A new research paper, ‘Trends in Integrated Business Planning – Using Technology and Information To Create a More Effective Process’ by Ventana Research seems to suggest that currently companies rarely develop business plans that span operational, financial and external factors. That’s not my experience, but I would agree that companies need better systems to make what is commonly labelled ‘Integrated Business Planning’ a practical reality and that although passing spreadsheets between departments can help produce a budget where resources are aligned across functions, it soon starts to fall apart after a few months. Certainly an approach, such as IBP, that unifies the disparate operational and financial perspectives has great appeal at a time when commodity prices are fluctuating wildly and demand is still febrile. It is also the only way to understand all the facets of corporate performance in a single system.
So how much progress has been made since Ventana first set out to benchmark progress to IBP back in 2009? The answer is very little with only 22% of companies reporting that they have made major changes in their planning and budgeting processes in the last two years. However, while the report tracks the inexorably slow move away from spreadsheets and slow-but-steady progress towards rolling reforecasts, it never really gets to grips with IBP. This is probably because it failed to find sufficient respondents that had reached this level of maturity with only 8% of all respondents reporting that their organization could perform what-if analyses. Five years on and only baby steps.
In my view there are three factors holding back progress towards IBP. The first is that to manipulate the large amount of multi-dimensional data and business rules that are typically found in an IBP model, companies need planning and budgeting solutions based on in-memory calculation engines, such as SAP Business Planning and Consolidation on SAP HANA. Colgate Palmolive presented on what they are doing in this area at Financials2013 and seem to be at the vanguard here. (Click here to watch a replay of their session).
The second is that, as yet, there seems to be some confusion about the overlap between Sales and Operations Planning and IBP. One starts in operations and reaches out towards finance; the other starts in finance and reaches out into operations, but there is limit clarity about where one stops and the the takes over. This situation cannot persist indefinitely; either IBP incorporates S&OP in its entirety, (something that most COOs will surely rally against) or software vendors develop IBP solutions that are closely integrated with their S&OP solutions, – which to my mind is more likely. To date though, with most large enterprises currently bringing their existing S&OP functionality into real-time with solutions such as SAP Sales and Operations Planning powered by SAP HANA, this discussion has yet to take place.
The third issue is that moving to IBP is not something that finance can do alone. It needs high level sponsorship from the operations side of the house to gain any momentum; most likely consulting support to develop the IBP model and close involvement from multiple lines of business. So my advice to any finance team that wants to move towards IBP is to start by communicating the vision and spend some time building alliances across the business. That way, when Ventana come to repeat this survey again, they may find a tad more progress.