By Richard Watkins, managing director, Delos Partnership.
I was talking to a planning manager from a company the other day, who said to me "We have an SOP process, but I have read all these articles about Integrated Business Planning, and was wondering what the difference was, and should we be doing something different?"
The subsequent discussion was very interesting, and led me to think that there might be many others who are equally confused – hence I thought I would provide my perspective in this article.
The comment was not unusual to me. Over the years many companies have been confused with talk of SOP, S&IOP, SOP+, Integrated Business Planning, with people unsure of whether they are doing things right, and if there is something new out there.
This article could be seen to be about to confuse things further, by explaining why Integrated Business Leadership (IBL) should be implemented, but it is a genuine attempt to show how Leadership is the missing piece of the puzzle, and how things have developed over time, and why the confusion has occurred. But don't forget Douglas Adams' comment: "If it looks like a duck, and quacks like a duck, we have at least to consider the possibility that we have a small aquatic bird of the family Anatidae on our hands"!
Back in the 1980's when MRP II was 'invented', the concept of Sales and Operations Planning was born. The idea was that the annual budgeting process would be supported by a monthly forecasting and planning process that would create a rolling forecast 30 months out, at an aggregate/family level to provide a continuing review of the business projections, and allow the board to make adjustments through a formal decision-making process.
That was based on the so called 'Four Step Process' that linked a Demand Review process, through to a Supply Planning process to a Pre-SOP process to an Executive SOP meeting. It is formal. It's how decisions should be made. Some still do it this way.
It was 'radical', as it meant getting away from the year end focus; it relied on truth being told to give a reasonable projection, and it required ownership of the forecasts by Sales and Marketing. It also required Senior Teams to think longer-term and strategically, rather than short-term and tactically towards the next quarter end. It is organised common-sense.
I helped to implement such a process across the globe in the early 1990's, in ICI Agrochemicals, and with MRP Limited saw this adopted across dozens of companies. In the late 1990's the process was developed specifically to recognise a 'New Product Introduction step' – arguably to engage Marketing and Fast-Moving Consumer Goods companies, and Pre-SOP was morphed into 'Integration and Reconciliation', and it then became renamed as 'Integrated Business Planning'. This is the so called 'Five Step Process'.
In practise, however, in my experience, there is not a significant difference, in that it is still about integrating different parts of the business into one plan. It still is a high-level planning process with a rolling 2-3-year horizon. It still needs honesty, truth, realism and integrated performance measures to make it work.
So what is the problem?
Many companies have implemented 'SOP' and some large companies have adapted this and called it iSOP or SOP+ or SIOP to signify Sales and Inventory and Operations Planning. Some consultants have then coined the term IBP, and companies new to the ideas have then come along and started to implement 'IBP'; we all love three letter acronyms, particularly when we are implementing something. If it looks like a duck, and quacks like a duck, then it is a duck, you could think.
However, some companies have implemented 'SOP' which has been found to be a useful process, with the formal discipline of the meetings. Over time, though, the process has become 'degraded' and ended up with meetings being focused on the short-term (typically the next 3 - 6 months), driven largely by the supply chain (who are under pressure to manage inventory and deliver the goods), and run by the department managers, rather than run by the directors of the business. This is not 'SOP' or 'IBP' but sometimes people talk as if it is.
The key issue here is that those responsible for running the company manage the business through a separate process, which is still focused on meeting this year's numbers, driven by old-fashioned measures of 'Actual v Budget' and working in silos, and still practising 'politics', while detailed tactical planning is managed through a process which contains the elements of SOP – forecasting, planning, making, buying etc.
In truth, every company does the latter in some form or other. They plan sales, they plan production, but they might also still second-guess the forecasts. The forecasts are likely to be sandbagged. They will not have a direct link to the financial forecasts – the Finance Director might say "who would trust a forecast from Sales and Marketing?".
If you also asked the CEO he or she would not recognise that 'SOP' is the way he or she runs the business. This is an acid test. In this situation, it is best to 'relaunch' the process and call it 'Integrated Business Leadership'.
Integrated Business Leadership
There are often a few things missing in companies which do not do 'SOP' or 'IBP' properly which makes a real difference to the integration of the company – and one of these is leadership!
The first is an explicit, always-on, link to finance. Change a forecast, and the financial outcome for the year changes. Change a production plan, and the EBITDA for this year and next year changes. Closely related to this is the fact that many companies are often seriously wedded to a separate Annual Budget process that takes months to complete, and ends up going into too much detail. The budget should be a simple by-product of the IBP process carried out within the normal cycle. Perhaps the budget should not even happen at all!
The second issue is that not all parts of the company are seen to be included in the process. Human Resources is a surprising, but often 'ignored' part of the business. But People plans influence and are influenced by the Commercial and Operational plans of the business. The same goes for Information Resources. In fact, all parts of the business should be part of the IBL process.
Hence in our 'model' we have a specific step called 'Support' which explicitly recognises the fact that Finance, HR and IT should play their individual and collective part in the IBP process. We see that any business must sort out its priorities, and hence prior to the Senior Team Review there should be a 'Prioritisation' step, and not a 'Pre-SOP' or 'Integration and Reconciliation' step. The executive meeting makes decisions and reviews performance fed by the IBL process.
All this then goes to put together an agreed Integrated Business Plan, to which the whole company is committed, which extends over the next 2 - 3 years, and enables a company to close gaps to its long-term strategy. With what-ifs and simulations, it should now be able to cope with all the uncertainties that the global market place throws at them. It is the way the business is run.
But the critical part of the whole puzzle is the Leadership piece.
Many times, this 'radical' process fails, simply because the CEO does not see it as their process. They run the business in their own way, focused on meeting year-end targets, firefighting to meet each month-end and quarter-end target, and letting Sales say, "We would have met our target if only manufacturing had made what customers want!". There is no realistic forecast in sight to help Operations plan. People still operate in silos, and the whole cultural dimension of trust, realism, truth and honesty is missing. There is no real strategic intent behind the process.
Leadership can be described as many things. My favourite quote is "A leader takes people where they want to go. A great leader takes people where they don't necessarily want to go, but ought to be."- Rosalynn Carter.
So, a key element of Integrated Business Leadership is setting out the right Vision and Strategy, and being clear about the strategic activities for which the board of directors are individually and collectively responsible. The CEO must play a key role in facilitating and establishing these. Then each month or quarter the strategy can be reviewed in the light of market conditions and business achievement. If the ship is veering off-course, action can be taken providing the captain and crew are looking far enough ahead.
Leadership is then also about creating accountability for actions based on agreed plans.
Success in the planning phase is demonstrated by perfect execution of the plan. 'Plan the sales; sell the plan'; 'plan the work, work the plan' are key mantras.
If a CEO holds his or her reports accountable for the wrong things, then the plan will not work. Establishing IBL requires clear accountabilities and responsibilities. Sales should be responsible for selling the short-term forecast (12 months and less). Marketing should be responsible for meeting long-term product development strategy – based on realistic NPD forecasts. Operations should be responsible for building relationships with suppliers, and delivering right first time all along the supply chain – based on realistic plans.
Technical Development should deliver new products on time in-full. Human Resources should create plans that are consistent with skill requirements and source and deliver training plans to develop people. Information Resources should provide an integrated infrastructure plan that provides the company with IT systems that provide the information required. All are held accountable. All of this must be done within the right culture of continuous improvement.
IBL is not a process; it is not purely about a system – it is the correct balanced mix of organisation, people, processes and systems. If it does not walk like a duck, quack like a duck, behave like a duck or lead like a duck, then it is not a member of the family Anatidae.
See Integrated Business Leadership Workshop for further help.