cash-flow.
In a nutshell, Mr. Lay was using real time market intelligence to make fast, integrated operational decisions across all functions of his business, with each decision aimed at maximizing profits and cash-flow for his little enterprise. And as his enterprise grew and decision making became distributed across the various functions of the organization, he attempted to create processes that maintained the advantages of fast, integrated decision making he had achieved through his one person management system.
This ideal is of course easier said than achieved in a modern day global corporation- dealing with the complexity of managing large product portfolios in multiple product categories, marketing and selling in regions around the globe through a variety of sales and distribution channels, and operating global supply chains.
Questions that management faces routinely
As the CEO or CFO of a modern day global business, let us say you have to make a 10% spending cut as revenue forecasts are not tracking to plan. How effective is your planning process in helping decide where to make the cuts to minimize impact to the financial plan?
Or say, as the head of sales for a region, you are presented with the challenge of driving a 5% revenue growth in a market segment that is growing only at 1%? Is the required marginal increase in share best achieved by investing more in creating tailored products for this market segment? Or is it best achieved by investing more in marketing to increase brand and product awareness? Or spending more on sales to cover more distribution channels? How good is your sales planning process in evaluating these different scenarios and determining the best investment mix to achieve the required growth in share?
And as the CEO or CFO, you are continuously presented with hundreds of such proposals from different segments of the business, each with different ROI rates, each with different degrees of risk, all competing for scarce resources. Does your planning process make it easy to determine which proposals to fund and to what degree?
Or more tactically, let us say a new product is turning out to be a bigger hit than expected, or a competitor drops their price to a greater extent than anticipated on a particular product line, or a new product launch is delayed by a month. How effective is your sales and operations planning process in getting this visibility, and re-adjusting sales forecasts and operational plans and resources to maximize financial outcomes?
Tremendous value leakage
We find planning processes across sales, operations, and finance departments of global corporations trying to answer such questions routinely, but armed only with disconnected spreadsheets – each with its own model of the business, each with its own version of the truth, each lacking capabilities to simulate the impact of functional decisions on revenue, profit and cash-flow tradeoffs, each lacking capabilities to understand the impact of functional decisions on cross functional resource constraints, and all of them constantly being out of synch with each other, as market conditions change.
The result is resources being misaligned to opportunities. It is akin to a corporations routinely showing up with hundred troops to a battlefield where the competition has thousand troops waiting or vice versa. And as conditions change rapidly on the battlefield, the inability to re-synchronize plans is often resulting in the air force bombing its own ground troops. A few of the typical symptoms on display in companies with poor planning processes are excessively large product portfolios, products being undifferentiated or late to market, low ROI on marketing and sales investments and unresponsive supply chains even while carrying high levels of inventory.
Such corporations are estimated to be leaving 3-10% in operating earnings potential on the table. That is 30-100 million $ for every billion $ in revenue! Clearly, the effectiveness of planning processes in today’s global corporations is quite far away from the ideal state of the simple, one person management system, used by the potato chips entrepreneur we introduced at the beginning.
mPower – Why is it a good bet?
The mPower management system is a set of integrated planning, execution and performance management processes and tools built for achieving optimal performance while managing the complexity and speed of 21st century organizations- It enables P&L and functional managers and planners across sales, finance, product, marketing, sales, and operations to have shared, real time visibility to market risks and opportunities, collaborate and make financially smarter decisions faster, and execute rapidly as ONE team. It creates accountability across the organization, and motivates individuals to go above and beyond for the organization as they feel empowered and connected.
Investing in improving the integrated planning and performance management system is one of the best bets a global corporation can make. For example, consider the following question – If your organization is a car that is consuming about a billion $ in gas as spend across R&D, marketing, SG&A, supply chain operations – which is a better bet? Investing the million $ in extra fuel for a car that is giving sub-par miles per gallon. Or investing the million in fine tuning the car to so that the billions are allocated better, and used more effectively, yielding higher gas mileage?