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After another session with a team from an FMCG business, I was struck again by how many companies still struggle with the difference between ambition and latest view. We refer to assumptions when we talk about plans and changes, but this might potentially simply be seen as new ways to state intent, on not a clear clarification of what will change. This blog, which is an extract from a recent White Paper, will help to clarify this.
In Demand Planning, we often talk about the right to change the plan, or the entitlement for growth. It's no secret that many businesses have high ambitions to grow, and this is often reflected in their budgets or annual plans. It's also no secret that these processes often produce generic targets, without formal assumption driven logic, with the expectation that focused executives will drive the outcome.
We've all sat in business reviews where an enormous amount of time has been spent explaining the variance to a budget nobody believes in the first place, and often our S&OP/IBP processes suffer the same frustration. We're simply not allowed to show that we are going to “miss budget” ,so we change our numbers to suit the relevant expectations, instead of openly discussing the gaps and challenges.
The diagram below shows that we should articulate very clearly what we are doing differently to drive change, in our process. Simplified, our current and historic position in the market is a function of our market share and the market size. Our market share is a function of our product/brand equity - do people want it? - and our ability to execute - can our customers find it at the right price/quality when they need it?
what gives you the right to change the plan?
So, when we look at a business that shows a major change in the future, we often challenge them to:
· Explain what will change – market share or market size
· And if this will change, how will they drive this change? This is not what they hope will happen, but the specific steps and actions they will take that will drive the result.
It's important from an Integrated Planning perspective to remember that this is about an integrated process. An action to drive change in demand, whether it is market size or market share, it is not only about the sales activity. It might require specific Supply Chain initiatives, and budget from finance. It might require innovation, or marketing, or other support. So when we talk about action to drive the change, it should be supported across the business.
Change is not only about what will change, but how it will be delivered.
If you can't clearly articulate what will be different in the future than today, then you can't from an IBP perspective, take entitlement for the growth. You need to show it as a gap. This in turn will drive the action or realisation needed to change course or focus.
Unfortunately, some executives seem to believe that once it can be shown that the current plans are not in line with ambition, their business will accept a lower target or performance, almost as if Integrated Business Planning has articulated a good excuse. Or alternatively, that they will be blamed for achieving the expected lower result, and not the ambition, long before the result is due.
However, this is poor logic, because the opposite is true. Once the urgency of the gap is understood, action will surely follow and the sooner we know, the sooner we start addressing the real issue.
From this it should be clear that assumptions in planning is not simply articulated statements of ambition. They are the description of the entitlement, and related actions, that allow you to inflect the performance line in the forecast.