INTRODUCTION
Planning is something we all do, whether that is to go on holiday, prepare for retirement, or to simply buy a car. Without planning it is all too easy to get lost or waste resources that in hindsight would have been better placed elsewhere. The same is true for business and public sector governments. Planning is a critical management task because its outcome determines decisions and actions that not only affect future success, but it can also threaten an organisation’s very survival.
It does not matter which type of management philosophy you follow or the business guru you seek to emulate—all will emphasise that planning plays a key role in gaining success. The author and successful entrepreneur Jim Rohn once said, Either you run the day or the day runs you. He also said that if you don’t plan, chances are you’ll fall into someone else’s plan. And guess what they have planned for you? Not much.
However, the problem is that the world in which we operate today is very different from what it was ten years ago. More significant is that the business environment, especially its increased volatility, is vastly different from when the major business planning methodologies and practices now in use today were developed.
Practices such as ‘Budgetary Control’ that seek to devolve decision making to departments was established back in the 1920s and written up in the book of the same name by James McKinsey, who later became the founder of the McKinsey consulting firm. Organisations are taught that a key exercise is to set annual budgets to allocate resources and then track performance against them. This was fine in the 1920s (and throughout most of the 20th century) as the physical barrier of location, allied with the available communication technologies, made it difficult for organisational performance to be influenced by competitors and other events in a time frame of under a year. However, as the New York Times journalist Thomas Friedman wrote in his book, The World is Flat, the digital age is removing these boundaries.
Today’s business landscape has reduced the ability to forecast with any degree of accuracy to months. Most of this uncertainty over the future has its roots in advances in information technology and, in particular, the development of the Internet. In the past ten years the Internet has removed geographic boundaries, has provided consumers with a 24/7 buying experience that allows them to easily interact with a large range of suppliers, and has allowed both real and virtual companies to get established and effectively communicate with potential customers across the world in a fraction of times past.
The Internet has also made it possible for intermediaries to tailor products for individual needs rather than the mass marketing of generic products found in the last century, all of which has put additional pressure on manufacturers and providers.
As if this wasn’t enough, social networks and communities such as Facebook, Twitter, Tumblr, and LinkedIn are able to exert significant influence over customer purchasing habits based on a range of non-product factors, such as social responsibility and fast changing fashion.
This increasing speed and complexity of business has caused a rapid decrease in the planning time horizon. As a consequence, the traditional planning processes of strategic planning, annual budgeting, quarterly forecasting, and monthly reporting have become unsuitable for most organisations’ needs. In light of this, senior management struggles in determining what planning techniques they should adopt as a replacement.
In recent years, organisations have recognised that managing performance is more thanjust controlling costs; it is more about aligning resources to the corporate strategy. This has given rise to a number of strategic management methodologies such as the balanced scorecard. However, interestingly this modern management technique, first introduced in an article for the Harvard Business Review in 1992 by authors David Norton and Robert Kaplan, is often seen as a reporting tool and rarely thought of as a planning or budgeting system.
Planning is about managing uncertainty, and today’s more complex business environment has only increased the need for better planning. To be effective planning systems should allow organisations to link strategy with resources and to simulate various business scenarios before embarking on a course of action. It is something that needs to occur on a continuous basis to ensure that scarce resources are always invested for maximum effect.
Planning systems should also recognise that although different organisational departments are assigned responsibilities to deliver specific outcomes, they ultimately must all collectively serve a common purpose. Getting an organisation to create plans that truly support mission-related corporate objectives is something that is easy to imagine and yet very difficult to do. This is because most planning systems have their focus on departments and not necessarily on how they affect the organisation as a whole.
In the British Museum in London there are a series of exhibits dedicated to the development of clocks and watches. Anyone who has taken the back of an old windup watch can’t help but be amazed at the intricate nature of the mechanism. To work at all, the precision required is beyond most anyone’s comprehension no matter what experience they have in working metal. But to function with any degree of accuracy, the skills necessary are extraordinary. Yet, back in the 1500-1600s those skills were found in clockmakers of that time. Or were they?
In the museum is a plaque entitled, ‘Who made watches?’ The inscription on it reads as follows:
Watches were not made by one craftsman working alone. Even in the 1500s, spring makers, gilders and engravers worked alongside the watchmaker. By the 1700s, the making of watch mechanisms was becoming a specialist industry. Unfinished mechanisms were supplied to watch finishers. Dials and cases were then added ready for retail. The 1819 publication Ree’s Cyclopedia lists 34 separate trades involved in making a standard English watch.
The key to successful watch making is to carefully co-ordinate the skill and expertise of different people who work on different components, but who are collectively working to a common goal.
The same is true for business planning. Although there may be a few exceptional business leaders who can single-handedly direct a company, for most organisations it requires the co-ordination of managers with different skills who work on different activities in order to achieve organisational objectives.
Coping with the speed and complexity found in today’s business environment requires a reliance on technology. Therefore, planning systems must enable the different functions to work together in a continuous approach to assess, direct, monitor, and optimise corporate performance. But where do you start? How can you integrate the various parts of an organisation when they are involved in such a wide range of activities?
Well, that is the subject of this book—how to develop enterprise-wide planning processes, backed up by a network of planning models and enabling technology solutions, that will help organisations embrace change as an every day event.
This book is not another management methodology book, and it does not advise organisations to turn their backs on the latest in management practices. The purpose of this book is to help managers to take a long, hard look at the way they plan, the types of planning models they use, and to adopt an approach that makes sense in today’s turbulent business environment.
It does not matter whether you are in charge of a multi-billion dollar commercial concern, a senior executive of a government or not-for-profit organisation, the owner of small business, or just someone working in a department—the ideas outlined here will challenge the way your organisation plans and will help you to better manage performance in your area of responsibility.
To help achieve this aim we have divided the book into the following sections.
Section 1 provides a background to the planning framework and contains chapters on the following:
Planning fundamentals. This looks at the things an organisation can actually manage and the planning challenges they face.
Planning methods and methodologies. This chapter provides an overview of the rise of management methodologies that shape planning and the levels of planning maturity adopted by organisations.
The role of technology. The final chapter in this section examines the state of planning technologies, in particular the contrast between spread sheet-based approaches and those that use multi-dimensional databases.
Section 2 describes the planning framework in detail with chapters on the following:
Business planning framework. This chapter provides an overview of the framework and how it enables the development of joined-up plans.
Operational activity model. This model is central to the planning framework and provides a way to connect resources with workload and the outcomes required to achieve long-term objectives.
Cash funding model. Cash is vital to the operation of any organisation. This model enables management to view cash requirements and to evaluate its source.
Detailed history models. These models provide backup to actual results, where those responsible for performance can analyse what happened in more detail.
Predict and optimise models. The models described in this chapter allow the setting of realistic targets and the prediction of future performance. From this operational activity can be optimised to make the best use of scarce resources.
Strategy improvement model. Strategy is primarily concerned with improving the outcomes of business processes. This model looks at how improvements can be captured, approved, and monitored.
The planning and monitoring processes. This chapter looks at how to create a continuous management process for planning and managing performance that utilises the models described in this section.
Section 3 describes the practical implementation of the planning framework:
Latest developments in planning technologies. This takes a look at the role of technology and the latest developments in software that will shape planning systems of the future.
Implementing the framework. This last chapter takes a pragmatic approach at how organisations can change the way they plan and monitor performance.
The final section contains the appendices that provide additional information that may be of interest:
Results from the planning survey. The American Institute of Certified Public Accountants in the US and the Chartered Institute of Management Accountants in the UK conducted a survey on the state of planning specifically for this book. In Appendix I you can find more details of the responses we received.
Requirements of a technology solution Appendix II contains an overview of the capabilities that the reader may want to use when choosing a technology system for planning.
As you work your way through the book, hopefully you will see that it is full of practical advice based on the authors’ day-to-day experiences in helping organisations to better plan and manage performance. However, the book does not provide an all-encompassing solution to planning, and it is not possible to include all the materials we have gathered during our research. Therefore, we have created a complimentary website where you can download templates, surveys, and our latest materials as we continue to press forward in making planning a common-sense activity. You can find the website at www.BusinessPlanningFramework.com.
We wish you well in all your planning efforts,
Michael Coveney
Gary Cokins
February, 2014